Albany continues its misguided approach to helping New Yorkers. After three years of inflation at four-decade highs, the new minimum wage policy will make it even more expensive to live, work, and do business in the Empire State. If Albany really wants to provide New Yorkers relief, politicians should set a New Year’s resolution to get out of the way.

Why The Minimum Wage is a Bad Idea

A price tells us how much of a good or service is available and how much people want that good or service. It is what economist Alex Tabarrock calls “a signal wrapped in an incentive,” using the example of oil. When the price of oil rises (all else being equal), it signals to buyers and sellers that oil has become scarcer and gives them an incentive to act on that signal (drive less, buy more fuel-efficient cars; seek, import, or refine more oil). As Tabarrock puts it, the price change informs producers, consumers, and other market watchers: “Find ways to economize on oil or develop substitutes, and you will profit.”

Wages are the price of labor, sold by potential employees and purchased by potential employers. Unlike oil, however, wages tend to be “sticky,” meaning that they do not adjust downward (even when falling wages would help end a recession) as readily as other prices do. This owes to several characteristics unique to wages. First, because wages are often contracted between an employer and employee, and a downward adjustment could result in legal consequences. Additionally, employers tend to be hesitant to cut wages as it lowers morale and, ultimately, productivity. Wages can still adjust downward when employees lose jobs and are rehired by different employers at a lower rate than in their prior position. A minimum wage law constitutes a legal price control requiring employers to pay employees at least a certain wage, complicating matters. As AIER Senior Fellow Dave Hebert put it, “The simple fact is that when the price of anything increases, people respond by purchasing less. With minimum wage legislation, reduced employment is concentrated on the very people who are supposed to be the beneficiaries.”

When employers have less flexibility on wages, they adjust on other margins. That may mean hiring fewer workers, reducing hiring of non-college employees (even when a degree is not essential to the position) or without a criminal record. Other adjustments business owners might make include shortening weekly hours of work, reducing options for customers (as is the case with Chipotle), automating jobs, or in extreme cases, opting to close the business entirely.

In the end, the minimum wage hurts people more than it helps them, and none are negatively impacted more than the poorest Americans. Since 2014, New York State has set a minimum wage higher than the federally mandated minimum of $7.25 per hour. A high minimum wage, combined with other onerous regulations and punitive taxes continues to chase New Yorkers out of the state. Minimum wages are also arbitrary, affecting some businesses more than others. Only a political mind could or would think that setting a single price for labor across the vast spectrum of firms, products, and services makes sense.

Why Indexing the Minimum Wage to Inflation is an Even Worse Idea

The problems associated with minimum wages worsen substantially when increases are indexed to inflation. When the minimum wage is set by legislation, there is at least an opportunity for businesses to increase productivity and wages above the minimum wage. If a minimum wage is indexed to inflation, minimum wage increases could outpace productivity. That means businesses will struggle to keep up with the costs of employment, driving employers to hire less, automate faster, and shrink the number of goods and services their businesses produce. 

An inflation-index minimum wage will disproportionately damage small businesses operating on thin profit margins, such as grocery stores, which have a just over a one-percent profit margin. For every sales dollar a grocery store receives in revenue, it earns around one and one-half cent. As businesses shut down or leave the Empire State because of their inability to keep up with the inflation-indexed minimum wage, perhaps lawmakers in Albany will finally learn Thomas Sowell’s lesson: “[T]he real minimum wage is always zero, regardless of the laws…” (When it comes to waiting for learning in the political sphere, it’s best not to hold one’s breath.)

How Can New York Get Back on Track? 

Also recently, New York State Governor Kathy Hochul announced that New Yorkers may receive a one-time $500 “Inflation Refund” check from Albany in 2025. It’s a gimmick funded by tax hikes, spending cuts, and/or taking on more debt (read: tax hikes and/or spending cuts in the future) and won’t help struggling New Yorkers.

If politicians in Albany want to help New Yorkers increasingly besieged by the adverse consequences of workplace interventionism, and make the Empire State a place where people want to live and work, there would be no better place to start than with reversing disastrous minimum wage policies. That won’t fix all the problems in New York, but people are more likely to keep their New Year’s Resolutions when they set defined, targeted goals.

For a young woman attempting to knit her first sweater, tariffs might seem like a distant concern, more suited to headlines than handmade goods. But as the Trump administration proposes new tariffs, the ripple effects could reach deep into the heart of not just the crafting world but all small enterprises, tightening a thread of economic strain through communities that thrive on creativity, craftsmanship, and small-scale commerce.

Tariffs, essentially taxes on imported goods, are aimed at encouraging domestic production by making foreign products more expensive. While they may serve as a tool for boosting domestic industries, they also inadvertently put a strain on small businesses that depend on these imports and are disproportionately impacted by price increases and supply chain disruptions. For artisans and craft business owners, many of whom rely on unique materials and tools sourced from around the globe, this means an increase in costs that can’t easily be absorbed.

The impact of the Trump administration’s proposed tariffs extends beyond imported goods. Even products made in the US aren’t immune, as heightened costs throughout their supply chains could lead to higher prices for domestically produced items. Take for example Premier Yarns, a popular choice for the fiber arts community — and my yarn of choice. While the yarn itself is manufactured in the US, the raw fibers are often sourced from Turkey, making them one of about 45 percent of businesses that depend on imported raw materials according to the National Association of Manufacturers. Tariffs on these imported fibers could lead to increased production costs, even for yarns produced domestically, affecting everything from pricing to production schedules. 

Recent studies offer compelling insights into how tariffs present a complex challenge for small businesses, extending far beyond the crafting sector. A comprehensive study by the National Bureau of Economic Research shows tariffs introduced under the previous Trump administration were borne almost entirely by American consumers and enterprises. These costs disproportionately impact small businesses, who often lack the financial flexibility and resources to absorb increased costs resulting from tariffs, making them more vulnerable to shifts in policy. Reports from the Peterson Institute for International Economics also highlight how tariffs intended to protect domestic industries inadvertently act as regressive taxes that indirectly hurt lower-income consumers and increase production costs for small businesses, stifling their ability to compete both domestically and globally.

Faced with rising costs, craft business owners are often left with two choices: adapt or stagnate. The artistic compromise or scaling back of craft businesses could be a silent casualty of the trade policy. Some might seek out lesser-quality materials to keep prices stable, but at the cost of diminishing the allure of their artisanal brand. Others might raise prices to maintain their art’s integrity but risk losing customers in the process. Of small business owners surveyed, 27 percent intend to handle a tariff induced rise in costs through attempts to cut spending in other areas, with 64 percent saying they would ultimately have to increase their prices. Neither choice is appealing, and both carry the risk of stifling the creative innovation that is a hallmark of the craft business community.

The impact of these tariffs extends beyond individual crafters to the broader economy. Local economies thrive on artisan markets, craft fairs, and tourism. These micro-economies hinge on a delicate balance of supply costs, consumer prices, and discretionary spending. When tariffs disrupt this balance, reducing consumer spending up to $78 billion every year the tariffs are in place, the effects can cascade from the individual artist to the broader community, especially in communities where local artisan shops are significant contributors to economic activity.

As we assess the landscape shaped by the proposed tariffs, it becomes evident that the implications extend far beyond the studios of individual artisans, permeating every facet of small business operations in America. Protectionist policies designed to bolster large manufacturers can inadvertently harm small businesses that contribute significantly not just economically, but to the cultural vibrancy of their communities. These enterprises, from local coffee shops to tech startups, form the backbone of the US economy, driving innovation, employment, and community development. When tariffs disturb the delicate equilibrium of operational costs and consumer prices, the very vibrancy and resilience of this sector are put at risk.

As policymakers continue to debate trade measures, it is imperative that they consider their far-reaching impact on the diverse tapestry of American small businesses. The right policies can either cultivate a thriving garden of diverse artisan enterprises or trample them in the mud of unintended consequences. The hope is that policymakers will recognize the unique vulnerabilities of these small enterprises and knit policies that help, rather than cripple, the rich mosaic of small enterprises that bolster our economic and cultural landscapes.

Just as every stitch counts in a sweater, so too does every small business in the broader economic fabric of the nation.

Consider the fictional little country of Dynamia. Although, strictly speaking, this place is a product of my imagination, my imagination here sticks closely to essential facts of reality. Dynamia is very much like a real-world country in a modern market-oriented society.

The citizens of Dynamia are secure in their property and contract rights, and they have among their numbers several entrepreneurial types – individuals with creative ideas about how to earn profit by offering attractive deals to their fellow Dynamians and, increasingly, to foreigners. The great majority of Dynamians admire hard work and entrepreneurial gumption and grit.

The Dynamian currency is the dynam. When the people of this country import goods, they pay in dynams, and when they export goods, they are paid in dynams.

In 1985, Dynamians had relatively little trade with foreigners. In that year, a large number of Dynamians worked in the country’s two lumber mills, Westside Lumber and Universal Lumber. These workers, and others, spent much of their income at the movie theater, Phillips’s Hardware Store, Buddy’s Diner, and Boo’s Tavern. Things weren’t perfect – they never are – but Dynamians today who can recall their nation of forty years ago remember it as peaceful, prosperous, and happy.

Around 1990, one of the Dynamanians, Alex, invented a material – Woodlike^© – that serves as an excellent substitute for plywood. Alex opened a factory in Dynamia to produce this product. Largely because the production of Woodlike uses less labor than does the production of actual plywood, to produce one sheet of Woodlike costs about half of what it costs to produce a sheet of actual plywood. Alex therefore charged lower prices for his product than were charged by the lumber mills for theirs. Dynamians who were building or refurbishing their homes switched heavily from using actual plywood to using Woodlike.

Losing business to Woodlike, the lumber mills downsized. Some of the former mill workers found new jobs immediately, but most of them took several weeks or months to find new employment. For many of them, the times were difficult. (Yet one of these former mill workers, Ron, eventually converted an abandoned part of a mill into a potato-chip factory and, as result, made a fortune as a potato-chip entrepreneur!) Some workers retired. Some searched for opportunity by moving to other parts of Dynamia.

Some of the money that Dynamians saved by buying Woodlike was spent on more evenings dining out. Several new upscale restaurants opened in Dynamia. These new venues enjoyed a brisk business as Buddy’s Diner and Boo’s Tavern served fewer and fewer customers. Buddy’s and Boo’s eventually went bankrupt, with Buddy himself finding a new job as assistant manager of one of the new restaurants.

The buildings that housed Buddy’s Diner and Boo’s Tavern were torn down, as were several other nearby structures, and in their place was built a Home Depot. The Phillips family, who had operated their hardware store in Dynamia for three generations, were understandably worried. They knew that they couldn’t possibly match Home Depot’s low prices. Sure enough, Phillips’ Hardware soon went the way of Buddy’s Diner. These two once-beloved Dymanian establishments exist today only in older Dynamians’ memories.

By the year 2000, one of the lumber mills, Universal Lumber, had gone out of business while Westside Lumber survived by switching to producing specialty woods, much of which was sold in Dynamia’s Home Depot. As with the still-thriving Woodlike Corporation – which expanded and branched out into producing two-by-four studs and other products that substitute for wood – Westside by 2000 was producing its output using far fewer workers than it used fifteen years earlier. Many of the mill’s tasks that in 1985 were done manually came to be done by machine. In 2000, workers at both Woodlike and Westside produced more value per hour for their employers than did workers in 1985 at the older mills. With each company fearful of losing its workers to the other, the real wages of these workers were bid up to reflect their higher productivity.

The low prices and high quality of the products manufactured by Westside and Woodlike attracted the attention of foreigners, whose demand for these companies’ outputs skyrocketed. Dynamia became a major exporter of specialty wood and faux wooden products. But this increase in Dynamia’s exports was made possible only because Dynamia’s government followed a policy of free trade: Producers in Dynamia could export more only because foreigners had more dynams to spend on goods produced in Dynamia – and foreigners acquired this greater number of dynams by selling more of their wares to Dynamians. (Economics students at Dynamia University learn that this connection between exports and imports is sometimes called “Lerner symmetry.”)

The innovations that gave rise to Woodlike, that prompted Westside to change what it produced, and that increased the productivity of workers at both firms made these Dynamian workers more prosperous. These workers and their families increased their demands for the likes of health care, entertainment, and household furnishings. Dynamian entrepreneurs took advantage of these higher demands to create firms that supplied what these consumers, with rising incomes, wanted. Some of the former mill workers – and especially many of their children – found employment with these new enterprises. Competition ensured that these new firms operated efficiently, using the latest, economically feasible production and distribution techniques.

