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Newsom on Israel: Substance or Political Signaling?

California Governor Gavin Newsom referred to Israel as an “apartheid state,” a characterization motivated more by his view of the 2028 primaries than reality. Within Israel’s recognized borders, roughly 1.7–2 million Muslim citizens live in the country—about 20% of the population. They vote in national elections, hold seats in the Knesset, worship in over 400 mosques, and can and do volunteer to serve in the IDF. (They are not subject to the draft.)

The more serious debate concerns Israel’s control of the West Bank and Gaza and the repeated failure of a two-state settlement. Since the 1993 Oslo Accords, negotiations tried to move forward incremental creating a Palestinian state while delaying harder issues for future negotiations. The failure of these negotiations and the current situation in Israel had more to do with the Palestinian leadership positions than the Israeli leadership positions.

https://www.jns.org/bill-clinton-reflects-on-oslos-failure-and-the-current-gaza-war/

Newsom is not well positioned to move the ball forward on a two-state solution, unless it involves Michigan and Arizona.

Newsom on Emissions: Environmental Policy or Political Signaling?

California is in the news this week after the Trump administration filed a lawsuit challenging the state’s aggressive vehicle-emission rules and electric-vehicle mandates. California has historically relied on a special provision in the Clean Air Act allowing it to seek federal waivers to set stricter vehicle standards than national rules. The waiver pathway is now uncertain because of the 2025 Congressional Review Act.

If the goal is to reduce gasoline car ownership, why rely on federal waivers and regulatory mandates at all? California has clear authority over its own taxes and vehicle registration fees. A gradually rising annual registration fee on gasoline-powered cars—phased in over five or ten years—could push the market in the same direction while avoiding a federal preemption battle.

This approach was successfully used by Norway which imposed steep registration fees and taxes on gasoline powered vehicles only. Only seven petrol-powered cars were sold in Norway in January 2026.

https://www.whichcar.com.au/news/just-seven-traditional-petrol-powered-cars-sold-norway-last-month

The policy worked in Norway not because drivers were ordered to buy EVs, but because the economics made them the obvious choice. If the objective is to move the market rather than fight regulatory battles with Washington, that model suggests California may be pursuing the more complicated path.

Housing Affordability: Is Student Debt the Real Problem?

The Trump administration also issued executive orders this week aimed at improving housing affordability. The directives focus largely on supply—reviewing federal regulations that slow housing construction, encouraging faster permitting, and expanding access to federally backed mortgage credit through agencies such as Fannie Mae and Freddie Mac. These steps address long-standing bottlenecks in housing supply.

But they do not address the largest financial constraint facing many younger households considering a home purchase: unaffordable student-debt obligations tied to the Trump administration’s Repayment Assistance Plan (RAP). Mortgage underwriting treats required student-loan payments as fixed obligations, directly reducing how much first-time buyers can borrow.

The Trump RAP program will kill housing opportunities for many young adults with student debt as discussed extensively on this web page.

· Payment brackets apply to total AGI, not just marginal income, creating abrupt jumps in required payments when borrowers, cross thresholds.

· Payment thresholds are not indexed to inflation, meaning normal wage increases can push borrowers into higher payment tiers even when real purchasing power is unchanged.

· Combined household income can create a marriage penalty, sharply increasing required payments once two borrowers marry.

· Repayment periods can extend up to 30 years, keeping loan obligations on household balance sheets through the years when families typically buy homes.

· Interactions with retirement-saving decisions (such as tax-deferred contributions that reduce AGI) can reduce payments initially but lengthen repayment and increase total lifetime cost.

Texas Reality Check for the Democratic Party

Another signal about the national political landscape comes from Texas’ 23rd Congressional District, where the Republican nominee will almost certainly be firearms-industry YouTuber Brandon Herrera after incumbent Rep.

Tony Gonzales dropped his reelection bid after the close first-round result amid a major personal scandal. Gonzales admitted to an affair with a staff member who later died by suicide.

Herrera himself has generated controversy after videos resurfaced showing him discussing owning Nazi memorabilia and joking about Holocaust themes, which he has said were intended as satire.

