French economist Gabriel Zucman has come to California bearing a familiar French solution to a fiscal problem: another tax.
Once based at the University of California, Berkeley, Zucman is back and campaigning for Proposition 40, which would impose an allegedly one-time 5 percent tax on the net worth of Californians worth more than $1 billion. Zucman, who coauthored the proposition, estimates that the tax could raise about $100 billion and claims that 90 percent of the proceeds would go to health care.
The California Legislative Analyst's office is far more cautious, saying it would raise only "tens of billions" and could cause a long-term loss of income-tax revenue as wealthy people leave the state with the companies they created.
I've written plenty about why wealth taxes are economically destructive, administratively nightmarish, and unlikely to achieve anything close to what their advocates promise. But Zucman's prescription is wrong for a more fundamental reason, as his (and my) native country shows: Raising taxes to fuel ever-larger demands for government spending is a recipe for disaster.
Unless you've been living in a remote cave recently, you've likely seen all the protests and destruction in France. But do you know why it's happening?
As another economist, Paul Krugman, rightly noted back in 2017, "France offers a social safety net beyond the wildest dreams of U.S. progressives: guaranteed high-quality health care for all, generous paid leave for new parents, universal pre-K, and much more."
For decades, France has answered any perceived desire with government spending, then responded to the resulting fiscal problem by seeking new revenue sources. Today, French government spending consumes roughly 58 percent of gross domestic product (GDP).
Krugman gloated that France wasn't suffering social collapse and speculated that it was due to all the spending. He certainly can't say that anymore. In fact, he is now worried that France may be on the precipice of a debt crisis. The truth is that France hasn't done well for some time, even when Krugman cheered its spending.
One of the groups in the street today, young people, has faced widespread unemployment for a long time. The youth unemployment rate in France (ages 15-24) has hovered between 17 percent and 27 percent since 2000. In the second quarter of 2026, it was 21.6 percent, against 14.8 percent in the Eurozone and 9.9 percent in the U.S.
French people also pay some of the highest taxes in the developed world, and they're not happy with the return. The government already takes more than 52 percent of the country's output in revenue, runs deficits exceeding 5 percent of GDP, and has accumulated debt approaching 120 percent of GDP. Nonetheless, French students complain that the government is shortchanging schools, while everyone sees that it is shortchanging its army and police.
The students aren't wrong to feel left out. At The Two Cents Substack, Hoover Institution scholar Hanno Lustig calculates that, between 1995 and 2024, spending on social protection and health (most of which benefits older people) rose from 53.1 percent to 58.7 percent of all French government spending. The share devoted to education, defense, and public order fell from 15.2 percent to 13.7 percent. Transportation fell from 5.3 percent to 3.8 percent.
In other words, France has built an enormous welfare state, much of it devoted to older citizens, while letting other state capacities and basic services fall apart. As transfers of wealth swallow a larger share of the budget, everything else gets squeezed.
That is the fiscal ratchet Californians should worry about when Zucman tells them Proposition 40 is necessary to "save" health care. Proponents claim Washington "cut" Medicaid, but that language is misleading. California's deficit started long before any Washington spending reductions. Besides, federal Medicaid spending isn't falling—not even close. The Congressional Budget Office estimates it will reach $708 billion in 2026, 8 percent more than in 2025. What Washington did in the 2025 budget reconciliation law was reduce Medicaid's future growth relative to previous projections, partly by changing eligibility and enrollment rules and financing arrangements.
This is how the ratchet works. Once the government projects a spending increase, anything less becomes a cut. And once Washington fails to finance the entire projected increase, Californians are told that Sacramento must backfill the missing money. And how should it do that? Conveniently, by creating an entirely new tax.
France has run this experiment for decades. It has an incredibly generous welfare state paid for with very high taxes; it's even tried a wealth tax and has a value-added tax, yet somehow it's never enough. Its welfare state has not eliminated scarcity. It has merely transferred the job of rationing scarce resources to politicians.
Zucman looks at California and sees hundreds of billions of dollars of private wealth waiting to solve a public finance problem. Californians should look across the Atlantic and ask a different question: What happens after politicians decide that every spending adjustment can be delayed until tomorrow by finding another pot of private wealth?
France should not be sending California tax advice. It should be sending a warning.
Andy Burnham has been urged by one of his most senior former advisers to tax internet sales more heavily than in-store purchases to help “level the playing field” for struggling high streets.
As the prime minister and his chancellor, John Healey, prepare for their first budget next week, Andy Haldane joined calls for action to stop more shops closing across the UK.
One month after Washington, D.C., celebrated America's 250th anniversary, it marked a more ignominious milestone: a full year since President Donald Trump deployed thousands of National Guard soldiers to the capital.
The approximately 4,600 National Guard members have been an unavoidable presence in D.C., wandering the National Mall and downtown streets in groups of three or four, or standing idly in Metro stations chatting. Occasionally, they're tasked with picking up trash at parks. Tourists take selfies with them by the now-fenced-off Lafayette Square in front of the White House.
