Three Signs of the Chamber Apocalypse

And more from this week…

Strengthening worker power, curtailing Wall Street influence, and aligning profit maximization with the public interest have been American Compass priorities since Day One, representing obviously conservative imperatives we were told the Republican Party would never pursue. This week, a Republican Congress moved forward on all three. Daniel explains:

The GOP-controlled House of Representatives had a remarkable week. On Wednesday, the chamber passed a housing affordability bill that would restrict large institutional investors from buying single-family homes. The same afternoon, a discharge petition for the Faster Labor Contracts Act (FLCA) collected its 218th signature, forcing a floor vote in the near future. The legislation would prevent an employer from stalling the process of bargaining a first contract with newly organized workers, using mandatory arbitration as the backstop. Then on Thursday, the House Transportation Committee voted 54–11 to adopt the Railway Safety Act (RSA), legislation introduced after the 2023 Norfolk Southern derailment in East Palestine, Ohio, as an amendment to the surface transportation reauthorization, over the objections of the committee chairman, the rail industry, and a coalition of free-market advocacy groups.

Three bills, each confronting directly the corporate donor base and market fundamentalism long dominant in the Republican Party, all advancing in a Republican-controlled House over two days.

Housing: The 21st Century ROAD to Housing Act passed 396–13. Much of the coverage focused on what the House cut from the Senate-passed version: the requirement that build-to-rent developers sell their homes within seven years. But the more consequential development is that the House kept Section 1001, the provision restricting acquisitions by investors who already own more than 350 single-family homes. In a Statement of Administration Policy issued the same day, the White House called the provision President Donald Trump’s “signature priority” and a framework that “addresses Wall Street’s dominance in the single-family housing market and protects Main Street homebuyers.”

By contrast, an earlier version of the bill had no institutional-investor restrictions. Now the GOP members have voted almost unanimously that the allocation of capital to single-family homes is a legitimate object of public policy, not merely a matter of revealed preference best left to the market.

Labor: Under current law, roughly one-third of workers who vote to unionize never secure a first contract. Employers often bet that by staying just within the law while dragging their feet, they can sap the union’s momentum entirely. The FLCA—sponsored by Sens. Josh Hawley (R-MO) and Cory Booker (D-NJ) in the Senate and Reps. Donald Norcross (D-NJ) and Pete Stauber (R-MN) in the House—sets binding mediation and arbitration timelines so that organizing victories translate into contracts. We covered the discharge petition’s filing in April and its progress last week in Understanding America, and I wrote last year in Commonplace about the broader project of bipartisan labor law reform.

This week, Norcross’s discharge petition—a procedural mechanism that allows rank-and-file members to force a floor vote without the Speaker’s support—reached the required 218 signatures. Successful discharge petitions are very rare because members of the majority party must override their own Speaker’s decision. In this case, seven House Republicans—Reps. Riley Moore (WV), Mike Lawler (NY), Nick LaLota (NY), Brian Fitzpatrick (PA), Don Bacon (NE), Max Miller (OH), and Rob Bresnahan (PA)—signed it over the objections of their leadership, the Chamber of Commerce, and decades of party orthodoxy on labor law. The end-around worked.

Rail: In 2023, after a Norfolk Southern train carrying vinyl chloride derailed in East Palestine, Ohio, the state’s two senators, Republican JD Vance and Democrat Sherrod Brown, introduced the Railway Safety Act. The bill requires two-person crews, expanded use of wayside defect detectors to catch overheated bearings of the kind that derailed in East Palestine, and updated standards for trains carrying hazardous materials. The freight industry it protects has spent the past decade returning hundreds of billions of dollars to shareholders while cutting headcount, deferring investment, and watching its accident rate climb, as Oren noted in the Financial Times.

Yet the legislation has languished ever since, opposed by the Association of American Railroads, by the Republican leadership of the House Transportation Committee, and by a coalition of more than two dozen free-market groups. (Back in 2023, Oren debated the bill with Phil Bell of the now-defunct FreedomWorks on the American Compass Podcast.) On Thursday, the committee adopted an amendment offered by Rep. Troy Nehls (R-TX) to incorporate the RSA, over the objection of Committee Chairman Sam Graves (R-MO). Americans for Tax Reform issued a key vote alert opposing it. “The Railway Safety Act is a war on affordability,” said ATR president Grover Norquist in the accompanying statement. “It raises the cost of everything that moves by rail. The RSA makes everything more expensive for American families while lining the pockets of left-wing union bosses.”