Dynamia’s growing wealth also attracted immigrants. These new denizens of Dynamia increased not only the supply of labor but also (because they spend and invest their incomes) the demand for goods and services. And as the demand for particular goods and services rises, so, too, does the demand for labor to produce those goods and services. This increased supply of labor encouraged and enabled Dynamian producers and merchants to make their workers more specialized. For example, as Dynamia’s population and wealth grew, that little country soon could afford physicians with narrower specialties. Whereas in 1985 Dynamia had only a few family-practice physicians, at the dawn of the 21^st century it had not only pediatricians, dentists, and gastroenterologists, it had a pediatric gastroenterologist, a pediatric dentist, and a doctor specialized in sports medicine.

As Adam Smith correctly taught, when the market incents workers to become more specialized, they become more productive. This increased specialization of Dynamia’s labor force – again, fueled by Dynamia’s rising population of hard workers – further raised Dynamians’ wealth.

Some of the higher wages earned in Dynamia were invested in pension plans, but most were spent on goods and services – larger and larger amounts of which were imported –  that enriched the lives of Dynamian families. (Some professors at Dynamia U. publicly scorned the new consumption habits of their fellow citizens, calling this consumption “frivolous” and “wasteful.” Most Dynamians ignored these intellectual scolds.)

Today, Dynamia – although still not without problems, some serious – remains prosperous and entrepreneurial. As a result, foreigners are more eager than ever to invest in Dynamia. Because these investments are made using dynams, large numbers of the dynams that Dynamians spend on imports return to Dynamia, not as demand for Dynamian exports, but as investments in Dynamia.

Of course, these investments enlarge and improve the capital stock of Dynamia no less than do investments made in Dynamia by native Dynamians. And also like investments in Dynamia made by her own citizens, these foreign investments destroy particular jobs and create others. Nevertheless, pundits at a new Dynamian thinktank – Dynamian Sextant – are forever warning that, because these foreign investments in Dynamia bring about a situation that accountants call a “Dynamian trade deficit,” Dynamian trade with foreigners is stripping Dynamia of its wealth.

Dynamian Sextant calls on the Dynamian government to severely restrict Dynamians’ freedom to purchase imports.

To bolster their case against free trade, the pundits at Dynamian Sextant remind their fellow citizens of the Dynamia of 1985. Nostalgia for those seemingly simpler, happier times prompts some Dynamians to join with Dynamian Sextant in supporting high tariffs as a means of restoring the Dynamia of the past. Yet serious Dynamians know that even if, contrary to fact, high tariffs could transform the Dynamia of 2025 into the Dynamia of 1985, Dynamians of 2025 would, upon finding themselves with the economic opportunities and standard of living of their forebears of 40 years ago, clamor for an immediate and complete return to 2025.

After all, the country’s name is Dynamia, not Stagnatia.

As beltway watchers intently debate the incoming administration’s cabinet picks and White House appointments, the more jaded observers of our economic condition have good cause to wonder: what difference does it make? The political order is dominated by high-dollar special-interest lobbyists and power-hungry bureaucrats, and lacks the incentives to reduce intervention and return decisions to the people. Can bureaucracy be made useful by better bureaucrats, or only restrained by the resurgence of individual choice? 

How will Robert Kennedy Jr., if confirmed in his proposed role as Secretary of Health and Human Services reduce obesity in America? Will he promote new regulations and taxes, which will invariably look after entrenched interests, at the expense of individual and experimental solutions? Will he, as others have, look to regulators to ban this or that ingredient, without knowing the economic or health costs of replacing them? Will he reduce the barriers to healthy food options and stop the subsidies that contribute to obesity? Will he reduce the unintended consequences generated by previous “solutions” to public health and diet fears? Will he, in short, battle political sclerosis with exactly the tools that brought us here, asking advice from those who benefit from the status quo? Or will he challenge bureaucratic-corporate collusion and reawaken a competitive market?

If he does, he’ll face a stiff fight. The building blocks of ultra-processed food — corn, wheat, soybeans, and sugar — are subsidized by the US Department of Agriculture to the tune of about $6 billion dollars per year. High-calorie food loaded with cheap soybean oil and sweeteners appears cheaper than they are relative to more nutritious and less calorie-dense foods. The magnitude of the impact on consumer choice is unclear, but here is one thing we can count on: If Kennedy, with the backing of the Trump administration, goes after subsidies, lobbyists for corn, wheat, soybeans, and sugar will turn Congress upside down to thwart him.

Trump’s nominee for energy secretary is Chris Wright. Will he be able to help reduce government spending by eliminating subsidies for solar and wind energy? I would not bet on that occurring without an epic battle in Congress.

Many might wish it were different, but in reality, crony firms will continue to exist during Trump’s presidency. The revolving door between industry and regulators will continue to revolve. Past programs’ policy blunders will continue to be propped up, often with bigger budgets. Whether Trump’s presidency is successful will hinge, in part, on his ability to break longstanding government alliances with crony firms and resist new calls for corruption. 

Let’s ask the big question. Can genuine change be achieved through political means?

In his classic book The State, the late German sociologist Franz Oppenheimer observed that there are two ways to wealth: the peaceful “economic means” and the coercive “political means.” Non-coercive wealth creation is an economic process where businesses and people fulfill consumer needs. Wealth through political maneuvering involves firms and individuals using government power to obtain unearned riches. According to Oppenheimer, economic means demand “work,” unlike political means, which demand “robbery.”  

In “Profit and Loss,” Ludwig von Mises reflected on how the “ballot of the market” forces entrepreneurs into an endless process of working to serve consumers: “The ballot of the market elevates those who in the immediate past have best served the consumers.”

Unlike politics, in a market process, people freely and easily change their minds. Mises added, “Choice is not unalterable and can daily be corrected. The elected who disappoints the electorate is speedily reduced to the ranks.”

Some businesses, unable or unwilling to adapt and serve, rely on the government to restrict consumers’ choices as a means to gain profits they could not have earned otherwise. Rather than compete to win the “election” in the “ballot of the market,” they seek to elect politicians who will support their schemes to forcibly appropriate the wealth of others, and that is robbery.

Oppenheimer’s choice of the word robbery wouldn’t have surprised Ralph Waldo Emerson. 

In his essay Politics, Emerson wrote, “Every actual State is corrupt.” He then added, “What satire on government can equal the severity of censure conveyed in the word politic, which now for ages has signified cunning, intimating that the State is a trick?” 

Emerson was writing in 1844 when the government was a tiny fraction of the size it is now. The exact size of the federal budget in 1844 was hard to come by, but in 1837 the budget was approximately $39 million dollars. (Or roughly $1.6 billion in 2024, since the dollar has lost 98 percent of its value since 1844.) Federal spending in fiscal year 2024 is around $6.75 trillion.

In short, Federal spending in 1844 was about 0.024 percent of what it is today. But, if Emerson is right, politics had already become irredeemable.

Emerson observed, “Of all debts, men are least willing to pay the taxes. What a satire is this on government! Everywhere they think they get their money’s worth, except for these.” Remember, there was no federal income tax in 1844.

Emerson railed against taxes: “A man who cannot be acquainted with me, taxes me; looking from afar at me, ordains that a part of my labor shall go to this or that whimsical end, not as I, but as he happens to fancy.” 

Emerson was clear: “The less government we have, the better — the fewer laws, and the less confided power.” 

Similar to other classical liberals, Emerson advocated for voluntary cooperation to solve mutual problems: 

Whilst I do what is fit for me, and abstain from what is unfit, my neighbor and I shall often agree in our means, and work together for a time to one end. But whenever I find my dominion over myself not sufficient for me, and undertake the direction of him also, I overstep the truth, and come into false relations to him.

Those who used coercion met with Emerson’s disapproval. He always advised working towards “self-control.” It was wrong “to make somebody else act after [our] views.”  When others “tell me what I must do” their commands are absurd. “Therefore,” Emerson wrote, “all public ends look vague and quixotic beside private ones.”

Wisely, Kennedy should consider those words, ending subsidies while preserving consumer choice. But removing self-seeking interest from government power may be among the most quixotic goals we could undertake. Can Leviathan restrain itself?

Instead of demanding government solutions, Emerson expected us to attend to our spiritual growth: “The antidote to this abuse of formal Government is the influence of private character, the growth of the Individual.”

You cannot change an effect without changing its cause. The consciousness of Americans is the cause; government robbery and overspending are the effects.

Emerson wrote: “Cause and effect, means and ends, seed and fruit, cannot be severed.” He argued we need “a reliance on the moral sentiment, and a sufficient belief in the unity of things to persuade [people] that society can be maintained without artificial restraints.” 

Do we get upset at the behavior of politicians? It’s unwise to be angry about the predictable. Emerson chided, “We might as wisely reprove the east wind, or the frost, as a political party, whose members, for the most part, could give no account of their position, but stand for the defense of those interests in which they find themselves.”

Emerson would agree with the old saying, we get the government we deserve. He said, “The State must follow, and not lead the character and progress of the citizen… the form of government which prevails, is the expression of what cultivation exists in the population which permits it.”

Individual spiritual evolution is a prerequisite for political change. Emerson wrote, “Under the dominion of an idea, which possesses the minds of multitudes… the powers of persons are no longer subjects of calculation. A nation of men unanimously bent on freedom… can easily confound the arithmetic of statists.”

In 1837, Emerson spoke to the Phi Beta Kappa Society at Harvard. It was later published as  The American Scholar. He ended his talk with a rousing call to stand for principles and not cave to expediency. He warned, “The spirit of the American freeman is already suspected to be timid, imitative, tame. Public and private avarice make the air we breathe thick and fat.”

Emerson, of course, couldn’t have imagined how much avarice would bloat government and make our political discourse “thick and fat.” The consequences are severe when private interests exploit political processes for theft. 

Some people, Emerson said, “very naturally seek money or power; and power because it is as good as money — the ‘spoils,’ so called, ‘of office.’” Such people are “sleep-walking.” Emerson advised, “Wake them, and they shall quit the false good and leap to the true, and leave governments to clerks and desks.”

Emerson knew the choice to awaken is a choice made by an individual. 

Is political change a realistic hope? Let’s start change with ourselves; societal flourishing doesn’t come from politics. The time to begin is now. For, as Emerson reflected, “This time, like all times, is a very good one, if we but know what to do with it.”

As we enter 2025, inflation remains a primary concern, frustrating consumers and confounding policymakers and economists alike. From 2019 to 2023, the Consumer Price Index (CPI) rose by 25.7 percent, reflecting a broad increase in the cost of goods and services. Grocery prices (not included in CPI) also rose by more than 25 percent and put additional strain on household budgets. 

Amid this economic strain, the term “greedflation” has gained traction, fueling public frustration and influencing even PhD economists to misinterpret inflation’s roots and offer misguided solutions. The paper Prices, Profits, and Power: An Analysis of 2021 Firm-Level Markups by economists at the Roosevelt Institute found market power is a key driver of inflation due to corporate markups and profits skyrocketing in 2021, their highest levels since the 1950s. Their proposed “all-of-government administrative, regulatory, and legislative approach to tackling inflation” — encompassing interventions in demand, supply, and market power — reads more like a recipe for an economic nightmare than sound policy.

This narrative overstates the role of corporate markups in inflation, grossly underplays the impact of government fiscal and monetary policies, and disregards basic economic principles. Worse still, the proposed interventions risk exacerbating economic instability. It’s time to move past the sensationalized ‘greed’ narrative and focus on the true drivers of inflation and why free market solutions are key to recovery.

Markups Only Explain 10 Percent of Grocery Inflation

The greedflation argument claims that markups are the primary driver of inflation, but a closer examination shows their role, particularly in rising grocery prices during and after the pandemic, was relatively minor. 

To determine whether market power significantly contributed to grocery price inflation, it is crucial to analyze the relationship between prices and markups before and after the pandemic. Data shows that while grocery markups did increase during the pandemic, their impact on overall price inflation was limited. Had grocery stores maintained their 2019 markup levels, prices would have risen by 22 percent rather than 23.5 percent, indicating that markups accounted for less than 10 percent of the total price increase. 

Instead, the primary drivers of grocery price inflation were supply chain disruptions, increased production costs, and shifting consumer behavior. Shipping costs soared by as much as 200 percent during the pandemic, while transportation labor shortages pushed wages up by 25 percent. Rising input costs, such as a 50 percent surge in fertilizer prices and a 30 percent increase in packaging material costs, further strained supply chains. Pandemic-induced bottlenecks, like prolonged port delays, exacerbated supply constraints, contributing significantly to higher prices.