The broader strategic question for Democrats is simple: if the party cannot compete even in a race defined by scandal and a controversial opponent in a majority-Hispanic district long viewed as competitive, they have a problem and should like the main character on the show Silicon Valley “Look Inward.”

Democratic Party Reality Check in Montana:

Another interesting political development comes from Montana, where an independent candidate is entering the Senate race, raising the possibility that Democrats could finish third behind both the Republican nominee and the independent.

Political reality can be uncomfortable, but it should not be ignored. If Democrats cannot compete in a state at the Senate level, the strategic question becomes whether staying in the race helps or simply splits the non-Republican vote.

The challenge for any third-party candidate is that success cannot be built merely as a proxy for “not Republican”—it must stand for something distinct. The actual path to durable third-party influence likely runs through the House of Representatives, where smaller races, lower fixed costs, and the closely contested votes for Speaker of the House make coalition plausible.

Authors Note: This is a very busy and productive time at www.economicmemos.com.

I wrote several papers this week on how two AGI linked programs – the ACA premium tax credit and the RAP student loan program impact marriage incentives through implicit marginal tax rates. Start with either of these papers.

I wrote an article on how private credit markets are imploding for investors while Washington considers deregulations which would expand their use to more retail brokerage accounts and retirement accounts.

I wrote a articles on wealth tax proposals. Here is one.

Most of the material is free but some is behind a paywall. Free subscribers get one post behind the paywall free.

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Topics this week -- market turmoil moving from industry level concerns to geopolitics, HHS working on draconian health insurance rules which would further increase household financial risk and interesting Senate and House primaries in Texas.

Key Results:

· Geopolitical Pivot: Market focus shifts entirely from AI micro-trends to macro risks in the Strait of Hormuz.

· ACA Shift: HHS is building on the lapsed ACA premium tax credits through 2027 rules that expand the use of catastrophic health plans and shift risk to households. Additional Republican health care proposals are stalled in Congress.

· Mediocre Primaries for Texas Senate: Neither the Republican nor Democratic Primary for the Senate inspire confidence in the political process. The outcome will either be more of the same or increased polarization.

· Factors impacting Races for Texas House Seats: Not that many seats will be in play in the general election. The most uncertainty involves competition between MAGA and traditional conservatives in Republican primaries.

Market Shifting from Micro to Macro and Geopolitical Concerns

The market outlook for Monday, March 2, centers entirely on Iran. This marks a sharp pivot from last week’s micro-focus, where the focus was on NVIDIA stalled despite stellar earnings, AI killing various industries, excessive AI spending leading to the end of the bubble, and looming problems in the private credit market.

Recent blog posts at www.economicmemos.com have dealt with two of these issue, the cap on NVIDIA stock price because of investor’s need to diversify and the reasons why contrary views in a heterogeneous market with buyers and sellers with different viewpoints don’t offset, they often lead to big selloffs. I am planning to write a long in-depth piece on potential looming problems in private credit markets next week. Some smart people are beginning to raise concerns.

I, like most investors, will likely be fixated on events in the Strait of Hormuz. It is likely that the market reaction to the war will reset stock prices across the board reducing investor should concerns with micro or industry levels. There may in fact be some buying opportunities due to the market reset, especially for people with liquid assets.

HHS Moves to Reshape the ACA After Enhanced Subsidies Expire

Following the lapse of the enhanced premium tax credits, the Department of Health and Human Services is advancing a set of administrative rule changes that would significantly reshape the ACA marketplaces beginning in 2027. (See the New York Times: New ACA Plans Could Increase Family Deductibles to $31,000.) The core shift is toward expanded access to catastrophic and high-deductible plans for people over 30 at incomes below 100% and above 250% of the federal poverty level. At the same time, HHS would allow new “uncapped” bronze plans with very high out-of-pocket exposure and grant insurers more flexibility in multi-year benefit design. The policy goal appears clear: lower monthly premiums by permitting thinner coverage and shifting more financial risk to households.

Separate Republican proposals to expand Health Savings Accounts move in a similar direction but require legislation and are currently stalled in Congress. Early next week, a more in-depth analysis of the HHS regulatory proposals will be published, examining in greater detail how this Republican approach contrasts with both the Democratic Party’s vision and the Bernstein framework (my framework). The tradeoffs across plans are complex and warrant careful review.