ATR’s “war on affordability” framing assumes that the only costs worth counting are the ones the rail industry pays. The residents of East Palestine, who were evacuated from their homes and continue to live with the consequences of the burn-off of vinyl chloride, paid a different cost. So did the customers and workers along an under-invested freight network. As Oren put it in the FT, “regulation can be far from perfect and yet still far better than the status quo.” A Republican-led committee has now agreed, 54–11.

It would be easy to read these three items as discrete victories on three very different issues, but they are better understood as evidence of one political fact. The intellectual machinery that once disciplined Republicans away from these positions—the Chamber’s scorecard, the Wall Street Journal editorial board, a letter from Norquist—remains operational. But it’s no longer producing the votes it used to produce. The House Republican conference now contains a working majority willing to fight back against the financialization of single-family housing and to impose rail safety measures over industry objections, and a smaller but consequential bloc willing to help labor stand on a level playing field with capital. — Daniel

IT’S THE ECONOMY, STUPID

Kevin Warsh replaced Jerome Powell as chairman of the Federal Reserve today, which is as good an excuse as any to step back and take stock of the macroeconomic picture. (But first, read the Wall Street Journal: Kevin Warsh Wants to Remake the Fed. Here’s What He Is Up Against.)

Unfortunately, with gas prices above $4.50/gallon and still heading higher, inflation is up, interest rates are up, and real wages are down. The direct cost to consumers from higher gas prices now totals roughly $45 billion (Wall Street Journal), U.S. 30-Year Yield Hits Highest Since 2007 as Selloff Deepens (Bloomberg), and Mortgage Rates Hit a Nine-Month High in Blow to Prime Buying Season (Wall Street Journal).

In the short run, things may get worse. Our friendly Econ 101 models tell us that supply constraints lead to rising prices, which in turn lead to investment in more supply. But in the oil market, investment to bring supply online takes a long time and, with the Iran crisis, the constraint is expected to be temporary. No matter how high the price goes, no one is going to initiate expensive new projects or construct new pipelines if the Strait of Hormuz might re-open long before they’re ready. Thus, “Big Oil is making money but losing sleep,” reports Semafor. “Even though US oil executives and insiders are worried that energy market disruption stemming from the war in Iran is poised to get significantly worse, they’re not ready to ramp up drilling to counteract it....The low future price signal is both misleading—because it severely underplays the likelihood of forthcoming major disruptions to airlines, food systems, and other energy users—and a deterrent to drilling investment.”

Consumer confidence remains at an all-time low.

Of course, the stock market keeps setting new records. But those gains are concentrated to an extraordinary degree in the very largest companies whose fortunes depend upon artificial intelligence. Whether or not this is a bubble, it’s important to recognize how different the economic structure looks compared to the peak of the dot-com boom in 2000. Then, the top five companies by market capitalization were Microsoft, General Electric, NTT Docomo, Cisco, and Walmart—tech heavy, to be sure, but relatively balanced from software to hardware to industrial to retail to telecom. And they made up a far smaller share of the stock market’s total value. Now, the top five companies are Google, Apple, Microsoft, Nvidia, and Amazon.

Then come Meta, Broadcom, TSMC, and Tesla (which at this point is a bet on AI and automation too). Berkshire Hathaway holds the tenth spot, but it is sitting on $400 billion in cash and treasuries because it can find nothing it wants to invest in. Next up: IPOs for OpenAI, Anthropic, and SpaceX (including xAI), all three of which may top Berkshire on their first day, and which will tilt the market even further. Andrew Ross Sorkin’s DealBook newsletter for the New York Times has had “A.I.” in the title for five straight days.

Today’s newsletter discusses “Giving Workers a Stake in A.I. Gains Traction.” Just as “Universal Basic Income” was all the rage a decade ago, everyone is now talking about “Universal Basic Capital” or a “Universal Basic Dividend,” the idea being that these company valuations envisage an economic future in which they will capture a far larger share of economic value and workers will capture a far lower share. So why not just give the workers a stake in the companies and let them share in the wealth?

One problem with this view, of course, is that an economy in which workers no longer have a role as productive contributors able to support themselves and their families is a recipe for social collapse, at which point no one will be enjoying themselves. The other problem, though, is that it rather conveniently privatizes the process of redistributing concentrated wealth in a way that locks in today’s Masters of the Universe as the permanent winners. See, we already have a mechanism to ensure that a share of concentrated profit is directed toward supporting the common good. It’s called the tax system. The American people already get a “dividend” from every dollar of corporate profit, because it is paid as corporate tax and spent as our elected representatives determine.