Additionally, the perception of increased profits and markups in the grocery sector is partly explained by evolving consumer behavior. For example, the growing demand for private-label brands — which are more affordable for consumers but offer higher margins for retailers — has influenced profit margins. These shifts in consumer purchasing patterns may create the illusion of higher profits, but they underscore how evolving shopping habits and preferences shape the grocery sector’s economics.

Attributing inflation in grocery prices to corporate greed oversimplifies a complex issue driven by structural and economic factors beyond just markup adjustments.

Greedflation Distracts from the True Driver of Inflation — Government Policies

The greedflation argument wildly underplays the government’s significant role in driving inflation, particularly through its expansive fiscal and monetary policies. Beyond corporate markups, fiscal policies injected massive amounts of money into the economy, fueling excessive demand while supply chains were still constrained. For instance, the CARES Act, costing approximately $2.2 trillion, not only carried a hefty price tag but also incentivized Americans to stay home longer than necessary, delaying workforce recovery. Similarly, the $1.9 trillion American Rescue Plan further flooded the economy with stimulus. Adding to this, $1,400 checks were sent to 165 million Americans, totaling over $230 billion, further increasing demand pressures. 

What’s more, while large government spending bills significantly contributed to inflation, the Federal Reserve amplified these effects through its monetary policies. To accommodate the influx of fiscal spending, the Fed increased the money supply, flooding the economy with liquidity that allowed consumers to bid up prices — more money chasing fewer goods. At the same time, the Fed slashed interest rates to historically low levels, making borrowing cheaper for consumers and businesses, which boosted demand for goods, services, and housing. 

This surge in aggregate demand came at a time when supply chains were crippled by lockdowns, worker shortages, and regulatory bottlenecks. 

The combination of ultra-loose monetary policy, excessive liquidity, and delayed tightening created a perfect storm of inflationary pressures. Expansive fiscal and monetary measures, coupled with supply chain disruptions, injected unprecedented amounts of money into an economy with constrained production capacity. 

Centralized Inflation ‘Solutions’ Disregard to Basic Economic Principles

Finally, the call for an “all-of-government administrative, regulatory, and legislative approach to tackling inflation,” developed by some economists, stems from the observation that global markups — an indicator of market power — have risen by 33 percent since the 1980s. In their view, the surge in “excess profits” following the COVID-19 pandemic underscores the need for policy interventions to curb inflation.

Their proposed solutions focus on limiting profit-driven price increases through measures such as excess profits taxes, stronger competition policies, and price controls in key sectors. What makes this proposal particularly troubling is that it comes from economists — those expected to understand basic economic principles — who not only ignore fundamental market mechanisms and the true drivers of inflation but prescribe policies that will lead to an economic collapse. These interventions aim to force businesses to absorb rising costs instead of passing them on to consumers, intending to stabilize inflation and ease its burden on wage earners. However, this approach disregards fundamental market dynamics.

Claims that market power drives inflation imply that one side of the market controls prices, a fundamental misunderstanding of the price system and market mechanisms. In a free market, prices emerge from the interaction of consumers’ willingness to pay and producers’ willingness to supply. No single player, including so-called ‘greedy’ corporations, controls prices. To mischaracterize this process is to disregard the very mechanics of how markets function. 

Their proposal disregards market mechanisms and disrupts the price system, leading to consequences that chill investment, stifle innovation, and create long-term instability. History offers stark warnings: in countries like Cuba, government interventions aimed at making prices “fair” or “cheaper” destroyed the very incentives suppliers need to produce the goods and services people rely on daily. Sweeping government controls and centralized interference destabilize markets, replacing the efficient allocation of resources with arbitrary standards and government overreach. Allowing the government to define acceptable profit levels undermines the free market’s ability to function, risking shortages, market collapses, and widespread suffering. 

Inflation was not driven by greedflation but was primarily a government-made phenomenon. The greedflation argument and its proposed remedies are not merely flawed — they are dangerous, repeating the mistakes of failed policies that have devastated economies and left entire populations starving.

Inflation Solutions Start with Free Markets

The greedflation narrative collapses entirely when tested against even the most basic economic principles. Rather than corporate greed, rising grocery prices reflect market mechanisms, evolving cost-structures, federal and monetary policies, and the unique pressures industries encountered during and after the pandemic.

Profit motivation is not the problem — it is the engine of economic progress, driving innovation and ensuring goods and services reach consumers efficiently. The real issue arises when government intervenes, attempting to dictate prices and vilify profit. 

To lower inflation effectively, we must address supply chain issues, reduce inefficiencies, and foster supply-side growth through incentives, not burdens like taxes and price controls, while reducing the fiscal and monetary interventions that have fueled inflation. 

Free markets, not government controls, provide the best path to stability and growth. 

In 2016, near the conclusion of his second term, President Barack Obama was asked by Chris Wallace about his greatest mistake as president. Obama didn’t hesitate to respond. He said his “worst mistake” was “probably failing to plan for the day after what I think was the right thing to do in intervening in Libya.”

Five years earlier, a coalition of NATO members, led by France, Britain, and the United States, intervened in the Libyan civil war and overthrew the government of Muammar Gaddafi. This resulted in Gaddafi’s death and the transformation of Libya into a failed state, a condition that persists thirteen years later, which has resulted in an ongoing civil war, countless deaths of civilians, and a humanitarian and refugee crisis. The US-led intervention in Libya was strategically misguided and ultimately harmful, providing a cautionary example for future US foreign policy. It would have been a better option for the United States to have done nothing than to trigger such a calamitous descent into chaos.

Today, Libya is essentially split between two rival factions: the Government of National Unity (GNU), based in Tripoli, which controls parts of western Libya, and the Government of National Stability (GNS), backed by the eastern-based House of Representatives (HoR), which operates in the east and south of Libya. 

Efforts to hold national elections have repeatedly failed. Numerous armed groups, militias, and foreign mercenaries regularly clash. In mid-December 2024, a battle between two rival groups led to a major fire and destruction in the country’s second-largest oil refinery, which will lead to further economic turmoil as Libya’s economy depends almost entirely on oil production.

Reports of arbitrary detentions, torture, and extrajudicial killings by various armed factions are widespread. The situation has been exacerbated by the aftermath of natural disasters, notably the floods in Derna in September 2023, which resulted in thousands of deaths and displacements. Libya’s economy, heavily reliant on oil exports, has been disrupted by the conflict and counterfeiting is widespread. Ordinary Libyans face a deteriorating economic situation. Many Libyans have fled to Europe, though severe human rights abuses against migrants, including in detention centers where forced labor, extortion, and sexual assault have been reported, are common. In short, the thirteen years since the United States and NATO invaded Libya have been nothing short of disaster.

The US-led intervention that overthrew Muammar Gaddafi in 2011 is the direct cause of Libya becoming a failed state. If the goal was simply to overthrow a tyrant, it achieved that. If the goal was to put an end to the ongoing Libyan civil war, or to alleviate the suffering of civilians, or to transform a dictatorship into a democracy, or to demonstrate that Western military power could be a force for good in the world — all goals claimed by the Western powers involved — then it failed disastrously.

Libya, post-intervention, remains undemocratic and war-torn, with countless civilian casualties. It can reasonably be argued that the average Libyan’s — those still alive — quality of life is far lower today than it was under Gaddafi. Millions have been displaced, many of whom have flooded into Europe, poverty has increased (more than 800,000 need humanitarian assistance out of a population of under seven million), and food security and the availability of basic services have dramatically decreased. These criticisms collectively paint a picture of an intervention that, while initially justified on humanitarian grounds, led to unintended and severe negative consequences for Libya and the wider region.

It is clear that the United States should never have allowed France or Britain to talk it into intervening in Libya. There was a complete disconnect between the use of military force to overthrow a minor regional power — that was the easy part — and fostering an environment in which violence would cease and an effective and democratic government would emerge. The use of military power could never achieve the desired end goals. No US nor NATO plan existed for the aftermath of Gaddafi’s overthrow. This lack of planning led to a power vacuum that was filled by competing factions and militias rather than a stable, democratic government. (Keep in mind just how poor the US track record of democracy promotion is.) Critics, including Obama himself, have acknowledged that they failed to “plan for the day after” the intervention. Even had the United States and its feckless NATO allies been willing to invade and occupy Libya for years, the cases of Iraq and Afghanistan demonstrate the folly of such an approach.

By no means should this critique be read as a defense of Gaddafi. He was an odious tyrant, a proliferator of weapons of mass destruction, a once-active sponsor of international terrorism, and a perpetual thorn in the side of the United States and Western Europe. But the US and NATO military intervention in Libya has been an unmitigated disaster for the people of Libya. Like Iraq (and many other locales before it), the military intervention in Libya began with positive, humanitarian intentions. To some Europeans and Americans, the prospect of overthrowing a violent tyrant was worth the cost of intervening militarily. But that military intervention has had, predictably, a host of negative unintended consequences.

In Libya, just like in Iraq, ideology — the desire to promote democracy and humanitarianism — trumped realism and American national interests, and has resulted in a series of costly failures for all concerned. The interests of the United States and Western Europe, not to mention those of ordinary Libyans, were in no way served by overthrowing Gaddafi.

The problem is that the US military has been, and continues to be, used to conduct operations that far exceed American national interests. The invasion of Libya not only was unnecessary and cost significant resources and lives, but it also destabilized the country and region, and has opened the door to increased Russian influence in Libya. 

US national interests would have been much better served by simply taking no action in 2011 and beyond. It is also worth noting that the Congress never authorized the use of military force in Libya; the Obama administration did not seek Congressional authorization, and justified the intervention based on the president’s constitutional powers as Commander in Chief and an international mandate from the UN Security Council. The House of Representatives even voted against a resolution (HJRes. 68) that would have authorized continued US involvement, but this did not legally bind the administration to stop the operation.

Libya should be seen as a cautionary tale for future American policymakers and strategists. In deciding whether or not to use US military force to affect some outcome abroad in the future, we should return to first principles. Does taking military action, and expending our precious, finite military resources, meaningfully advance significant US interests? If not, we should take no military action. 

The best arguments mustered by supporters of military intervention, including Bill Kristol, were that Gaddafi was committing humanitarian violations and that he had once sought nuclear weapons and supported terrorism (though we should note that long before 2011, Gaddafi seems to have given up his weapons of mass destruction programs and support for international terrorism). In this neoconservative mindset, such actions justified US military action. Ironically, deposing Gaddafi only seems to have increased the amount of violence and suffering within Libya, which is likely only to exacerbate the terrorist threat. 

We should always follow the advice of past American leaders and strategic thinkers like George Washington and George Kennan: avoid unnecessary wars, defend and maintain our constitutional order, and ensure that every American has the opportunity to achieve economic prosperity. 

We can do that, placing the national interest at the core of everything we do as a nation, and remain perfectly secure, while doing no harm abroad.

However much you plan and pray,
Alas, alack, tant pis, oy vey,
Now — heretofore — til Judgment Day,
The drunken driver has the right of way.
~Ethan Coen

What principle should guide a wife and husband concerning the number of children they bring into the world? A dictate of Thomas Malthus, namesake of the Malthusian trap of merely arithmetically enlarging resources set against geometrically expanding human populations, who regarded war, famine, and epidemic as the only effective checks on massive imbalance? Or perhaps the couple pays mind to the God of Genesis 1:28, who blessed the first humans and urged them to “Be fruitful and multiply?” Are decisions about human reproduction of such great national and civilizational interest that they should be made only by a society’s elite, economists and demographers with PhDs, and politicians with the power of violence to enforce them? Or should they be left to the consciences of couples, who are far more cognizant of their own circumstances than a far-removed ruling elite in a national capital?

For about 25 years, beginning in 1979, the People’s Republic of China (an increasingly inapt misnomer) determined that such decisions were simply too societally momentous to be left to individual discretion. Instead, the state needed to intervene and tell people how many children to have, or (more to the point) not have. The “one-child policy,” grounded in a Malthusian fever dream of impending overpopulation, sought to reduce the fertility rate from about six children per woman in 1970 to one child per woman, and to do so overnight. Officials used both persuasion and coercion that extended in some cases to mandatory contraception, sterilization, abortion, and even infanticide to ensure that the dictates of the National Population and Family Planning Commission were followed, backed up by substantial penalties for failure to comply.