Two Volatile Senate Primaries in Texas

Both the Democratic and Republican Party are holding volatile Senate primaries on Tuesday March 3, 20256 with a runoff on May 26 if no candidate receives more than 50 percent of the vote. Neither primary has reinforced public confidence in the electoral process.

The Republican race among incumbent Sen. John Cornyn, Attorney General Ken Paxton, and Rep. Wesley Hunt appears highly likely to head to a runoff, probably between Cronyn and Paxton. Cornyn the incumbent is a conservative highly respected legislator. Paxton, the MAGA candidate, was impeached on 202 charges, accused of adultery and acquitted by the U.S. Senate. President Trump has not made an endorsement in this race.

The Democratic race is between Congresswoman Jasmine Crockett and James Talarico, Member of the Texas House. Democrats believe they can win in Texas this year even though no Democrat has won statewide since 1994, Ann Richards being the most prominent. Democrats maintain they can win Texas, especially if Paxton is the nominee, but both of the two main candidates are flawed and somewhat inexperienced.

Crockett has cultivated a sharp-edged national profile, frequently appearing on cable news and leaning into confrontational exchanges. She has also faced backlash for remarks asserting that some Hispanics who voted for Donald Trump exhibit a “slave mentality.”

Talarico is viewed by most as the better match for Texas because of his religious background and his opposition to Ten Commandments in the schools (not the most pressing issue, that is always the economy.). The Democratic race escalated after former Rep. Colin Allred, the party’s 2024 Senate nominee, endorsed Crockett following allegations that Talarico had referred to Allred as a “mediocre Black man” in a private exchange. Talarico disputes the characterization.

Neither Democratic candidate, if elected, is capable of coming up with novel economic solutions that would address the nation’s problems. The most experience and knowledgeable candidate in the race is the Republican incumbent Cornyn, a fiscal conservative who has not made that much progress on addressing core issues.

So, the most likely outcomes of the Texas Senate election are either maintaining the status quo or the elevation of a more polarizing and/or less experienced figure to the United States Senate.

One final thought -- a Crockett-Paxton matchup would be the most polarizing race in the country.

Texas House Primaries and Limited Competition between Parties in the General House Election

Redistricting has limited the number of competitive seats in November. The Republican primaries on Tuesday, March 3, will impact whether the next Republican Congress leans toward populist MAGA energy or traditional conservatism:

Republican primaries:

• TX-02 (Dan Crenshaw vs. Steve Toth): Incumbent Dan Crenshaw is facing a fierce challenge from state Rep. Steve Toth. Toth is running as a hardline MAGA populist, attacking Crenshaw for his support of Ukraine aid and his dismissal of 2020 election claims. With endorsements from Ted Cruz and the House Freedom Caucus, Toth is testing whether Crenshaw’s military record and “principled conservatism” can survive a populist wave.

• TX-21 (The Race for Chip Roy’s Seat): With Chip Roy vacating this solid-red seat, the primary has become a proxy war. It pits business-oriented traditionalists against multiple candidates vying for the “MAGA mantle.” Because this district is safely Republican, the winner of this primary is virtually guaranteed a seat in the next Congress, setting a clear ideological tone for the delegation.

• TX-23 (Tony Gonzales vs. Brandon Herrera): Incumbent Tony Gonzales is fighting to hold off “Gun YouTuber” Brandon Herrera in a race testing whether a traditionalist who bucks party lines on gun safety and immigration can survive. The contest has tightened dramatically following reports of a personal scandal involving Gonzales and a staffer, leading to growing calls for his resignation and making his reelection deeply uncertain.

General House Elections in Texas:

Because of the 2025 mid-decade redistricting, which “reddened” safe seats to protect incumbents, only a few districts remain truly competitive for the general election:

· TX-15: Incumbent Monica De La Cruz defends a Rio Grande Valley seat that was redrawn to favor Republicans but remains a top Democratic priority. 🌵

· TX-34: A high-stakes rematch where Mayra Flores attempts to reclaim her seat in a district redrawn to be a pure toss-up. 🗳️

· TX-23: Democrats view this moderate-leaning district as a prime opportunity to flip a seat in November, if the firebrand Brandon Herrera wins the GOP primary, which is possible because of the Gonzales scandal and because of high-profile conservative endorsements. Democrats might also win against Gonzales because of the scandal.