Conveniently, this dividend applies across all sectors, so we can be entirely indifferent to whether AI companies or others are most successful and generate the most profit. If we wanted, we could also take all of that corporate tax revenue and channel it directly into cash payments made to all households. Fortunately, we don’t do that. But that’s because a UBI is a bad and unpopular idea, and the UBD or UBC is just a repackaged UBI, otherwise inferior in all respects. No wonder it’s popular in Silicon Valley.

APOCALYPSE LATER

But we’re still waiting for evidence that AI will cause these disruptions. Certainly, it has become a popular bogeyman. And everywhere we turn, we see the statistic, attributed to the World Economic Forum, that “entry-level jobs are down 35%.” Except that’s not remotely true. The research, from a private firm called Revelio Labs, finds that job postings for entry-level positions are down 35%, and this decline bears almost no relationship to whether a job is highly exposed to AI.

Far more rigorous data comes from a study released this week at the London School of Economics. Peter John Lambert and Yannick Schindler note the research suggesting a decline in entry-level hiring, but then propose that the shift toward work-from-home is actually responsible. Without considering WFH, their data show the same AI-exposed decline in entry-level hiring. But account for WFH, and AI no longer appears relevant. Twitter thread here, full paper here. Also this week, the Strada Education Foundation released a survey of 1,500 business executives that finds “nearly three times (2.7 times) as many senior talent leaders expect AI use to increase entry-level hiring in 2026 as to decrease it” and “greater use of AI is the most frequently cited significant positive driver of increased entry-level hiring.”

Of course, one lesson from the China Shock two decades ago is that when the public insists a problem exists, while the economists and their models insist otherwise, ignore the economists. But in that case, the data did tell the story: manufacturing jobs were vanishing. The hand-waving assumption was that better jobs would simply take their place. This time around, young Americans are clearly facing serious economic challenges that demand our attention; we just shouldn’t accept the easy excuse that AI is to blame.

What works? Tight labor markets and worker training. The Wall Street Journal reports that This Arkansas Town Is Humming With the Sound of Missile Making.

Lockheed’s immediate strategy: expand the pool of potential workers. It began inviting local high-school seniors and their parents to its Camden facility for tours. The contractor also started working with Southern Arkansas University Tech, a two-year community college in Camden, to ramp up apprenticeships, so it could more readily hire people who had never worked at a factory.

In return, state officials stepped up workforce-development grants and began funneling millions of dollars to SAU Tech. The efforts largely worked, and have helped turn the area into an engine for America’s war machine.

What else works? Worker power. Sectoral bargaining. Per the New York Times, N.Y.C. Hotel Housekeepers Will Earn Over $100,000 Under New Contract.

WHAT’S NOT WORKING?

In Cambridge, Harvard Votes to Cap A’s in Effort to Curb Grade Inflation (“move comes despite sharp student backlash”). In New Haven, Yale administrators now outnumber Yale undergraduates, Aakash Gupta notes in a long post on the slow-motion crash of higher education.

In the New York Times, Stanford senior Theo Baker describes What A.I. Did to My College Class. “Even in the heart of the Silicon Valley techno-utopia, most people know that our tech is bad for us, or at least that it can be. A.I. is often a tremendous productivity boost, yet my friends increasingly refer to both short-form video and their A.I. chat logs in the language of addiction.”

• BONUS LINK: In case you missed it, this viral post on the Bay Area’s woes is interesting: “The vibes in SF feel pretty frenetic right now. The divide in outcomes is the worst I’ve ever seen. Over the last 5yrs, a group of ~10k people - employees at Anthropic, OpenAI, xAI, Nvidia, Meta TBD, founders - have hit retirement wealth of well above $20M (back of the envelope AI estimation). Everyone outside that group feels like they can work their well-paying (but <$500k) job for their whole life and never get there.”

• BONUS BONUS LINK: And if you read that one, be sure to read this one too: “The vibes in NJ feel pretty great right now. The convergence in outcomes is the best I’ve ever seen. Over the last 5yrs, a group of ~10k people - guys who own paving companies, guys who own marinas, ShopRite deli managers, Wawa shift leads, and a guy named Sal - have quietly become millionaires and nobody knows because they still drive a Silverado from 2008…”

And as long as we’re promoting Twitter posts, this one on screens in classrooms is worth considering too: “Teachers need the devices. Not the kids. A typical public school classroom has gotten impossible to manage. They don’t hold kids back anymore. They don’t expel. They don’t really discipline at all.”