In one sense, the “one-child policy” may have worked. For many years, the Chinese Communist Party loudly touted its success, pointing to a fertility rate that did indeed decline to one birth per woman, crediting itself with preventing some 400 million births that would have threatened the nation’s “economic miracle.” But there were many unintended and unforeseen effects. For one, many women, especially in rural environments, were forced to hide their pregnancies and avoiding public healthcare facilities for prenatal and pediatric care. The cultural preference for sons meant that many female fetuses were aborted and female infants abandoned, resulting in today’s excess of at least 34 million males who, in a monogamous society, are left without a mate. Moreover, mothers who had given birth to girls experienced a 43 percent higher divorce rate than women who had a boy.

In addition to these horrors, the “one-child policy” was not nearly so efficacious as its proponents have argued. For example, in 1950, the fertility rate in China’s neighbor Taiwan was about seven births per woman. By the mid-1970s, it had declined to about three. By 2020, it was around one, far below the “replacement rate” at which a population is maintaining its size. In fact, both China and Taiwan now have among the lowest fertility rates in the world. And yet the Taiwanese government never instituted any “one-child policy.” It is reasonable to suppose that many non-governmental forces were at work reducing birth rates in both nations. Such factors include massive urbanization, increased levels of educational attainment, the availability of contraceptives, and rapid economic development, all of which generally track with declining fertility worldwide.

The consequences of this shift in reproductive patterns in China are likely to be severe and enduring. Tens of millions of “surplus males,” known culturally as “bare branches,” may turn out to be less socially content and more prone to criminal activity and political unrest. Less speculative are two additional mutually reinforcing changes: a dramatically higher proportion of older people in the population and a growing shortage of younger adults, who typically constitute the workforce. Preventing 400 million births means there are 400 million fewer laborers, with the result that a declining number of workers supports each pensioner. Today this ratio is about five to one, but it will decline to about two to one by 2040. The problem is compounded by the fact that China largely relies on the production of labor-intensive, low-end commodities, an unsustainable approach absent a large, skilled workforce.

Faced with such projections and the social unrest that may accompany them, how is China responding? Predictably, it is not decentralizing decision making and relying more on the discretion of individual couples and communities. Instead, it is doubling down on centralized expertise. Beginning in 2016, Chinese couples were “allowed” to have two children, and in 2021, this number was increased to three. Such approaches betray a mistaken view that the government controls fertility rates, which it can manipulate by fiat, a misapprehension further exemplified by even newer governmental programs to incentivize childbearing. For example, the government is providing increasing subsidies and tax breaks for families with small children, extending maternity leave to six months, and doubling tax breaks for childcare.

Yet the downward spiral continues. The fertility rate is not rising, many Chinese women report no desire to have more than one child, and only about 30 percent of couples with one child express a desire to have a second. New marriage registrations are in sharp decline, having fallen 25 percent year-on-year. The governmental slogan “later, longer, fewer” – delaying the first birth, waiting at least four years between births, and producing fewer offspring — appears to have become deeply embedded in the Chinese psyche, although it is debatable whether this is a direct result of government policy. Loneliness and the mental and physical health consequences associated with it are on the rise, as aging parents have fewer adult children and receive fewer visits, many young adults have no siblings, aunts, uncles, or cousins. People lead more socially isolated lives.

Headlines naturally focus on the macroscopic demographic collapse — the fact that, according to United Nations estimates, China will lose half its population by the year 2100. But the real story is far more nuanced and instructive. In a society that values the collective over the individual and allows a few rulers at the top to direct the lives of a vast and diverse populace, persons tend to be treated as mere statistics. The state does not see individuals or families, but only population trends. As a result, its power-drunk rulers implement befuddled policies that distort personal spheres of life that they cannot even perceive, let alone regulate responsibly.

And instead of learning from their failures, they simply double down on autocratic methods, wielding bulldozers and wrecking balls when they should be entrusting their citizens with needles and thread.

In the gearing up of the 2024 Presidential Election, Biden promised to shield the industry from foreign competition. My analysis suggests this situation was a political ploy to achieve stronger support in the 2024 Presidential Election amongst union workers and industry leaders in the Rust Belt. The Keystone State, Pennsylvania, is a swing state that Biden won by razor thin margins in 2020. Roughly a year ago, the US Steel decision was put on ice pending a review by CFIUS. CFIUS acts as a guard dog ensuring who can and can’t invest in the USA in order to protect “national security”. On September 22, 2022, President Biden, through Executive Order, was the first President to expand the scope of CFIUS to include, “present risks to the national security of the United States, and it is for this reason that the United States maintains a robust foreign investment review process focused on identifying and addressing such risks.”

The investment review process directed CFIUS to focus on five emergent spectra, including supply chain protection, advanced technology, industry investment trends, cyber security, and personal data. In short, Biden armed CFIUS with new mandates and now has used an undisclosed report from CFIUS to intervene in domestic and international markets, citing national security as justification to block the merger between Nippon Steel and US Steel.

While Biden’s decision may seem tailored to present, unique challenges, it continues a recurring trend in US trade policy. The Reagan administration’s protectionist measures in the 1980s offer a cautionary tale of economic inefficiency and unintended consequences. On July 19, 1983, President Ronald Reagan issued Proclamation 5074 – Temporary Duty Increases and Quantitative Limitations on the Importation Into the United States of Certain Stainless Steel and Alloy Tool Steel. The United States International Trade Commission, or USITC, has months prior issued an undisclosed report claiming various steel goods are harming domestic industries, “all the foregoing of stainless steel or certain alloy tool steel; and round wire of high speed tool steel… are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the domestic industries producing articles like or directly competitive with the imported articles.” In reaction to this report, Reagan opted to raise tariff rates against steel imports: “I am providing import relief through the temporary imposition of increased tariffs and quantitative restrictions on certain stainless steel and alloy tool steel.”

As the 1980s rocked forward, the USA and other nations signed “Voluntary Restraint Agreements.” These agreements sought to provide protection for US domestic industries without becoming a fixed quota system. Trade import quotas were prohibited in international trade law under the GATT, General Agreement on Trade and Tariff, now the World Trade Organization (WTO). Voluntary Restraint Agreements became a lever of power in Reagonomics, while still aiding the declining domestic steel industry. Steel imports into the United States would be kept to 18.5 percent market penetration, although “Japan and the European Economic Community each have about 5 to 6 percent of the American steel market.”

In the late 1990s, the Cato Institute released research about the steel industry and the protectionist measures undertaken by the Reagan Administration (1981-1989). Authors, Brink Lindsey, Daniel T. Griswold, and Aaron Lukas questioned steel protectionism effectiveness in job retention declaring, “Employment in the steel sector has declined by more than 60 percent since 1980 largely because of rising productivity, and employment will continue to fall even if trade barriers are imposed.” In addition, the Voluntary Restraint Agreements, amongst other protectionist measures, cost the US economy roughly $7 billion in the 1980s.

Brookings Institution author Robert Crandall agreed. In his examination of the lack of firm growth under the 1980s import restrictions, he writes, “Despite the trade protection of the late 1970s and 1980s, the integrated steelmakers were forced to launch a major retrenchment in the early 1980s. These companies began closing plants, reducing capacity from 138 million tons in 1980 to 90 million tons in 1987.” 

Jobs evaporated and companies downsized, and protectionist measures of the 1980s imposed more harm than good. Why would 2025 be any different?

Clearly, both the current and incoming administration have failed to learn the repeated lessons of the previous decades. Government desires to protect the steel industry. But the industry remains a world powerhouse, the USA ranking number four in steel production. On top of this, Nippon Steel promised to invest in the rust belt, “including at least $1 billion to Mon Valley Works and approximately $300 million to Gary Works as a part of $2.7 billion in investment that it has already committed.” Nippon Steel even agreed to entrust the future board members of the merger to be US citizens, going so far as to preserve key positions such as CEO to US citizens. Just prior to its prohibition, on December 23, 2024, US Steel and Nippon Steel remarked the merger as an act of “Friendshoring” bringing not only two strong industries together, but also the governments of Japan and USA.

The Biden Administrations’ interventions in the steel industry reflect a pattern of prioritizing short-term political gains over sustainable economic strategies. The market manipulation of the 1980s through Voluntary Restraint Agreements, mirrored in the recent prohibition of Nippon Steel’s acquisition of US Steel, demonstrates a troubling reluctance to learn from past mistakes. Rather than fostering investment, innovation, and competition, these protectionist policies risk stifling growth and ignoring the potential for revitalization in regions like the Rust Belt, where Nippon Steel’s proposed investments could have delivered much-needed economic benefits.

In an increasingly interconnected global economy, clinging to outdated protectionist measures is a losing strategy. To secure its economic future, the United States must adopt policies that encourage openness and collaboration while leveraging its position as a global leader in innovation. A commitment to fostering competition and welcoming investment will strengthen not only the steel industry but the broader economy — paving the way for long-term growth and stability, a far more important goal than fleeting political favoritism.

Philanthropic contributions are a quiet but integral part of American education funding.

In 2016 (the most recent year for which good data are available), philanthropists contributed nearly $5 billion to US public schools, with $800 million stemming from  the Bill and Melinda Gates Foundation and the Walton Family Foundation alone. Private schools are not much different — the National Association for Independent Schools reported in 2023 that their member schools secured $4.87 billion in philanthropic funds to continue their missions. 

This might seem like a drop in the bucket. After all, American schools received nearly $800 billion from all sources last year. But most education spending gets tied up in paying off debt, subsidizing pension funds, or paying salaries. Schools never see the vast majority of revenue their districts collect. Philanthropic donations, on the other hand, carry real value. If the Kennedy Center comes in and says “here’s $20 million, create an arts program for disadvantaged students,” more often than not, it gets done. That said, the evidence on whether educational philanthropy really works is, at best, mixed. 

This state of affairs has generated a lot of criticism. Many scholars claim that educational philanthropy harms “democracy” because it directs schools’ attention away from liberal or pluralist values and more toward market interests. Others attribute educational philanthropy’s woes to the knowledge problem, as many foundations naively assume that they alone can solve education’s intractable problems. Others still argue that philanthropy harms liberal education by injecting wokeness and other shenanigans into America’s schools. 

To a certain extent, all these critiques are valid, but they miss the bigger picture. Of course educational philanthropists are going to pursue programs and policies that benefit them — whether or not their activities are good for those of us who value human freedom depends on a given philanthropist’s values and aptitudes. Neither is this a new problem; schools and communities have been dealing with this for as long as there have been schools and communities. 

Take, for example, San Antonio, Texas back when it was under Spanish and Mexican administration. In 1811, after a failed revolution against the Spanish crown, a group of the town’s well-to-do citizens decided to found a school together. The school’s purpose was to take the riff-raff’s children and turn them into loyal Spanish citizens who would never even think to question the crown’s authority. Spain, so the school would teach, was a benevolent actor who only had their best interests at heart. The Spanish royalists would meet any resistance or misbehavior with harsh discipline. 

One Don Bicente Travieso — a prominent cattle rancher who had business interests with the Spanish government — offered to invest his own wealth, as well as take custody of public funds, to make the school a reality. What happened next is unclear. Some historians claim that Travieso ran off with the funds, purchasing only the worst-quality materials in order to retain his wealth. Another view is that Travieso made an honest effort to supply the school, and encountered unforeseen difficulties in planning the endeavor. Regardless, the school failed, and it may have never even operated. 

This school would not have been liberalism’s friend. It was meant to indoctrinate a revolutionary community’s youth to secure an authoritarian regime’s political and economic interests. In that sense, educational philanthropy can harm a liberal democracy. But that’s not the only reason it failed — and many of the reasons for its failure are still reflected in modern educational philanthropy. 

The royalists failed because they overpromised, assumed they could control all possibilities, and didn’t care what anybody in the surrounding community had to say. Modern educational philanthropists do exactly the same thing, and yet are surprised when they experience similar outcomes. 

Look no further than the Bill & Melinda Gates Foundation, which contributes hundreds of millions of dollars a year to charter schools, accountability schemes, and teacher performance metrics. When parents, schools, and teachers complained that the Gates Foundation was not listening to them, and misunderstood the situation on the ground, the Foundation ignored them, arguing instead that their models and know-how held all the answers. 

The results were predictable — everything they’ve tried hasn’t worked. The Gates Foundation took some responsibility, but mostly blamed others. For example, when technology investments failed to generate meaningful results, Bill Gates called students “unmotivated.” When the group’s Common Core project met resistance and performance failures, Bill’s response was to double down. In effect, the Gates Foundation repeatedly attempted to slam a square peg in a round hole, much to the chagrin of all other stakeholders.  

Fortunately, San Antonio’s history offers another path forward. In 1828, after the Mexican War of Independence, the city wished to promote its new Catholic-democratic bonafides. To that end, six leading men, along with the powerful General Anastacio Bustamente, resolved to found a new school. These students, they reasoned, would be the ones to steward the young, fragile democracy into a new age. In this effort, they had widespread community support, and also received funding from the state government. Everybody shared the same fundamental values, and everyone wanted their new, democratic society to prosper. 