They're not going anywhere. The Trump administration is moving forward with plans to acquire up to 2,000 housing units to support long-term National Guard deployments. The Department of Defense has estimated that extending the mission from October 2026 through to the end of the Trump administration in January 2029 will cost about $1.4 billion.
According to the Trump administration, all of this has been necessary to transform D.C. "from a crime-ridden city into a safe and beautiful haven for residents and visitors alike."
Crime in D.C. is down 20 percent from 2025, according to the Metropolitan Police Department, but an August Reuters investigation found National Guard soldiers were involved in only a tiny fraction of arrests in the safer parts of the city, mostly for minor offenses such as shoplifting and turnstile jumping. Crime has been dropping nationwide, a trend that started before Trump took office and includes cities that aren't occupied by federal law enforcement and soldiers.
Even if the Guard presence has contributed to a drop in crime, it's a civil liberties nightmare. It puts untrained military in the role of policing civilians. It usurps local police departments that are ostensibly answerable to the communities they police, and it normalizes the deployment of military forces domestically—a red line for a free society.
"There's a deep irony that here we are in the capital of the free world, and our president is treating it like a police state," Scott Michelman, legal director of the ACLU of the District of Columbia, told PBS in August. "D.C. residents have lived with our National Guard troops in our neighborhoods for about a year, despite the absence of any genuine emergency and really any reason for them to be here."
Last November, a federal court preliminarily ruled that the deployment was illegal. However, an appeals court allowed the Trump administration to keep troops deployed in D.C. while it considers the administration's appeal of that ruling.
The appeals court decision is absurd. The appellate panel is fully aware that every day the case drags on is another day that D.C. residents are being subjected to a potentially illegal military occupation, and another day that taxpayers will foot the bill for a wasteful fit of presidential hubris.
The damages are compounding. The first anniversary of Trump's deployment of National Guard soldiers to D.C. should be the last.
The gender pay gap for full-time employees has continued to decline in the UK. It was 6.8% in April 2026, down from 7.2% in April 2025. This compares with 9.4% a decade ago and 16.4% 25 years ago.
Secondly, I asked Healey whether he sees the banks as making excessive profits, which would be the coherent justification for him to increase the surcharge on bank profits – as he is expected to do in the Budget next week.
He said: “You know the banks are the engine of investment in this country. The banks are doing well at the moment and that is good to see.
Barclays is cutting 5,000 jobs as part of wider cost-saving plans that its bosses say are being driven by advances in AI.
The job cuts will mean losing about 5% of the bank’s 93,000 global staff, with executives confirming they had already cut 1,000 workers since the start of the year.
Meta's AI agent, Muse, is unprofitable due to "very high compute costs," CEO Mark Zuckerberg says.
Meanwhile, Meta expects Reality Labs, its AI glasses division, to lose $15 billion next year.
The social media giant has a plan to fix that.
Meta says some of its biggest cash incinerators could finally start turning profits.
The social media giant, which generated over 97% of its quarterly revenue from ads, has faced persistent questions from investors about the lack of profitability in its AI and hardware initiatives.
Meta CEO Mark Zuckerberg addressed those concerns head-on during its third-quarter earnings call on Wednesday.
Zuckerberg said that Muse, the AI assistant it launched last month, is unprofitable since it's "very compute intensive to run." Meta expects to start turning that around next year by massively improving Muse's efficiency.
"If compute efficiency continues improving quickly for another few years, which we think is highly likely, then Muse will be highly profitable over multiple years," he said.
Meta plans to make money from Muse by taking a small transaction fee off of purchases it drives, Zuckerberg said at Meta's Connect conference last month.
Zuckerberg added that Muse, which launched only in the US and Canada, wasn't launched globally due in part to the amount of compute it requires. (Meta's North American users are generally its most lucrative.)
Zuckerberg also struck a positive note about its cash-hemorrhaging Reality Labs division, which makes products like Meta Ray-Bans and virtual reality glasses.
Meta expects Reality Labs to narrow its losses to about $15 billion in 2027, down from the $18 to $19 billion it expects to lose this year. The division should start trending toward profitability next year, as Meta's AI systems make it more useful, Zuckerberg said.
"I continue to believe that the path to delivering holographic experience, of bringing together the physical and digital worlds and everyday glasses, will come through VR first," Zuckerberg said.
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Governor Yaron urges next coalition to cut debt and pursue growth reforms to fund security needs; bank raises forecasts but warns overseas production distorts domestic picture
Kemi Badenoch has said a "red warning light" is flashing on the economy as Britain's debt tops £3 trillion for the first time and inflation surges to 3.5% ahead of the Budget next week.
If you have to pay a regular fee to maintain control and use of a home or other parcel of property, do you really own it? Or are you just renting it from whoever collects the money? That's the question behind a growing movement against property taxes, which is winning support across the country and may see its next big test in the form of a proposed constitutional amendment on the Florida ballot that would significantly trim taxes on owner-occupied homes.