· TX-28: Henry Cuellar remains in a perennial battleground, though his recent pardon and conservative record make him a unique and formidable incumbent. His district was alerted to probably make him safer from a challenge in the primaries but a bit more vulnerable in the general election.

Authors Note: Just barely got this out in the weekend to avoid the second consecutive Weekend Update issued on a weekday. I want to announce a new benefit for paid subscribers. Paid subscribers will be allowed to submit an article for publication on www.economicmemos.com. The guidelines on how to submit a paper and a road map to the multitopic blog are on the about page at the web site.

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The topics in this column – Iran, the Texas Senate Race, America providing health care to Greenland are not -- Ha-Ha – funny, but there is some black humor here.

Iran: Ongoing suppression inside Iran is one of the most horrific events of the century, witness this WSJ footage. I watched some Democrats (respected members of my own party) whine about the need for diplomacy, how military action could accomplish nothing and how any military action would be illegal.

There is no pure diplomatic solution to what is happening in Iran. On the alleged illegality of Presidential action, previous cases suggest that unless Congress cuts off funding the president’s actions are likely legal even after 60 days of combat, something that has not yet happened with Iran.

Thank God for the court’s ruling letting Clinton to proceed in Kosovo because who know how many people would have been slaughtered and what the world would look like if it had gone the other way.

I am actually quite confident that, in the current situation in Iran, limited actions by the CIA and Mossad with some backup air support could turn the tide and create a free Iran very quickly.

The Democrat party’s reaction to what is happening in Iran reminds me of the first part of the movie Remains of the Daywhere a British lord in early 1930s attempts to persuade his peers that the Germans were the good guys. One big difference from today, in the movie the American (played by Christopher Reeve) was the good guy.

Tariffs: The Supreme Court’s 6-3 decision on February 20, 2026, striking down the administration’s global tariffs, is a landmark for the separation of powers. It also serves as a significant validation of the analysis I published here months ago. In my previous post, The Legal Case Against Tariffs, I argued—well ahead of the current headlines—that these levies, like Biden’s student debt discharges, did not address a bona fide emergency.

The court wisely placed an injunction on the loan discharges but did not do so on the tariffs. The remaining question is who gets the refund, the company paying the tariff initially or the consumer who paid part of the tariff through a higher price.

Texas Senate Seat: Nate Silver wrote a column today stating that Republicans could lose the Texas Senate seat by nominating Ken Paxton. This is possible but I think an equally important point is that the Democrats have no chance of victory if they nominate Crockett, who has argued that Hispanics who vote for Donald Trump have a slave mentality.

The Democrat nominee will be the underdog whoever they nominate. Nether potential Democrat nominee has won a statewide race (no Democrat has in Texas since Ann Richards) but Paxton’s statewide victories were before his impeachment.

James Talarico, a religious teacher who loves the Ten Commandments but does not want them in the schools comes off as a good match for Texas but I am not sure that this is the most important issue. (Even most atheists don’t disagree with six of the ten commandments.) However, if the allegations and adultery claims raised in the impeachment trial are true, Ken Paxton has violated four of the commandments same number as an atheist, just different commandments.

Meatloaf would say Two Out of Three Ain’t Bad but six out of ten is a bit lower than two out of three. A Talarico-Paxton match up gives the Democrats a real shot at victory, but in my view Talarico would be the underdog.

America Providing Health Care to Greenland? So, trump announced plans to send a navy health care ship to Greenland, a country with universal health, care after letting the enhanced ACA premium tax credits expire, an action that is causing a substantial increase in premiums and loss of coverage.

Authors Note: I am committed to keeping most of the material on this blog free to all readers. This post is free. Most of work on how AGI linked programs are distorting incentives and altering financial behavior is free, but I am beginning to put some of my more technical research behind a paywall. Please consider either the free or paid subscription. I appreciate your support. Go here for Not Your Father’s Marriage Penalty.

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