Unlike the Spanish royalist school, this one had a firm, independent curriculum — reading, writing, math, arithmetic, and the values and virtues needed to live a good life in a liberal-democratic society. The school’s teacher was primarily left alone, and discipline was no harsher than what might be expected in the United States at the time. The goal (a free society) and the means (a solid education) were clear, but the execution lacked resources. In other words, the philanthropists’ role was to facilitate what the community already wanted. 

The school operated from 1828 to 1834, a good run by nineteenth century Mexican standards. Towards the end, after funding from the state government dried up, the school sustained itself almost entirely on donor funds. Many of its alumni became fervent liberals who actively resisted tyranny in Mexico and beyond. If the school’s goal was to cultivate a liberal body of citizens, it was an outrageous success. In this sense, it greatly benefited liberal democracy by creating citizens who actively wanted to live in a free society. 

This model worked because the philanthropists acknowledged and acted within the community’s values. It also worked because the philanthropists did not try to coerce outcomes, nor did they intervene in the school’s day-to-day operations. Even today, a handful of educational philanthropists get this stuff right. Those investing in leadership development, for instance, often garner a significant amount of community support — something that’s helped kids in Columbus, Ohio, across Florida, and even in China. 

Educational philanthropy is a complex but important field, and there’s a great deal of ambiguity as to what’s happening now and what comes next. When applied detrimentally, educational philanthropy can do a lot of damage to human freedom. But those of us worried about the future of liberalism need not despair. There are ways to do it right, and ways to fix the damage — even within the same community.

With President Trump’s return to office after the Biden interregnum, we can be sure of one thing: tariffs are going to be a major part of his policy. He has touted tariffs as revenue generators, as ways to bring back manufacturing, and as negotiating tactics. The trouble is that all of these are in tension with each other, and none are particularly effective at what they purport to do. Indeed, their likely failure will result in harm to the people Trump claims to care for the most — working-class families.

It has become commonplace among tariff supporters to point out that the US government used tariffs as its main source of revenue in the nineteenth century, implying that we would do well to replicate that model and perhaps even abolish the income tax. The latter ideas are fanciful, but even regarding the amount of revenue that could be raised from tariffs, the idea that tariffs will be a significant source of revenue is inaccurate. As the Tax Foundation explains in its detailed analysis of the revenue effects of the Trump tariff proposals, a 10 percent universal tariff will raise $2.7 trillion in customs revenue and a 20 percent tariff will generate $4.5 trillion over a 10 year period (2025 to 2035.) Income taxes, by contrast, contribute $2.2 trillion annually.

This is why the idea that tariffs could replace income taxes is fanciful. The spending cuts required would be wonderful to see, as any free-market economist will tell you, but in a political reality where getting any spending cuts at all is more painful than pulling teeth without anesthetic, it requires purely wishful thinking to imagine them happening.

But even those revenue figures for tariffs miss the mark. Because the costs of tariffs are ultimately borne by American consumers (a point tariff supporters seem unable to grasp), they reduce income and therefore spending, which means fewer imports, which means less tariff revenue. After accounting for this, revenues fall to $1.7 trillion and $2.8 trillion for the lower and higher rates respectively. The higher rate has a greater effect and therefore a larger reduction in revenue.

Nor do tariffs occur in a vacuum. Countries generally respond to higher tariffs with retaliatory tariffs on American exports. These, too, would reduce consumer income and therefore tariff revenues, knocking those figures down by around $190 billion over the decade.

Because tariffs are ultimately paid by consumers, it is worth considering which households bear the brunt of those costs. Research has repeatedly found that because lower-income households typically spend a larger share of their income on tradable goods (such as everyday household items) than higher-income households, those poorer households end up bearing a disproportionately large share of the cost increases. In other words, the tariffs hurt the working class household more. As revenue generators go, tariffs are regressive.

Moreover, as suggested above, revenue is not the only purpose attributed by their supporters to raising tariffs. Another purpose that is frequently cited is that tariffs will cause industries to re-shore their operations to maintain sales, thus bringing good manufacturing jobs back to the United States and thereby increasing household income.

Yet if this happens, then import revenue will be reduced. If all goods that can be produced in the United States are, then revenue will fall accordingly. Tariffs bringing jobs back and tariffs providing a consistent revenue stream are mutually incompatible.

Moreover, tariffs are at least as much a threat to manufacturing as they are an opportunity. Much that America imports is not finished goods, but inputs, i.e. raw materials and parts, that domestic manufacturing needs to operate efficiently. With tariffs, fewer of these inputs will be imported, or the price of finished goods will go up. With fewer imports, American manufacturing jobs will suffer. With higher prices, American middle class households will see their standard of living fall. Neither is good for the American middle class.

Of course, tariff proponents will say that these duties will cause American industries to onshore supply chains, which means more jobs for Americans. Up to a point, Lord Copper, as Evelyn Waugh would put it. Some things must be sourced offshore as either lack of natural resources or things like American environmental law make them impossible to be sourced domestically. For those things that could be made here, the price differential will have to be addressed. In most cases that means that automation is the best option to keep labor costs down, which means once facilities are constructed, they will have few jobs. And the industrial robots that will staff those factories are mostly made in Japan, Germany, or Switzerland.

The idea that tariffs will bring back jobs and therefore benefit the middle class is one that puts the interests of citizens as producers ahead of the interests of citizens as consumers. Yet while all producers are consumers, not all consumers are producers. Consider that tariff supporters often say that they want wages to be high enough to support a worker and his family – in this case, the housewife is a non-producing consumer, who will be motivated to keep costs low. This was why Margaret Thatcher often pitched her economic reforms directly at the housewife.

This is the problem that Adam Smith recognized as being the main flaw of the mercantilist system when he wrote in Book IV of The Wealth of Nations,

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. …. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

In other words, the misconception that economic policy should be focused on producers is not a new idea, but one that resurfaces again and again. Just as with Britain’s corn laws or the Smoot-Hawley tariffs that worsened the Great Depression or what is happening in countless countries like Nigeria, it will be the working class that suffer the most from the imposition of tariffs that are supposed to help them.

Yet what about the other justification – that tariffs are useful tools in negotiations? Once again, a moment’s thought will reveal that this isn’t compatible with the other justifications. If tariffs are just a negotiating tool, they won’t bring in significant revenue and nor will that re-shore massive amounts of industry. Even the respectable academic argument for “optimal tariffs,” which suggests that large countries can drive down the price of imports through tariff policy, puts them in the low single digit range once other factors are accounted for, and they are about lowering import prices, not revenue generation or reshoring.

Those other factors include the fact that the other party in the negotiations is rarely a vassal. They may make countermoves in the negotiation, which might be conciliatory, in which case the threat worked, or might be retaliatory, in which case both sides suffer. Sadly, the history of trade wars proves that retaliatory action is by far the most common. We are still stuck with the “chicken tax” on imported light trucks because of a trade war in the 1960s, where America was the party to retaliate.

The most comprehensive analysis of the effects of American trade restrictions that were aimed at pressuring foreign countries was written back in 1994 just as the real era of open trade was starting. It found that in only 17 percent of cases did America actually achieve its objectives.

This certainly appears to have been the case with the recent rounds of Trump-Biden tariffs.

American export growth slowed in the face of retaliation, which demonstrates that demands for reciprocity are usually heeded in the shape of reciprocal tariffs. This hurts both sides, and, as always, it is the working-class family that suffers the most in terms of reduced income and higher prices.

There are other factors, too. Do we really want to antagonize allies, for instance (although the answer to this appears to be depressingly often yes)? What are the cascading effects on other supply chains? And so on.

All these are why the major nations after the Second World War collectively agreed to stop using tariffs to advance parochial interests. There is a reason why the precursor to the World Trade Organization was called the General Agreement on Tariffs and Trade. Tariffs are self-defeating as a negotiating strategy, despite their attractiveness to politicians in need of an electoral boost.

To sum up, the three arguments for tariffs can only seriously be advanced by someone suffering from advanced cognitive dissonance. They are poor revenue raisers, they cause net harm to manufacturing, and they backfire as negotiating tools. These three objectives are mutually exclusive, and ineffective even when taken individually. A better policy would focus on reducing costs to the consumer.

A familiar excuse for protective tariffs and other trade restrictions goes like this: It would be all well and good for our government to follow a policy of free trade if other governments did the same. But other governments don’t do the same. Other governments use tariffs and subsidies to give producers in their countries unfair advantages over producers in our country. Unless and until other governments embrace complete free trade, our government must “retaliate” with its own protective measures to counter the protective measures imposed by foreign governments.

Every competent undergraduate who has passed a well-taught course in Econ 101 can identify a significant problem that lurks in this excuse for protectionism — namely, protective tariffs and subsidies are a net cost to the people of any country whose government intervenes in these ways. Tariffs and subsidies distort the allocation of resources in ways that reduce the overall wealth of the nation, a fact that is true regardless of the trade policies of foreign governments. “Why,” this undergrad will ask rhetorically, “should we let our government inflict harm on us just because other governments inflict harm on their citizens?”

The undergrad is wise and right to ask this question. But immediately after asking it, this undergraduate will be corrected by a first-year economics graduate student strutting his advanced knowledge of the subject.

“Silly girl,” the grad student tells the undergrad, “you fail to see the real benefit of retaliatory tariffs and subsidies. It’s true that the bulk of the burdens created by tariffs and subsidies fall on the people of any country whose government intervenes in these ways. But it’s also true that those of us in the home country also suffer some harm from those same interventions done by foreign governments. After all, trade is mutually beneficial, and in 2025 most of us are all part of one global economy. And this economy is distorted by those foreign tariffs and subsidies. So our government, in its wisdom, can use its own tariffs and subsidies to retaliate against foreign governments to pressure them to end those harmful interventions. When these interventions end, global trade is made freer and resources are more efficiently allocated. While our government’s retaliatory tariffs and subsidies impose net costs on us in the short run, by eventually making global trade freer this retaliation works to our net benefit in the long run!”

The undergraduate knows enough to realize that she cannot disagree in principle. The graduate-student’s hypothetical description of the operation of retaliatory protectionism is logical. It is indeed possible that such retaliation will work as described in the real world and redound to the benefit of almost everyone abroad and at home.

But is the graduate student’s case for retaliatory protectionism practical? No.

One practical obstacle to the success of retaliatory protectionism is that governments typically dispense tariff protection and industrial subsidies in response to interest-group pressures. Politically well-organized producer groups are usually the main drivers of such policies. Unless retaliatory tariffs by the home government neutralize the particular interest groups that are the motive force in foreign countries behind the foreign tariffs or subsidies, such retaliation will likely fail to pressure foreign governments into ending their protectionist interventions. Indeed, it’s not unlikely that foreign governments will respond by imposing their own retaliatory tariffs or subsidies against the home-government’s retaliatory measures, with the end result being a trade war.

A second practical obstacle is that special-interest groups in the home country will cunningly take advantage of any inclination to use retaliatory measures, resulting in overuse and abuse of such measures.

Opportunities for such cunning are especially numerous when talk turns to subsidies dispensed by foreign governments. Home-country tariffs and subsidies marketed to the public as well-meaning devices for pressuring foreign governments to end various subsidies will too often simply be protectionist measures meant to do nothing more than line the pockets of powerful producer groups in the home country.

Such subterfuge is too easy, not least because in the real world what is and isn’t a subsidy is often unclear. Not all subsidies are as straightforward as is the doling out of cash to European farmers through the EU’s Common Agricultural Policy. Far too many innocent policies pursued by foreign governments can be deviously portrayed by home-country protectionists as subsidies that justify retaliation.

Consider each of the following actions by a foreign government:

• it establishes and operates engineering schools
• it extends government-backed loans to students enrolled in engineering schools
• it spends more money training people to work in factories
• it increases the amount of money it spends to build and maintain infrastructure such as electrical grids and extensive networks of highways
• it changes the designation of some public land from protected wilderness to land available for economic development
• it dispenses more money to fund basic scientific research

Each of these foreign-government actions likely would be undertaken without much thought of the effect it would have on that country’s international commerce. Yet each of these actions also arguably does improve the ability of producers in the foreign country to churn out more and better outputs, and to export these outputs at lower prices.

So are these government actions subsidies to industry? Whatever your answer, you’d be naïve to think, if voters in the home country are groomed to tolerate protectionist measures as retaliation for foreign subsidies, that home-country producers will not portray such foreign-government actions as subsidies that justify home-country retaliation.