'Property Is the Foundation of Liberty'—and a Big Source of Tax Revenue
Advocates of reform understandably champion the inviolability of private property, which is threatened by continuously rising levies. Opponents predictably include people who fear reduced government revenues, but also those who worry that cutting property taxes will shift power to state governments at the cost of local autonomy.
"Property is the foundation of liberty," argues economist Vance Ginn. "It represents the right to the product of voluntary exchange, investment, and saving—not a privilege granted by government. To tax property again every year after it has been bought with after-tax income is to deny genuine ownership. Property taxes operate like an annual wealth tax or unrealized capital-gains tax, applied regardless of income or ability to pay."
Opposing Ginn's argument in the debate is the Tax Foundation's Jared Walczak, who is not so much a fan of property taxes as a believer that they suck less than the alternatives.
"Spending restraint can reduce property tax burdens," argues Walczak. "But with property taxes accounting for 70 percent of local tax collections nationwide and upwards of 90 percent in some states, any discussion of property tax elimination must grapple with revenue alternatives."
"It is axiomatic that whatever you tax, you get less of," he adds. "Taxing income means less income-producing labor and investment, for instance. But because land is an immobile asset, taxing property does less to distort market decisions than taxing income or even sales."
Walczak also points out that while property taxes are usually imposed by local governments, most alternatives to property taxes come at the state level. That would move power further up the political food chain, away from the property owners worrying about their tax bills.
To this, Ginn responds that governments at all levels cost more than they should and that "the moral and fiscal failure of property taxes lies not only in how the money is raised, but also in how much government spends."
That means the debate over property taxes isn't just a struggle between those who want to trim the state's take and those who prefer larger government, but also between anti-tax activists and their frequent allies among advocates of local power. In a piece this week on the groundswell against property taxes, Politico's Liam Dillon notes that "the uprising's most pitched battles are being fought in Red States where the issue has emerged as yet another dividing line on the right."
Localities Are Dependent on Taxing Property
The debate over property taxes is fierce partially because governments have come to rely so heavily on them. "In fiscal year 2023, property taxes comprised 28.9 percent of total state and local tax collections in the United States, more than any other source of tax revenue, despite being levied almost exclusively at the local (not state) level," Janelle Fritts wrote for the Tax Foundation.
Property taxes in the U.S. range from roughly half a percent to just under 2 percent of assessed home value. States that rely most heavily on them, like New Hampshire (1.5 percent in 2024) and Texas (1.4 percent in 2024), also tend to leave a lot of government responsibility in local hands that might be exercised at the state level elsewhere. It's worth noting that Cato's Freedom in the 50 States ranks New Hampshire as having the second least burdensome tax regime among states, with Texas in fourth place.
The lowest taxed states in property terms are Alabama (0.37 percent in 2024), Arizona (0.48 percent), Hawaii (0.29 percent), and Utah (0.48 percent). Some states, such as Illinois (1.88 percent in 2024) and New Jersey (also 1.88 percent), tax the hell out of many things to support large and intrusive governments. Hawaii, despite low property taxes, is ranked as the most tax-burdened state by Cato.
As mentioned above, economists tend to like property taxes because they are efficient, minimally distort economic decisions, and empower localities relative to state and federal authorities. But as Politico's Dillon emphasizes, "everyone who is not an economist seems to hate property taxes."
Homeowners Don't Like the Insecurity That Comes With Property Tax Bills
Property taxes rise with assessed property valuations that homeowners have no control over, as the market shifts with supply and demand. They require what feels an awful lot like an annual rent payment to keep a roof over people's heads many already paid for. That reduces the sense of security that owners feel in their homes, since their habitation remains conditional on meeting local authorities' demands. The bite of sales taxes can be reduced by buying less, and income taxes are dependent on earning paychecks, but property taxes (with some local exceptions) come due no matter what.
Soaring property valuations in recent years drove property tax bills higher for Americans who did nothing but remain at their established addresses, though localities can and sometimes do adjust tax rates to offset rising values. USA Todayreported that "between 2019 and 2023, the median value of annual property taxes increased nearly 25%." That has energized the movement to cut or abolish the taxes.
Efforts to reform property taxes have been effective in more than a dozen states, according to Governing. Most of these efforts involved reducing taxes, though eyes are currently on Florida where Amendment 3, a proposed change to the state constitution, would incrementally raise the homestead exemption to $250,000. It also would require "the Legislature to prescribe a uniform procedure for counties and municipalities, for their respective levies, to increase the homestead exemption up to full assessed value," effectively abolishing property taxes on owner-occupied dwellings.
As a constitutional amendment, the measure requires 60 percent of votes to pass. Polling shows more support than opposition, but not necessarily at the supermajority level necessary for victory.
According to the Tax Foundation, in Florida, "the statewide average sales tax rate would have to rise from 7.02 to 15.34 percent to replace the property tax" with equivalent revenue. Rates could widely vary if localities implemented sales taxes instead of leaving them to the state.