GOOD READS FOR YOUR WEEKEND

How Should We Measure Economic Power? by Chris Miller. It had not occurred to us that some people think economic power is best measured in corporate profits rather than productive capacity. Apparently this is an actual debate!

China is betting that its production advantage will create more durable CATL-style moats that eventually enable both profit and power. Western firms are making a calculated bet that their profitability provides flexibility to recast production networks if needed. Western governments, meanwhile, increasingly fear their firms are naive and that China’s strategy just might work.

Why Birth Rates Are Falling Everywhere All at Once, by John Burns-Murdoch. Not to spoil a great read, but, yes, it’s the phones.

Moment of Truth Podcast on the Future of Small Business. A good listen for you from American Moment’s Nick Solheim: “America is sitting on a time bomb. Over half of our nation’s small business owners are approaching retirement, and most of them don’t have a plan other than selling out to private equity.”

The 2024 DNC Autopsy Is Here! Read the actual document. Read the DNC Chair Ken Martin instantly disavowing it: “I am not proud of this product; it does not meet my standards, and it won’t meet your standards. I don’t endorse what’s in this report, or what’s left out of it.” Read the New York Times on how it “is missing many sections and is filled with annotations questioning its methods.”

BAD READ

Stephen Moore has weighed into the chip-export debate with the bizarre argument that we should be selling advanced AI chips to China because it will generate more tax revenue. Perhaps this would be true if sales in China represented incremental profit from economic activity that would not otherwise occur. But here, every fab is already running flat out producing every chip it can, and every chip is sold before it even comes off the assembly line. Corporate tax rates tend actually to be higher on domestic profits, as Chris McGuire notes.

Likewise, Moore argues a loss of sales in China “also means that these AI companies have less to invest in the next generation of chips.” AI companies are investing and building as fast as they possibly can. Capital markets are flinging money at them. Profits are not the constraint.

But this isn’t really an argument about chips. It’s generic market fundamentalism with the word “chips” inserted in the “[put topic here]” boxes, that conveys no familiarity with the playing field or the players. At one point, Moore even offers an analogy to “an American airline lobbying the federal government to ban Boeing from selling aircraft to a foreign carrier.” But Boeing is one of the nation’s largest defense contractors, and much of what it makes is indeed subject to export controls. He celebrates that “American tech know-how and business acumen are unrivaled in the world—as we learned in the Internet age. That happened with very limited government subsidy and interference. And it happened by selling Apple iPhones and Google search capabilities and microchips across the globe.” Except, of course, that Apple makes almost no products in the United States, and we lost the ability to make the most advanced microchips, until we began implementation of the CHIPS Act, which Moore presumably opposes too.

BUT IF YOU THOUGHT THAT WAS CONFUSING…

…check out these stories:

US Said to Suspect Nvidia Chips Smuggled to Alibaba Via Thailand (Bloomberg). “A key company behind Thailand’s national AI effort is suspected of helping to smuggle billions of dollars worth of Super Micro Computer Inc. servers containing advanced Nvidia Corp. chips to China, with Alibaba Group Holding Ltd. one of multiple end customers, according to people familiar with the matter.” That company was called OBON, which, as Senator Tom Cotton notes, literally stands for “One Belt, One Network.” Really? No one thought to look into that? Nvidia had no idea?

Senators Work to Ban Gambling Ads Targeting Minors (Wall Street Journal). Apparently this is necessary? Seems like a good opportunity to bring back tarring and feathering.

CAPTAINS OF INDUSTRY

The new issue of American Affairs is here! Some highlights:

Michael Starr, Executive Secretary at the Office of the U.S. Trade Representative, on The Last Time We Fixed the Trade Deficit: Lessons from the Plaza Accord.

Three essays on industrial finance:

• Skanda Amarnath and Arnab Datta on How Financialization Can Complement Reindustrialization

• Tanner J. Gebhart on Revitalizing the Export-Import Bank for Great Power Competition

• Jan Jaron on Closing the Strategic Capital Gap: The Case for Modernizing the Export-Import Bank

Speaking of industrial finance, The Economist highlights the rapid expansion of the U.S. Development Finance Corporation:

In December, at the president’s behest, Congress extended the dfc’s life to 2031, lifted a ban on investing in rich countries, including America, and set aside $5bn for equity takes in companies worth up to 40% of their value. Lawmakers also lifted its ceiling for total lending from $60bn to $205bn, not that far off the World Bank’s loan book of $285bn. New loans declined to $4bn in 2025, amid the latest reorganisation after Mr Trump’s return to office. But Conor Coleman, the dfc’s investment chief, insists that the plan is very much to reach that ceiling.