A consequence of the ambiguity of subsidies is that, if retaliatory protectionism is encouraged (or even just tolerated) as a response to foreign-governments’ subsidization of their exports, sightings of such subsidies by home-country producers, politicians, and administrative officials will be too numerous. Rent-seekers at home will routinely leap to the conclusion that foreign exporters’ gains in market share are the result of “unfair” subsidies allegedly enjoyed by these exporters. With no way to separate the vast majority of government expenditures into objectively agreed upon classes of “subsidies” and “not subsidies,” the best rule of thumb is a policy of free trade followed regardless of foreign-governments’ subsidization of producers within their jurisdictions.

Advertising has never been a popular thing amongst pundits. It is depicted as an attempt to manipulate consumers into desiring things they do not (or should not) need. Others depict it – as is often seen in series like Mad Men which was popular a decade ago – “selling dreams” to consumers by perpetuating unrealistic standards of success and well-being tied to a product or a service.

These criticisms have existed since the late nineteenth century, remaining largely unchanged except for the language and imagery used in public discourse. The most recent reiteration is President-elect Donald Trump’s prospective nominee for secretary of Health and Human Services, Robert F. Kennedy Jr (RFK Jr.) who has been on the record as advocating for banning pharmaceutical companies from advertising on television. The reasoning is exactly like those late nineteenth century criticisms – the adverts are meant to prop up, by appeals to emotion rather than reason, demand for drugs that are not needed or have little added value.

Just as the criticisms are merely a rebranding of the same nineteenth-century argument, the responses that economists have marshalled remain the same. Advertising helps consumers by providing information and by creating competition between firms. It also encourages firms to invest in product quality by creating brands that consumers value because of the product quality. Advertising quality is a way to create further competition. More importantly, and very often, the relationship is reversed — innovating firms try to meet the difficult features of consumer demand and they generate new products. The advertising follows afterward to inform consumers. It allows them to inform the public of their innovation. If advertising is unavailable, innovation becomes unappealing in the first place and never happens.

All of this is exactly what the much-maligned advertising by pharmaceutical companies actually does.

First, when direct advertising was allowed in the late 1990s, it had the effect of creating greater product competition. Drugs that were close substitutes for each other began exhibiting greater sign of price competition rather than by competition via brand loyalty. By weakening brand loyalty, it also allowed generic medication (even those that were less advertised) to break through.

It also offered valuable information to consumers by pointing to treatment options that consumers were previously unaware of and assisted them in identifying their symptoms and seeking medical care. One study found that direct to consumers advertising stimulated new diagnosis in 25 percent of patients who came after viewing ads. At the same time, physicians were also able to inform in further details regarding whether a treatment was truly needed. By levelling the playing field between patients and physicians in terms of knowledge, patients are better able to identify trade-offs that affect their well-being. This helps achieve better health outcomes.

For example, one study found that advertising to consumers directly for relevant drugs increased the likelihood of attaining cholesterol management goals within certain groups of patients. A more recent study focusing on advertising for antidepressants found that such advertising led to an increase in prescriptions and subsequently, lower rates of workplace absenteeism.

Second, the research and development process for new drugs is lengthy, costly and risky. Only a tiny fraction of all molecules that are researched end up being marketed. From that fraction, we must subtract those that fail to cover their development and regulatory approval costs (in excess of 10 years and more than $1 billion per drug). Given these features, pharmaceutical companies must promote drugs to generate the revenues needed to cover costs and risks. If one cuts the room for advertising, one cuts the potential sales revenues. And by cutting the potential sales revenues, you dampen the incentive to innovate in the first place. In other words, boosting revenues via advertising is vital as it motivates continued investment in R&D for new drug development.

Slowing down the rate of research and development into new drugs is something that is immensely damaging to improvement in living standards. For example, one study found that 73 percent of the increase in life expectancy at birth after 1990 across high-income countries could be explained by the introduction of new drugs. Another study found that for the earlier period from 1986 to 2000, new drugs explained 46 percent of the improvements in life expectancy at birth. Additionally, new drugs indirectly reduce healthcare costs by substituting drug-based treatments for in-facility care, such as treatments requiring a hospital stay or visit, thereby helping to mitigate the effects of rising healthcare demand.

Bans of advertisements could thus hurt patients now (by reducing their information) and patients later (by reducing innovation). It is easy to fall prey to populist contempt for “Big Pharma” but this is a bad policy that could hurt many.

According to an issue brief recently released by the Council of Economic Advisers, dynamic pricing algorithms are reducing competition in the housing market. The brief’s authors contend that landlords who use these algorithms tacitly collude to raise prices above competitive levels, leaving renters worse off. 

This argument and others like it are part of a broader push by Democrats to blame rising prices on companies like RealPage and other dynamic pricing algorithms, instead of the reckless fiscal and monetary policies they enacted. 

Rather than address inflation’s underlying causes, Democrats are vilifying landlords. President Biden stated during his State of the Union address last year, “We’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents.” 

Mr. Biden’s remarks weren’t just empty political rhetoric. A few weeks after the President’s address, Sen. Ron Wyden (D-OR) and several Democratic co-sponsors introduced the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act. This legislation would create several undesirable consequences, and before banning these algorithms, Congress should consider how costly these consequences might be.

Firms routinely adopt flexible pricing strategies to deal with fluctuations in demand. Movie theaters, for example, charge lower prices during the day than at night to avoid having empty theaters. As a result, they can operate at higher capacity and lower average cost.

Dynamic pricing algorithms reduce the cost of detecting changes in demand, making it easier for firms to adopt flexible pricing strategies. Uber and Lyft use these algorithmic prices to adjust the number of drivers on the road by communicating surges in demand. As a result, consumers don’t need to wait as long for a ride, and drivers spend less time driving without passengers.

Companies like RealPage do something similar for landlords. The information about pricing they provide reduces landlords’ costs, increasing supply while lowering rental prices. Of course, these algorithms will recommend higher rental prices when the demand for rental housing increases sufficiently, just as Uber and Lyft charge surge prices during periods of high demand like New Year’s Eve. 

While no one likes paying more, higher prices serve three crucial functions:

1. They prevent shortages by ensuring that the demand for rental units does not exceed the number of units available. 
2. They ensure the available rental units go to the consumers who value the housing most. 
3. They create a powerful incentive for developers to build more rental units.

Preventing prices from quickly rising to changes in demand will lead to housing shortages, waste, and fewer rental units. This is hardly good for consumers.

The broader point is that markets work well when prices adjust to reflect changes in supply and demand. All going after landlords who use products like those sold by RealPage will do is slow down this critical price adjustment process, leaving us poorer overall. 

Not content with prosecuting landlords who use dynamic pricing algorithms, the Biden Justice Department filed a civil antitrust lawsuit against RealPage last August, alleging that the company facilitated collusion between landlords.

There are several issues with this argument. For one, collusion is difficult to sustain because the colluding parties are all incentivized to lower their prices. If RealPage’s product facilitated collusion, landlords could increase profits by ignoring the company’s rental price recommendations. Essentially, they would be undercutting other landlords using RealPage’s product. If this were happening, landlords would regularly ignore RealPage’s pricing suggestions. But that is not happening. Instead, 90 percent of RealPage’s clients use the company’s recommended pricing.

The lawsuit’s claim is also inconsistent with rental price and vacancy data. First, landlords must keep some rental units off the market to raise prices above competitive levels. If RealPage had made it easier for landlords to collude to raise prices, vacancies would have risen. That is not what we observe. Between the first quarter of 2020 and the second quarter of 2022, the vacancy rate fell from 6.6 to 5.6 percent. More importantly, real (inflation-adjusted) rental prices declined six percent nationally between June 2020 and June 2022. While they began rising again in July of that year, today, they’re only three percent higher than in January 2020 and still well below their pre-pandemic trend. 

If Democrats want to make housing more affordable, they should make it easier to build housing. Zoning restrictions, impact fees, building codes, property taxes, energy efficiency standards, and permitting fees all restrict the housing supply, driving rental prices up. Easing these restrictions would go a long way to making housing more affordable. 

Blaming landlords and corporations for high rental prices may be good politics, but it is bad economics. Not only will restricting dynamic pricing algorithms not make housing more affordable, it will potentially stifle the development of this valuable technology in other sectors of the economy. Policymakers should keep this in mind.

Starbucks has been battling the National Labor Relations Board on numerous fronts over the last few years. 

There was the famous Supreme Court case decided in June 2024, which involved seven Memphis employees fired after they broke company policy by inviting media to their store location to announce their unionization effort. (The high court unanimously sided with Starbucks.)

There was the NLRB’s effort to make Starbucks reopen 23 cafés the corporation had closed, alleging the action was anti-union. (A strange action, but one not without precedent, and it remains ongoing.) 

And then there’s the NLRB’s effort to make Starbucks rehire and compensate a pair of fired workers who secretly recorded their supervisors dozens of times, a case that was recently heard by a federal appeals court. 

Secretly Recording Coworkers (and Customers)

In June 2021, the NLRB ruled that Starbucks unlawfully fired Echo Nowakowska and Tristan Bussiere, two Philadelphia baristas who in 2019 launched a campaign to organize a citywide union.

Starbucks maintained it fired Nowakowska because she was a bad worker and treated customers poorly. Bussiere was fired, the company said, after spreading a false rumor that another employee was set to be fired. (Both firings occurred in early 2020.) 

Administrative Law Judge (ALF) Andrew Gollin sided with the workers. He ordered Starbucks to reinstate the two employees, compensate them for lost wages, and pay expenses stemming from their firings. 

Starbucks disagreed with the verdict, and the company took the NLRB to court. 

On Friday, the 3rd US Circuit Court of Appeals mostly ruled in favor of NLRB, stating that “substantial evidence supports the Board’s unfair-labor-practice conclusions” and upholding its order of reinstatement and back pay (though the court ruled that NLRB overstepped its authority by directing Starbucks to cover the baristas’ predictable expenses resulting from their terminations).

The phrase “unfair labor practice” is a squishy phrase for a court of law. And while it’s unclear if Nowakowska and Bussiere were fired for union activities (as they and the NLRB contend) or for being poor employees (as Starbucks contended), one point is not disputed by the court or the ALJ: the workers were secretly recording people at work.

In their court filing, Starbucks alleged that Nowakowska and Bussiere “were recording their coworkers (and, inadvertently, customers) without their consent in violation of company policy and Pennsylvania law.” 

Neither the ALJ or the court deny the allegation. On the contrary, they affirm it. 

“The ALJ found that Nowakowska secretly recorded four meetings with supervisors,” the opinion reads. “Bussiere made about 30 recordings of conversations with management.”

What is in dispute is whether Starbucks knew about the unlawful recording activity before the termination of the employees. Starbucks says it did not, which would bolster its “after-acquired-evidence” defense. 

The ALJ disagreed, and the Third Circuit concurred. They said evidence suggests Starbucks “knew or had reason to know” of the recordings prior to the termination of Nowakowska and Bussiere. 

“Its contention is therefore unpersuasive,” the court said.

‘Just Threaten to Call the NLRB’

One needn’t have a degree in labor law to see how crazy the NLRB’s decision is, and it’s a good demonstration of why federal bureaucracies shouldn’t be involved in the hiring and firing decisions of individuals and private companies. 

I don’t know Echo Nowakowska or Tristan Bussiere, and I certainly wish them no ill will. Yet evidence suggests they were hardly good employees. Court documents say Nowakowska was repeatedly reprimanded for slamming drinks down to customers and treating patrons “in a hostile manner.” 

Bussiere, meanwhile, had been written up for refusing to wear his uniform, being late to work, leaving the counter unattended, and failing to stock items. 

I suspect anyone running their own business would have little problem firing either of these workers, and would have harsh words for anyone who accused them of “unfair labor practices.” Yet the NLRB has a lengthy history of defending bad behavior in the workplace, and we see evidence of this policy every day (though we may not connect the behavior with the policy).

A year ago, I went to Starbucks with my daughter and we were treated rudely by a young woman. It’s easy to be angry at Starbucks when something like this happens, but NLRB deserves a lot of the blame. After all, it’s difficult to foster a positive culture when companies are legally prevented from firing toxic workers or creating effective guidelines that allow managers to discipline them for bad behavior. 

And from reading court documents, Nowakowska and Bussiere sound like poor employees. Consider this email that their managers, written in January 2020:

[Bussiere] & [Nowakowska] think they can do what ever they want & just threaten to call NLRB if anybody says anything to them[.] I’m more than willing to deal with the backlash that would come with terminating the two of them because it doesn’t matter if we terminate now or 1 year from now[;] they will still call NLRB & spew vicious lies just like they do now while we pay them & give them benefits.