Of course, that assumes state and local governments continue spending and providing services at the same level. But as economist Ginn points out, the problem lies not only in how property taxes raise money "but also in how much government spends." If the property tax revolt represents revulsion not just at the tax, but at the expense of large government, that may require less revenue to fund a smaller Leviathan.
Restaurant software company Olo is launching a delivery app.
Bloomberg/Getty Images
Restaurant software provider Olo is launching a delivery app.
Olo will offer the same menu prices for delivery that in-person visitors get, it said.
Other delivery services often mark up order prices.
A new food delivery service is taking aim at menu mark-ups — and some entrenched rivals
Restaurant ordering software company Olo is launching its own customer-focused app, it said on Tuesday. The app puts it in competition with more established delivery companies, such as DoorDash and Uber Eats.
On Olo's app, customers will see the same prices that restaurants charge in-person patrons, the company said. By contrast, third-party delivery services often charge customers higher menu prices than diners would get at a restaurant.
Offering in-store prices can save customers between 15% and 30%, Olo said.
"It's a better experience for consumers and a more sustainable model for restaurants, with no menu price inflation and no barriers standing between great brands and the people and communities they serve," Olo CEO and founder Noah Glass said.
Food delivery is one area where consumers continue to spend money, even as they cut back their budgets elsewhere. How much customers pay for delivery — and whether apps charge individuals different prices or the same order — can affect how often they order.
Olo is stepping into a competitive space. DoorDash and Uber Eats continue to grow, including by rearching into club deliveries and catering. And Walmart, which spent years building its own grocery-focused delivery service, started delivering restaurant orders earlier this year.
Olo got its start in 2005 with a service that let users text their orders to restaurants in the pre-smartphone era. Now, the company fields about 3.5 million orders daily through around 800 restaurant brands.
The company doesn't have its own team of delivery drivers. Instead, the company uses its own dispatch service to compare delivery options at other third-party services, such as Grubhub, and pick one based on factors like cost and speed.
Olo's delivery app will allow customers to order from about 250 restaurants, including Five Guys and Dave's Hot Chicken.
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Social Security is racing towards insolvency because the program pays out more in benefits to retirees than it collects in taxes from working Americans.
Handing out even more generous benefits will make that situation worse. Yet that is exactly what the trustees who run Social Security are planning to do: Retirees will get a 3.6 percent cost-of-living adjustment (COLA) next year. That increase is 0.8 percentage points higher than last year's, and it is 0.9 percentage points higher than what Social Security was expecting to pay.
The Social Security trustees are doing what the law requires during a time of high inflation. That's why Congress ought to intervene here.
It should cancel the COLA.
No, this isn't a demand that lawmakers stick it to America's retirees. It's an appeal for some fiscal common sense. There are three good reasons to cancel this year's COLA.
First: Handing out higher benefits to wealthy retirees simply doesn't make sense when Social Security is trending towards insolvency.
As the Committee for a Responsible Federal Budget notes, the announced COLA would be a $900 increase in benefits for the average retired household—but some retirees could receive as much as $3,600 more.
Paying generous benefits to wealthy households is the main reason Social Security is facing insolvency in the first place. A program originally intended to keep seniors from falling into poverty has become a huge wealth-transfer scheme that overwhelmingly benefits those who don't need the handouts. The COLA doubles down on this flaw.
Second: What about the workers who are paying for those lavish benefits? Wages have risen by 3 percent, on average, over the past year. Those pay increases have already been outpaced by inflation, which is up 3.7 percent in the past 12 months.
You'll often hear retirees talk about how they are living on a "fixed income," but the math simply doesn't bear this out. Social Security beneficiaries will get a COLA that is larger than the average pay increase for the workers who are funding the COLA. Retirees are protected from the impact of inflation while younger Americans must deal with inflation and finance that protection for the elderly. That's crazy.
Third: Cutting the COLA could kick-start a conversation about how to solve Social Security's looming insolvency. The Social Security trustees estimate that an across-the-board cut of about 22 percent will be necessary in 2032. Eliminating COLAs won't meaningfully change that arithmetic, but it would change the conversation—which has for too long been dominated by politicians promising seniors that nothing needs to change. That's wrong—and the sooner that becomes apparent, the better off the political system will be.
If eliminating the COLA is too radical a change, Congress should instead change how the trustees calculate the annual increase.
Currently, the COLA is based on one particular measure of inflation: the Consumer Price Index for Urban Wage Earners and Clerical Workers, otherwise known as CPI-W. This is a relatively narrow index that reflects the spending habits of only about one-third of all Americans, as Romina Boccia points out in her newletter, The Debt Dispatch.
Instead, Boccia suggests using the Chained Consumer Price Index for All Urban Consumers, or C-CPI-U, which covers about 93 percent of all Americans and is generally regarded as a better measure of the rising cost of living. Other parts of the federal government already use C-CPI-U to update such things as tax brackets.
If Congress simply changed how Social Security's COLA was calculated, it could close 12 percent of the program's long-term shortfall. And while some retirees would see smaller COLAs as a result, the result would more closely match those increases to inflation.