Articles about $2 billion. We have two!

• U.S. to Award Quantum-Computing Firms $2 Billion and Take Equity Stakes (Wall Street Journal)

• Toyota’s $2 Billion Texas Truck Plant Expansion Looks Like a Donald Trump Tariff Survival Move (MotorBiscuit)

Major investment as a “tariff survival move.” Nice.

On rare earths, unfortunately, the news is frustrating. The Financial Times reports on the defense contractors, who had eight years to reconstitute supply chains, did nothing and are now begging for an extension:

Defence companies are pushing Washington to delay a deadline, years in the making and now just months away, banning them from sourcing rare earth magnets from China for the US military. Some defence groups want more time to comply with the prohibition on using Chinese samarium cobalt magnets and neodymium iron boron magnets for defence department contracts from January 1, according to four people familiar with the matter....Under rules introduced by Congress in 2018 during Trump’s first term, defence companies will be banned from supplying the US military with the magnets, as well as the metals tungsten and tantalum, if they have been sourced from China. The rules apply if any stage of the materials’ production has occurred in China, North Korea, Russia or Iran.

The Pentagon must hold the line, and perhaps look for ways to further penalize the laggards. This is a bad joke, and if it’s rewarded with relief, the only lesson learned will be that complying with mandates costs money while ignoring them gets rewarded. That’s how you end up with…

US Needs Another Decade to Fix $1.2 Trillion Rare Earth Crisis (Bloomberg). Another bad joke. Ten years to fix a critical vulnerability? If solving this problem were existential for the companies involved, it would get solved. If they’re not going to solve it until it’s existential, policymakers can help them with that… Still, it’s truly shocking how bad things were allowed to become. For some absolutely crucial inputs, China controls 99% of the market.

Earlier this year, the Pentagon signed a deal to source supplies from the Australian company Lynas Rare Earths Ltd., the only one outside China that refines heavy rare earths, a product it started offering in 2025.

Meeting demand will be hard. Global appetite for dysprosium and terbium alone runs into the thousands of tons annually, according to industry estimates. In the first quarter of 2026, Lynas produced a combined 8 tons of them.

…

While these elements ultimately represent a small share of the total market, tiny amounts strengthen magnets and improve heat resistance, making them essential for F-35 fighter jets, Virginia-class submarines, electric vehicles and other advanced technologies.

AND CHINA CONTINUES TO SHOCK

In the Wall Street Journal, Greg Ip has a column that describes precisely the China challenge and the inevitability of the Trump administration strategy as the only plausible response:

The pervasive nature of China’s industrial policy makes it difficult for competitors to counter. Trump’s tariffs, for example, have driven down the U.S. trade deficit with China. But China has redirected exports to other markets. And because Chinese inputs are omnipresent in global supply chains, the value of Chinese content entering the U.S. can remain steady even as imports drop.

This could be addressed through tariffs on Chinese content, regardless of where the product originated, or through tighter rules of origin, a particular thrust of Trump’s trade negotiators.

But that wouldn’t solve the competitive threat. The U.S. could ban every Chinese-made product, but those products would keep gaining market share abroad, threatening American leadership. For example, Chinese electric vehicles may incorporate Chinese software and artificial intelligence. As those EVs gain market share abroad, Chinese software and AI may supplant U.S. rivals as the global standard.

This calls for a joint response by all market-based democracies to Chinese industrial policy. But U.S. allies’ willingness to coordinate with the U.S. on China, never high to start with, has eroded further under Trump.

Wither the allies? Two steps forward, one step back. EU Plans to Force Companies to Buy Parts from Non-Chinese Suppliers (Financial Times). But, notes the Council on Foreign Relations’s Brad Setser, “it doesn’t matter how many trade instruments Europe has if Europe’s member states are too divided to make use of any of them effectively.”

Setser and Sander Tordoir, chief economist at the Centre for European Reform, have an excellent new paper on China Shock 2.0: The Cost of Germany’s Complacency (Tordoir’s accompanying thread is here.)

It all leads us, and the South China Morning Post, to ask, A Sinking Ship? Why the EU and China Could Be Heading for a Trade War.

Enjoy the weekend!