‘The Power and the Right to Commit Wrongs’

Economists have long observed that one of the biggest problems with labor unions is that they hurt productivity (in many cases they do so intentionally, the economist George Reisman has observed).

We often think of such losses in productivity in terms of capital machinery. An obvious example is dockworkers opposing automation that would improve efficiency but “hurts families” because it makes union workers more expendable. 

But unions (and the labor boards that protect them) harm productivity in other ways. The Starbucks saga involving malcontents Nowakowska and Bussiere shows this, and calls to mind something Ludwig von Mises observed about unions. 

“They and their members and officials have acquired the power and the right to commit wrongs to person and property,” Mises wrote in 1965, “and to commit many other acts which no one can do with impunity.”

I worked as a bartender and server for years myself, and I have little doubt that had I or any of my coworkers been blatantly rude or hostile to customers it would not have been tolerated. We would have been booted, and justly so.

The mere act of being in a union or trying to form a union should not give workers “the power and the right to commit wrongs,” but that’s what happens in many cases, and it certainly appears to have happened with Nowakowska and Bussiere, who seem to believe they were entitled to their job and were basically untouchable because they were attempting to form a union. 

But both the ALJ and the Third US Circuit Court of Appeals sided with them in their dispute with Starbucks and is forcing the company to give them their jobs back. That is a miscarriage of justice. 

Fortunately, a federal court recently ruled that tenure protections ALJs have long enjoyed are unconstitutional. 

Judges who place the rights of unions ahead of private businesses should be a priority for the incoming administration. But overhauling or dismantling the National Labor Relations Board altogether is reportedly under consideration, and it’s an idea that should seriously be considered.

On December 11, 2024, lawmakers presented a bipartisan initiative to direct pharmaceutical middlemen to divest from health insurance companies and pharmaceutical companies, stressing concerns over vertical integration. In parallel action, the Federal Trade Commission (FTC) has commenced reviewing monopolistic practices in the industry. This action comes as part of general frustration with the rising price of prescription drugs in the US.

Over the past 50 years, Americans have seen their spending on prescription drugs skyrocket by around 700 percent, faster than inflation (about 540 percent over that same period). Branded drug prices in the U.S. are 322 percent to 422 percent higher than in comparable OECD countries, even after accounting for rebates. This leaves patients frustrated and often forgoing essential treatments. Three in ten US adults have skipped or reduced medication due to cost. Frustration with the system has even led to tragic events, like the recent assassination of a UnitedHealthcare executive, a stark reminder of the desperation some feel navigating a seemingly stacked healthcare ecosystem.

While many blame pharmaceutical companies, the issue is more complex. Subsidies in other OECD countries explain some of the difference. What is more, development costs account for 60 to 70 percent of total drug costs; in some cases, it can cost up to $1 billion and take up to 20 years to reach the market. The success rate for new medications is less than 7 percent. Another factor is R&D; the US maintains the edge as the world’s leading engine for pharmaceutical innovation, accounting for more than 60 percent of new drug approvals globally, and consumers in other countries benefit from this positive externality. While initial investment costs and aggressive innovation contribute to higher prices, they do not explain the constant price hikes Americans face. Instead, we must look to other actors, which use their role as gatekeepers to set high list prices. Pharmacy Benefit Managers (PBMs) act as middlemen between drug manufacturers and insurers. Created in 1965 to streamline pharmacy benefit claims, PBMs have become influential brokers. They decide which medications will be reimbursed by insurance companies and at what rate.

Factors driving drug price increases stem from two primary drivers: innovation and R&D costs and inefficiencies in the supply chain. The presence of intermediaries like PBMs introduces layers of complexity and opacity, leading to misaligned incentives. Rebate-driven models encourage inflated list prices, distorting market dynamics and disproportionately impacting uninsured and underinsured populations. According to the Pharmaceutical Care Management Association, PBMs use three main strategies to generate profits. First, rebate retention contracting allows PBMs to keep a portion of the rebates they negotiate with drug manufacturers, ranging from 0.4 percent in Medicare Part D to 9-22 percent in the commercial market. Second, spread pricing contracting involves PBMs charging a fixed amount for each drug, pocketing the difference between what they charge and what they pay pharmacies. Third, PBMs charge administrative fees for their services when plan sponsors pay the actual cost of prescriptions.

PBMs claim that patients get the most affordable deal. But their practices often involve complex rebate schemes, retroactive fees, and vertical integration that discourage competition. A past practice of gag clauses – forbidding pharmacists from sharing price information with patients, or cheaper alternatives to insurance claims – was ended by law just a few years ago. In an efficient market, bargaining power should be synonymous with consumer savings. Instead, PBMs take advantage of information asymmetries and secretive deals, increasing prices and limiting patient choice. This leaves independent pharmacies and patients struggling. PBMs profit from a percentage of these inflated prices, meaning patients and health plans rarely see the benefits, even with discounts. For example, the 340B program intended to provide affordable medicines is exploited by hospitals and PBMs for gains. Hospitals charge higher prices, and PBMs boost their bottom lines. Today, PBMs have over 85,000 contracts with 340B providers, with more than half of the profits going to just four companies, diverting funds that could lower drug costs for those in need. 

One key aspect is that in the 1970s, hospital spending grew the fastest, but in the 1980s and 1990s, spending on prescriptions and physician/clinic services surged. From 2020 to 2022, retail prescription drugs saw the fastest spending growth at 7.6 percent, up from an average annual growth of 3.3 percent from 2010 to 2020. This sharp increase is partly driven by PBMs practices, which inflate drug prices through tactics like rebate retention and spread pricing. In contrast, spending on hospitals and physicians/clinics grew by 3.4 percent and 4.0 percent during the same period, respectively.

Over the last three decades, the PBM industry has solidified its negotiating power and vertical integration. In 1995, five PBMs controlled 80 percent of the market; by the 2010s, it was three companies: CVS Caremark, Express Scripts, and Optum Rx. Vertical integration exacerbates the problem. Many PBMs own specialty pharmacies and mail-order services, steering patients toward these outlets and making it difficult to track the money.

 A bipartisan group in Congress introduced the Patients Before Middlemen Act (S. 1967) to break up these vertical integrations. With the FTC involved and growing consumer outrage, there is real momentum for change.

PBMs thrive on secrecy, obscuring fees from drug manufacturers and pocketing spreads that should be passed on to health plans. This lack of transparency drives up costs for everyone, from employers to working families, and squanders chances to rein in skyrocketing healthcare expenses. Some saw a solution in see the price controls imposed by the Biden-Harris Inflation Reduction Act as a solution to high drug prices. But price controls do not address any of the core issues. PBMs use tactics like spread pricing and overseas entities to avoid scrutiny. Price controls do not address the fundamental problems of distribution, rebates, and hidden fees that characterize the PBM business model. Just as price controls have unintended consequences and don’t fix the underlying problems, the antitrust approach in the proposed legislation is problematic. Antitrust actions are normally a blunt instrument, used for political favoritism and based on dodgy, speculative claims of knowledge of what the competitive price would look like in the absence of monopolistic practices.

PBMs are clearly part of a bigger problem, one the Austrian school of economics labeled as the dynamics of intervention. Intervention in one market distorts the information function of the price mechanism; this leads to a distortion in another market, and a call for further intervention. That intervention, in turn, distorts another market, leading to more intervention. Intervention begets intervention, and PBMs are just the latest case. The federal government and the states have been intervening in health care markets for more than a century. Regulations, certificate of need laws, licensing requirements, the FDA, the preferential treatment of institutional health insurance premiums, the federal government’s presence as a big player in health insurance – all of these are distorting the market.

But congressional attention does means that there is awareness of the anti-competitive practices of PBMs, within the bigger problem of soaring healthcare prices. The current US medical system needs a major overhaul – a major liberalization from regulation and government spending – to address its inefficiencies and misaligned incentives. The country spends about 17 percent of GDP on healthcare, and in an era of high deficits and government bloat, more than 25 percent of the budget is spent on healthcare. 

Moving from PBMs to a value-based system would be a good start. True value in healthcare comes from improving patient outcomes relative to costs. The current transaction-based reimbursement model rewards quantity over quality, penalizing providers for better performance and innovation. To implement value-based care, healthcare organizations should identify and understand patient segments with shared health needs, design comprehensive solutions, and measure health outcomes and costs. Integrated, multidisciplinary teams can then process this data to make continuous improvements. By organizing care around patient needs and fostering partnerships, we can create a system that rewards excellence and enhances patient value, ultimately dismantling the harmful practices of PBMs.

But lawmakers should tread carefully in their use of regulatory instruments. They should consider the problem of prescription drugs within an holistic overhaul and deregulation of health insurance.

When a business is conducted efficiently, effectively, and ethically, a business serves its own interests and also the society around it. Despite this comfortable collaboration, people outside those businesses continually debate about corporate America’s role in serving society. And while activities and initiatives related to Corporate Social Responsibility (CSR) have been around for ages, it wasn’t until the 1990s that CSR became popularized as a subfield in business studies — thanks in part to Dr. Archie Carroll’s 1991 publication, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders.” 

As an academic in the field of management studies, Carroll sought to understand how businesses balance the interests of a firm with those of the wider community. And, in 1979, he began working on a framework to demonstrate a firm’s broader responsibilities, which later developed into the CSR Pyramid. Carroll’s CSR Pyramid has been cited as “the most well-known model of CSR” and, in recognition of his research, Carroll received the inaugural ‘Lifetime Achievement Award in CSR’ from the Institute of Management, Humboldt University, Berlin, Germany. 

The CSR Pyramid features four levels: the base is a firm’s economic responsibility and the next three levels consist of legal responsibilities, ethical expectations, and philanthropic activities. In Carroll’s earlier work, he referred to philanthropic activities as “discretionary (or volitional) responsibilities.” According to Carroll, such responsibilities “are those about which society has no clear-cut message for business… They are left to individual judgement and choice.” It seems, however, that duties Carroll noted to be discretionary back then have since evolved into an all-encompassing marketing mindset for businesses today. CSR kicked into high gear in the 2000s, developing metrics for CSP (Corporate Social Performance) and frameworks for monitoring ESG (Environmental, Social, and Governance). With this evolution in mind, it is perhaps worth revisiting Caroll’s CSR Pyramid to see how it has been turned upside down for modern day firms. 

The CSR Pyramid

The CSR Pyramid was to serve as an intuitive model for categorizing business practices in relation to social responsibility. Economic responsibility is featured first for obvious reasons — to be a long-lasting business, a firm must be productive and profitable. Legal responsibilities fittingly come next since a firm must be law-abiding. The third and fourth levels, however, differ from the previous two since they are not necessarily required and are much less clearly defined. Ethical responsibilities are depicted as being expected while philanthropic activities are deemed to be desired; and actions pertaining to these upper levels may vary over time, dependent on the societal norms and the cultural context in which a firm operates.

Carroll’s framework was published just as conscious consumerism was trending upward and corporate America’s interest in cause-related marketing and the promotion of social impact activities was truly taking off. This was fortunate timing for political elites since, in 2000, the then United Nations Secretary-General Kofi Annan initiated the Global Compact with the aim of “uniting business for a better world.” Capital markets were being called upon to support the UN’s Millennium Development Goals, later updated as the Sustainable Development Goals (SDGs), and policymakers along with consumers seemingly favored the idea of business taking up the charge. 

The Shift to Shared Value

The notion that business could play a greater part in social matters was well-received. Harvard Business Professor Michael Porter coined the term ‘shared value’ to represent how businesses can meet social needs and economic needs simultaneously. This concept was quickly embraced by industry leaders eager for a higher calling and, at the start of 2011, Porter and Mark Kramer published “Creating Shared Value: How to Reinvent Capitalism — and Unleash a Wave of Innovation and Growth.” 

A bandwagon effect ensued with calls to reform business and, later in 2011, the debut of Richard Branson’s book Screw Business as Usual. Branson asserted that “it’s time to turn capitalism upside down and switch from profit focus, to caring for people and the planet.” Clearly Branson had latched on to the Triple Bottom Line (TBL) concept developed by John Elkington in the 1990s, which claimed that business success metrics should incorporate how a firm positively contributes to social well-being and environmental health. The ‘business for good’ mantra was also adopted by John Mackey who co-authored, in 2009, Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems. Then, in 2013, with Raj Sisodia, Mackey published Conscious Capitalism, featuring four key tenets businesses should strive for: a higher purpose, stakeholder integration, conscious leadership, and conscious culture and management. Clearly, shareholder primacy was out and a stakeholder mindset was in. 