Social Security's COLA reflects many of the fundamental flaws with America's old-age entitlement program. Like Social Security as a whole, it is too generous to the rich, too costly to the taxpayers, and too unfair to younger, poorer workers.
Is this really about cost of living? Over the weekend, the civil unrest that had been at a simmer boiled over in cities all over France. Over 1,000 police officers were injured, with seven seriously injured. More than 2,400 people were arrested.
"Rioters…attacked city halls from Lille in northern France to Marseille in the south, where they broke into the local government headquarters and tipped over a bust of Marianne, a symbol of the French Republic," reportsThe New York Times. "A fire destroyed a tourist office in Lyon, and 1,500 shops were damaged or looted nationwide, according to Alexandre Bompard, head of the French federation of commerce and distribution, who estimated that the cost of repairs could run into hundreds of millions of dollars."
"They came prepared," claimed the French journalist Paul Amar on CNews. "They had the addresses of town halls. They had addresses of Jewish shop owners. In a street in Marseille, all businesses owned by Jews were set on fire. Businesses run by Muslims weren't." The Jewish Community Protection Service has disputed such claims.
Reason's Matt Welch has a good write-up of how the violence and destruction have altered Lyon, Paris, Marseille, and Limoges, where the city hall was burned and collapsed.
Ces images doivent faire le tour du monde. Nos voisins doivent savoir.
Lyon l'une des plus grandes villes de France le 17 octobre est l'une des villes les plus touchées.
A Lyon, aucun commerce n'a été épargné, oui aucun commerce n'a aucun épargné vous avez bien lu. Toutes les… pic.twitter.com/15dG6QB5lK
What was nominally about cost of living and budget issues appears to have expanded far beyond those. ("Free Palestine" and "ACAB" graffiti have been seen everywhere.) President Emmanuel Macron has blamed far-left protesters, saying they have taken advantage of the situation. Far-right leader Marine Le Pen has blamed the "Macronist administration that is out of steam, exhausted, and disoriented."
It's not clear to me how the possibility of that retirement age needs to be raised will in any way be changed by, say, donning black balaclavas and breaking into the Louis Vuitton store:
French rioters loot Louis Vuitton store located just 2 KM away from the Élysée. pic.twitter.com/cnb5aWczcN
Here's how it all started: Since September 18, lycée (or secondary-school) students have held demonstrations, starting in the Paris suburb, Créteil. The students said the Education Ministry had neglected them—not enough resources, not enough teachers, and overcrowded classes. (The original demands were met and that strike ended, but not before sparking a wider movement.) This was all happening concurrently as the government was deciding its budget, and public-sector strikes were beginning. High social-program spending, an aging population, and high debt-to-GDP, plus an ever-increasing cost-of-living is resulting in a math problem that politicians have no real way out of except by raising the retirement age. Over the last few years, the French have had several hissy fits over the possibility of that happening.
Lawmakers from left-wing party La France Insoumise were at the first blockade on September 21, which has sparked questions about whether the party helped fuel the protests ahead of April's presidential election. I take all this—the disparate movements, the sheer volume of violence, the political-party involvement, the elections coming up—to mean that what started as an education-quality/cost-of-living protest has been used to lodge all kinds of grievances, and is attracting allies with an unquenchable thirst for violence and destruction.
Scenes from New York: "Darrel Rodriguez, 26, was shot on Saturday in the 7th Avenue Station on 53rd Street, a few blocks from Times Square, the police said. An unidentified man approached Mr. Rodriguez on the northbound E train platform, drew a gun and shot him once in the chest, they said," reportsThe New York Times. The man who shot Rodriguez was wearing a full balaclava-style face covering, and has not been found by the cops.
Philadelphia enacted a ban on such masks back in 2023. Just anecdotally, I've seen a lot of them in New York, but not by people trying to stay warm in the cold—these types of masks are used by people hopping turnstiles, stealing from bodegas, and more. Some bodega owners have started posting signs on their doors saying masks aren't allowed, since it's become such a problem.
"As of Oct. 11, there have been 1,697 crimes in the transit system since the start of the year, 27 more than the same period in 2025," reportsThe New York Times, citing Police Department figures.
In Texas, Ken Paxton appears to have lost the support of suburban women, according to The Washington Post.
"Jewish life in the Emirates has grown quieter and less visible," notesThe New York Times. "Religious symbols have disappeared, and gatherings have moved into private. Many have become more guarded about their online presence and their willingness to speak to the media. Some are reconsidering how openly to identify themselves as Israeli or Jewish, while others weigh whether they can still build a life in a nation they once considered a haven."
Can you really see everything?
YOU CAN SEE EVERYTHING is doing a public service if it gets the general population to question why, precisely, folks lend so much credence to documentaries as vehicles of truth. https://t.co/n7CHwkmDmrpic.twitter.com/IHUvEbKECl
"I recently attended a meeting of the Democratic Socialists of America, where I officially enrolled as a member. Though I was new to the party, I put forth a number of proposals, many of which were met with considerable enthusiasm and, I'm happy to report, have now been incorporated into their manifesto," writes Larry David in a satirical essay for Airmail. "We contend that the only way anyone can be rehabilitated is through the simple act of love. When the D.S.A. takes over, it will be our policy to close the jails and release all prisoners. Once released, the former prisoners will continue to walk around in their orange jumpsuits, the easier to spot them. People will be encouraged to give them a pat on the back, offer some words of encouragement, and maybe even get them to open up about their crimes. Imagine how upsetting it must be to know you've taken a life! To err is human, to forgive, divine. With empathy and compassion, it's easy to see a day when these former convicts will be contributing to society in a very meaningful way." It's not that funny of an essay, but I think it's great for more people to be talking about how asinine DSA ideas are.
Prasad Kalyanaraman, vice president of infrastructure services at Amazon Web Services
BASTIEN INZAURRALDE/AFP via Getty Images
Amazon is on an unprecedented spending spree to build more AI data center capacity than anyone else.
The company has extensive experience, yet even it's struggling to bring capacity online fast enough.
Internal documents show Amazon getting bilions of dollars of Nvidia GPUs before they can be deployed.
At an internal staff meeting in September, AWS CFO John Felton had a joke for Prasad Kalyanaraman, the executive overseeing much of Amazon's AI infrastructure expansion.
"You've taken us free cash flow negative as a company, so congratulations," Felton said, according to a recording of the meeting obtained by Business Insider.
The remark was lighthearted. But it captured a stunning reversal.
Just two years ago, Wall Street was debating what Amazon would do with its growing cash hoard. Now, cash flow has evaporated as Amazon embarks on its biggest bet ever, spending $220 billion this year alone to build the physical backbone for AI.
At the meeting, Kalyanaraman did not dispute Felton's premise. Amazon's machine-learning and AI business is "hugely free cash flow negative," he said, adding that he expects the company's free cash flow to remain negative for "the next couple of years or so."
Amazon has made big bets before. It spent heavily on cloud computing, fulfillment centers, and its delivery network long before they became some of the company's most valuable assets. Investors questioned those investments at the time, but Amazon ultimately built enormous, profitable businesses from them.
AI is testing this playbook at a far larger scale. Amazon is committing hundreds of billions of dollars to data centers, servers, and power before investors know how quickly those investments will generate revenue.
The company is the best, or among the best, at building data centers, with decades of experience. But the size and complexity of these projects, and the bottlenecks holding progress back, are challenging — even for such a respected cloud pioneer.
Internal documents reviewed by Business Insider and people familiar with the matter show the company trying to coordinate a sprawling industrial system whose parts move on different schedules. A delay in power, equipment, or construction can leave billions of dollars in hardware waiting — and Amazon's cash tied up — while forecasts and costs keep shifting.
Why Amazon thinks it will work
Amazon says it has strong evidence that the capacity will be needed. AWS revenue grew 37% in the second quarter, its fastest pace in 18 quarters, while its backlog reached $496 billion.
CEO Andy Jassy thinks the company has a "clear line of sight" to strong financial returns from this record investment cycle. In his latest annual shareholder letter, he called AI a "once in a lifetime opportunity" and said Amazon would not be conservative in its investments.
"We've been through this cycle with the first big AWS growth wave, and liked the results," Jassy wrote. "We expect to feel similarly about this next wave."
Investors are concerned by the scale of the industry's expansion, especially as AI data centers are costing more to build and taking longer to complete.
The market is "repricing anything that funds multi-year builds against revenue that arrives later," Dan Ives, an analyst at Yorkville Ives, wrote in a recent report. Growing uncertainty around data center permitting and the political fight over electricity prices have given investors another reason to question how quickly these investments will pay off, he added.
Racks, but not enough power
One major industry challenge is securing enough power to run the equipment that goes inside data centers. This includes expensive racks of servers that contain GPUs and other chips that train and run AI models and services such as ChatGPT.
Internal emails from August show Amazon preparing a new "Early Rack Receipt" process for an expected wave of server racks carrying Nvidia's GB300 chips at US facilities before final deployment.
One Amazon email projected the company would take delivery of about $5 billion of Nvidia GB300 racks in August, followed by another roughly $3 billion each month "for the foreseeable future."
Some AWS data center sites had room for more racks but not enough available power to turn them on, people familiar with the effort said, leaving the equipment to be staged at intermediary warehouses until the facilities were ready. These people asked not to be identified discussing sensitive matters.
Timing and coordination
Usually, Amazon doesn't pay for racks until the gear is put into a data center, leaving suppliers to carry the cost of the equipment in transit, according to the internal documents obtained by Business Insider. This helps the company conserve cash.
However, the intensity of the AI data center building boom has made this type of coordination harder. Amazon has to compete more for scarce resources as it jockeys with rivals for access to Nvidia GPUs and other AI components.
Under the new "Early Rack Receipt" process, Amazon now takes ownership of these racks earlier in the supply chain, rather than waiting until the equipment reaches a data center.
The means spending cash sooner. And any delays getting the racks installed and plugged into a reliable power source potentially pushes back the moment when revenue starts flowing from these assets.
At least one AWS supply chain team did not have "a clear forecasted path" for getting racks into data centers, according to one of the emails reviewed by Business Insider.
An Amazon spokesperson said the company routinely stages finished hardware near deployment sites so it can be installed once power capacity is available, calling that approach "best business practice."
The spokesperson added that AWS has "long-established systems" to track infrastructure assets and disputed that the broader company lacks a forecasted path for getting racks into data centers.
This problem is not unique to Amazon.
Bernstein analysts wrote in a recent note that power permits, cooling systems, electrical equipment, construction, and hardware all move on separate schedules.
"Timing is imperfect," the analysts said.
"Inherently uncertain"
John Felton, Chief Financial Officer of Amazon Web Services
Chris Jung/NurPhoto via Getty Images
During the internal staff meeting in September, Felton, the AWS CFO, described the broader problem eloquently: "How do you work in the future when the future is inherently uncertain?"
Kalyanaraman, the AI infrastructure leader, said Amazon's internal outlook for the return on its AI investments had improved. But the assumptions behind those returns keep shifting.
"The forecast is changing on a daily basis," Kalyanaraman said. "The world that we live in is extremely dynamic."
Those shifting assumptions include when data centers will be ready and how much equipment AWS needs to keep on hand, he explained.
An eight-week supply buffer might be routine for a smaller company. But at Amazon's scale, Kalyanaraman said, this could mean holding "billions and billions of dollars" worth of additional equipment inventory — tying up precious cash.
Frugality meets the AI boom
Such tensions are especially striking for Kalyanaraman, a 21-year Amazon veteran who earlier this year was promoted to the elite S-team that reports directly to Jassy.
Amazon's founding story is defined by frugality. It famously used cheap doors as desks when founder Jeff Bezos started in Seattle in the mid-90s.
Kalyanaraman has absorbed this lore into bones. In late 2023, as AWS faced slower growth and layoffs, he urged employees to do more with less. "Frugality breeds innovation," he said back then.
That instinct still shapes his approach. In the September meeting this year, Kalyanaraman told Felton that AWS tries to make major investments at the "last responsible moment," when it has the clearest possible view of demand.
"If we can wait to spend the capital as late as possible, it's better for us," he said.
Amazon CEO Andy Jassy
Bloomberg/Getty Images
But the frenetic pace of the AI boom makes this principle difficult to follow. By the time demand is fully visible, the servers, power, and construction capabilities that AWS needs may no longer be available. That puts pressure on the company to commit more money sooner to secure supply and meet its data center capacity goals.
Kalyanaraman recalled telling Jassy in 2023 that AWS would "surely" be out of its capacity crunch by 2027. Instead, Amazon still expects demand to exceed its available capacity in 2027, the AI infrastructure chief said during the meeting this September.
Secured Power at Risk
Getting enough electricity may be the biggest challenge for an industry leader like Amazon.
The company has 44 gigawatts of data center capacity under development across 16 states, more than double Google, Meta, and Microsoft, according to Cleanview Research estimates.
An internal AWS dashboard called "Secured Power at Risk" tracks utility and regulatory constraints affecting electricity capacity AWS has lined up for its data centers.
The risks include transmission bottlenecks, requirements to reduce use during grid stress, and "use it or lose it" provisions that can jeopardize capacity if a data center project misses usage or construction milestones.
In other words, AWS is not simply waiting for electricity to arrive. It is managing a portfolio of commitments that can become more costly if a data center project is delayed.
Maryland proposals
A submission to Maryland's utility regulator last year, obtained through a public records request, illustrates the kind of exposure that can accompany massive data center buildouts.
Amazon told the Maryland Public Service Commission that large data center customers could help pay for grid upgrades or bring new power capacity to market without burdening other electricity ratepayers.
The company also proposed setting aside collateral to help utilities get more comfortable with the large investments needed to generate more electricity for data centers. Amazon proposed three years of collateral so that if a large electricity customer abandoned unused capacity, the utility would have time to re-sell the power.
The proposal is not evidence that AWS has made such a payment or posted collateral. It does, however, show that large data centers can face extra financial obligations, beyond their own electricity bills, if projects are delayed or cancelled.
The Amazon spokesperson said such utility rules are not unique to AWS. The company has not disclosed how much cash it has paid upfront to secure power.
New constraints 'keep popping up'
The AI buildout also incurs expenses that are harder to model than a conventional capex plan.
In the September meeting this year, Kalyanaraman said that while reviewing plans for gigawatts of capacity in West Texas, AWS confronted a labor problem: There weren't enough nearby pipefitters, electricians, and other skilled workers to build the facilities.
The company's response, he said, was to pay to construct housing complexes near its data centers so workers could live there for the two or three years needed to complete the projects.
Even the crates used to ship servers have become a planning issue. It may seem absurd to worry about the price of a container when servers cost hundreds of thousands of dollars, Kalyanaraman said. But at AWS's scale, where the company needs so many crates, even trivial items can become a material expense.
"We have new constraints that keep popping up," Kalyanaraman said.
Ontario government inspectors checked several career colleges that had experienced "concerning" growth in applications for the Ontario Student Assistance Program (OSAP), a government financial aid program that helps eligible students pay for post-secondary education. The investigators found problems that raised "serious concerns" at three Academy of Learning institutions, like signs that other people might have been doing students' schoolwork for them—for example, some students finished whole courses in a single day, or even just minutes. A few students could not even name their school or program of study. The inspectors also found shared computer logins from many different locations and said the schools could not prove that OSAP-funded students were really taking the classes they claimed to be enrolled in. These three locations took in more than $219 million in student aid money for about 14,800 students in one year, so the province decided to stop letting new students use that aid at the schools. The colleges deny most of the claims and are fighting the decision in court.
Ahead of election, former central bank deputy governor Zvi Eckstein says outgoing government's decisions have impacted country's growth, with economy at risk unless changes are made
As the Trump administration's short-lived Department of Government Efficiency (DOGE) project implemented its plan to downsize the federal workforce, there was much wailing from the liberal institutions in Washington, D.C.
Federal employee unions filed lawsuits to block the effort. NPR ran profiles of federal workers who, for the first time, faced the prospect of potentially not having absolute job security forever. The Brookings Institution wondered how many jobs the federal government could shed before it crashes.
The answer: plenty. The Trump administration has cut more than 10 percent of the federal workforce, and the government hasn't crashed. Indeed, it hasn't even shrunk—if you're counting by dollars spent instead of people employed.
In a new article for City Journal, Manhattan Institute senior fellow Judge Glock highlights the tremendous gap between the dire predictions about DOGE's cuts and the reality that has emerged, more than a year after DOGE was shut down. Despite having only a modest impact on spending, Glock writes, DOGE "had a massive impact on the federal civil service."
This is true—to a point, more on that in a moment—and notable. Aside from a modest downsizing in the 1990s, the number of people employed by the federal government has been steadily growing for decades. Reversing that trend is one of the few genuinely libertarian accomplishments by the Trump administration.
The cuts to the federal workforce prove that "DOGE worked," argues Glock.
Well, hold on.
Elon Musk and Vivek Ramaswamy (who departed the DOGE project before Trump's inauguration and is now running for governor of Ohio) set some very ambitious goals after being appointed DOGE co-chairs in late 2024. In an op-ed for The Wall Street Journal in November 2024 where they promised "we won't just write reports or cut ribbons. We'll cut costs."
Yes, Musk and Ramaswamy also said they would reduce the federal workforce. But that was presented as a natural consequence of cutting spending, not as the primary goal.
Think about it like this. If I spent months promising my friends and family that I would lose 50 pounds on a new diet, and then didn't lose any weight, would it be fair to say the diet worked?
What if I reduced the number of donuts I eat every day, but still didn't lose any weight? Sure, that might be good for my health in some way—just like reducing unnecessary workers in the federal government is good for America's fiscal health—but it certainly wouldn't mean I had achieved the goal of losing weight.
Finally, even the claim that DOGE cut the federal workforce requires an asterisk. As Glock also notes in his report, the decline in federal workers has been offset by an increase in federal contractors.
It's not a one-for-one trade, of course. The new contractors are overwhelmingly concentrated in places like the Department of Homeland Security and the Pentagon, while the cuts mostly targeted other areas, like the Department of Health and Human Services.
"Most of that increase came from the buildup in homeland-security and defense contracting, including purchases such as surveillance aircraft and tanks, rather than substitutes for government workers," Glock writes. "DOGE achieved real contract savings, but these were more than offset by higher spending elsewhere, reflecting a shift in priorities rather than an overall reduction in contracting."
So, the government is eating fewer donuts but more pizza.
There might be libertarian reasons to prefer contractors over government employees. They are less likely to hold those jobs for life, for one. But there's nothing inherently good about a government policy that cuts jobs in some areas just to create more room in the budget for poorly trained immigration enforcement agents and defense contractors. That may even be a negative outcome for liberty.
In the end, the DOGE project looks less like a meaningful attempt at cutting government spending or employment levels and more like a way to purge parts of the federal workforce likely to get in Trump's way during his second term. "As long as [Trump's] larger commitment is to extending his power rather than rolling back power itself, you shouldn't expect the government to stop growing," as Reason's Jesse Walker wrote last year in comparing DOGE to President Richard Nixon's attempted purge of the civil service.
Did DOGE work? Only if you grade it on a pretty dramatic curve.
Yes, it proved that a president can slash bureaucratic jobs—particularly the bloated managerial and administrative types—without doing much damage to the government's core responsibilities. That's a lesson future administrations should remember.
Maybe, someday, a president will try applying the same logic to government spending too.
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