The concept of ‘conscious capitalism’ was first promoted by John Renesch back in the 1990s, and Patricia Aburdene predicted it would become a mainstream matter in Megatrends 2010: The Rise of Conscious Capitalism — and Aburdene was right. Conscious capitalism turned into a full-fledged movement when the nonprofit Conscious Capitalism Inc. (CCI) was formed with a “mission to reshape the purpose, practice, and perception of capitalism.” And CCI was far from being alone in such pursuits. Social entrepreneurship programs sprung up at elite universities across the US, shaping the worldview of business students, while ethical certification systems and the creation of Benefit Corporations flipped Carroll’s CSR Pyramid on its head. 

Running a business was no longer seen as an economic matter and social purpose advocates sought to supplant profit making as a firm’s core objective. Simon Sinek, famed guru and inspirational speaker for business leaders, has claimed that “The responsibility of business is to use its will and resources to advance a cause greater than itself.” And it is quite telling that this quote is prominently featured on the website for AACSB, a primary accrediting body for university business programs. 

Supplanting Profit with a Higher Purpose

Many organizations and industry executives have, for decades, propagated the notion that a ‘new form of capitalism’ is needed. Recent examples include, Marc Benioff of Salesforce published Trailblazer: The Power of Business as the Greatest Platform for Change (2019). Mark Bertolini, Chairman and CEO of Aetna, wrote Mission-Driven Leadership: My Journey as a Radical Capitalist (2019). Paul Polman, Unilever’s CEO, co-authored Net Positive: How Courageous Companies Thrive by Giving More Than They Take (2022). Darren Walker, President of the Ford Foundation, recently released From Generosity to Justice: A New Gospel of Wealth (2023). And this is only a small sample of the influential texts out there. 

An impressive number of corporate elites have banded together in The Coalition for Inclusive Capitalism (CIC). This organization is co-chaired by Marc Benioff, Lynn Forester de Rothschild, and other noteworthy high networth names. According to its website, the CIC was inspired “by Pope Francis’ public appeal to business leaders to respond concretely to issues of our day.” 

According to the CIC’s website, Council Members “encompass heads of businesses, foundations, and nonprofits from every sector and region of the world.” Its Steering Committee alone represents $10.5 trillion in assets under management, $2.1 trillion in market capitalization, and over 201 million workers worldwide. 

CIC Council Members “make actionable commitments aligned with the World Economic Forum International Business Council’s Pillars for sustainable value creation — People, Planet, Principles of Governance, and Prosperity” and work to “advance the United Nations Sustainable Development Goals.” Evidently, if Carroll were to craft his CSR Pyramid demonstrating business practices today for industry elites, he would need to feature social responsibility at the base and economic responsibility in a smaller, later stage. Such a firm may not remain “in business” very long. 

Subjective Measures Can Lead to Coercive Pressures

By stripping business of its true purpose and identity (product or service providers that seek out opportunities for value creation and wealth generation), corporate executives stake their claim as social guardians instead. And while I can only speak on behalf of my own preferences, I’d rather have a business act in accordance with my needs and wants as a consumer or investor, instead of masquerading as a savior for society’s ills. 

These industry leaders (who, let’s not forget, have profited greatly from good old-fashioned capitalism) imposing their need for a higher calling on the rest of the business community is a cause for concern. Certification systems and rating agencies incentivize the interests of regulatory bodies which is why the creation of new standards and subjective metrics by the likes of CCI and CIC serve the aspirations of those already at the top rather than empower entrepreneurs who are working their way up from the bottom.

Businesses work best when voluntary actions are based on individual preferences and interests, not the skewed social views of an elite class. More to the point, the value of a business is neither fixed nor tangible, but an emergent process of investment and exchange. A business is only as strong as its customer base, only as secure as the property rights it holds, and only as successful as the employees and leaders that power its decisions. As such, the societal role of a business as a business is one that should be revered and rejoiced, not disregarded and debased. Indeed, the beauty of a business is that it is made up of a network of people who create, coordinate, and collaborate the means for exchange, without necessarily sharing social values — which is why capitalism doesn’t need to be changed.

Europe is a wonderfully diverse continent, with 44 countries, each with its own rich (and long) history and unique constellation of policies. Despite this, though, there are no trillion-dollar companies in all of Europe. In fact, of the eleven companies worldwide to reach this level, nine are in the United States, with the other two being in Taiwan and Saudi Arabia. If we look at the top eleven companies in Europe, their combined market capitalization amounts to just $2.2 trillion, which is $1 trillion less than the market capitalization of Apple alone. 

So what gives? Why are there no trillion-dollar companies in all of Europe? 

One answer is simplistic: most of the trillion-dollar companies that exist today are what we consider “tech giants” — Apple, Microsoft, Nvidia, Alphabet, Amazon, and Meta. The economist Harold Hotelling provided insights into why these companies are all US-based, way back in 1929. Before we apply his insights to tech giants, let’s take a quick detour to use this to understand why there tend to be many gas stations on the corners of the same intersection. Wouldn’t it make more sense for them to be dispersed throughout a city or area? 

The explanation for this lies in competition. Suppose that we have people throughout a city, none of which care a whole lot about which brand of gasoline they buy, they just want to go to the gas station that’s easiest for them to get to. If the gas stations were distributed throughout the city (and if we ignore the costs of moving gas stations), each gas station would want to move closer and closer to where most of the customers live in order to secure the most customers. This ends with them being located across the street from one another or even right next to one another. 

The same can be said about tech giants. They will want to locate themselves where most of their customers live and, with a massive customer base with one of the highest rates of adoption of technology in the world, locating in the US makes good business sense. 

But this explanation falls short, too. Notice that it presumes that these tech giants exist and are simply deciding where to locate. The truth is that these tech companies did not descend upon the world like mana from heaven; they had to be created and built from the ground up. The real questions we must ask, then, are 1) what makes the US so fertile for economic growth and 2) what makes Europe so reticent for growth? 

America vs. Europe: An Economic Perspective 

It is no secret that the US remains “the land of opportunity.” Even just logically, we can tell that it is based on immigration patterns. The US remains one of the most immigrated-to countries in the world. In fact, the UN reports that 20 percent of the total immigrants in the entire world are in the United States. But this still invites a question: why do so many people want to live in the United States when they could live elsewhere? 

There are many factors, but chief among them are economic in nature. First, we can look at average wage rates across countries. The US remains one of the highest-earning countries in the world. Lest we think this is a fluke or a historical accident, cross-national studies confirm that simply living in the US actually causes wages for workers to increase. 

The newly-awarded Nobel Prize economists Daron Acemoglu and James Robinson evidenced this by looking at the city of Nogales, a city at the border between Mexico and Arizona. What is unique about this situation is that the city’s people share a common heritage and culture; in fact, there are families that were split in two when the wall was first erected. Because of their shared heritage, the only real difference lies in which side of the fence, running right through the middle of downtown, one lives. The US side is much, much wealthier than the Mexican side. In fact, in 2012, the fire department on the US side of Nogales famously helped the Mexican side put out a fire by “exporting” water over the fence. They could only do this because of their dramatically higher wealth. 

We can also look at the ease with which one can start a business. The US ranks among the easiest nations to start a business, with a mere 4.2 days as the average length of time it takes to do so compared to the European Union’s average of 12.17 days. This measure, while imperfect, provides evidence of just how quickly one can go from having an idea for a business to starting to operate the business. The lower this number, the easier and more quickly it can be done. The time it takes to do so depends on many factors, such as the approval process and whether a person or group of persons must approve the application in-person or if it is a series of forms that must be filled out online and reviewed periodically during, e.g., tax season. Regardless, the faster that all of this can be done, the faster a would-be entrepreneur can start their business, start serving their community, and start earning income. 

Finally, we can look at taxes. Despite the bluster about tax rates, the US remains one of the lowest taxed countries in the world. This matters greatly for workers, as lower taxes mean that they get to keep more of the value that they create for themselves instead of remitting it to the government, who will use it for collective purposes. It also means that it is cheaper to hire workers and therefore expand a company’s workforce. 

Taken together, we can see that the US remains a top place for workers and businesses to locate. Our system promotes businesses and the creation of job opportunities in a way that is the envy of the rest of the world. This is something that must be protected. 

As Ronald Reagan famously said, “Freedom is never more than one generation away from extinction.” 

Popular newsletter writer Aaron Renn recently highlighted a guest post by Tom Owens arguing that young people today face much more difficult economic circumstances than previous generations did. Anyone who has looked into buying a house in the past four years can understand young people’s frustration. The Case-Shiller house price index has recorded a shocking 50 percent increase in median home prices from the beginning of 2020 to the end of 2024. Even people making pretty good money experience sticker shock, especially with mortgage interest rates over 6 percent. And of course we all just experienced the highest US inflation in fifty years.

Mr. Owens makes the case by calculating a “Life Difficulty Index”, which is a ratio between earnings and the cost of a house and a basic car. He claims that the life difficulty index (LDI) for a “starter life” has risen from 3.64 in 2001 to 5.14 in 2024. But the median household calculation has some limitations. One he doesn’t mention is changes in household size, and especially the average number of workers per household, which has declined over this period. In 2010, for example, households in the top quintile of income had roughly five times as many workers (1.97 vs. .43) as households in the bottom quintile.

The other issue with using median statistics is that those just starting out in life rarely start at the median. Mr. Owens shifts to looking at the starting salaries for college graduates. Recomputing his life difficulty index, he finds that while those starting life in 1975 faced a 3.47 LDI, those starting in 2000 faced a 4.32 LDI, and those starting in 2024 faced a 7.62 LDI.

As a result, he claims that young people these days do indeed have it much harder than their parents and grandparents did. And therefore we shouldn’t be surprised that many of them are checking out of the labor force and lowering rates of family formation.

Indeed, he concludes that young families that are succeeding have character and drive “more than double that of equivalent Boomers, and at least 50 percent better than that of Generation X.” And that “today’s graduates face a market where a middle-class life is more than double, about 120 percent more, difficult to achieve than it was for late Boomers in 1975.”

While the back-of-the-envelope math is interesting, the conclusions are suspect. Is it really true that a “middle-class” lifestyle is less attainable, and that those starting out in the economy today have less opportunity than in the past? 

Mr. Owens downplays quality improvements when it comes to hedonic adjustments to the consumer price index. I can sympathize. While we should acknowledge that a 2024 Honda Civic is much better than a 2000 Honda Civic, that doesn’t actually make it cheaper. The same can be said for housing – although rents have not risen anything like housing prices over the past four years. People in the United States work fewer hours than they did fifty years ago. And they can communicate with friends and family anywhere in the world at almost no financial cost. The ubiquity of appliances – refrigerators, dishwashers, microwaves, TVs, phones – is also a relatively recent phenomenon.

Yet Mr. Owens doesn’t acknowledge just how much better and cheaper so many things are today – from streaming platforms to phones and computers to air travel to clothing. While average costs of these things may not always be declining, that average masks just how cheaply many of these products can be. Spend ten minutes exploring the FIRE (Financial Independence, Retire Early) community and you’ll see what I mean. 

The use of national median numbers can also be misleading – such as when he talks about how many hours minimum wage workers had to work to buy a Mustang in 1965 ($2,427/$1.25/hour = 2000 hours) versus today ($32,000/$7.25/hour = 4400 hours). Of course, many states have a minimum wage of $15/hour – bringing near equivalence.

But the minimum wage is the wrong thing to focus on here. Instead, we should ask how many people were paid minimum wage in 1985 versus today. And when it comes to salaries, we should also keep in mind that people today tend to work fewer hours due to greater ability to goof off or waste time with access to the internet and with the rise of remote work. Fringe benefits, especially health insurance, have increased markedly for most Americans. And increasing numbers of people choose to substitute more pleasant and meaningful work (such as for nonprofits) for higher paying work.

The back-of-the-envelope calculation also doesn’t account for the speed of income growth over one’s lifetime, which seems to be higher and more rapid than in the past. Access to capital markets is greater. Gig opportunities to supplement one’s income proliferate. Low-cost options to develop one’s skills and certifications are more available than at any time in history. And the job market post 2020 has been remarkably strong with millions of openings.

The real question is why so many young people don’t take advantage of these opportunities – and relatively more expensive houses and cars are not the answer. There has been a “war on work” waged by federal and state governments over the past decade and a half. Casey Mulligan highlighted how expansive federal unemployment benefits in the wake of the global financial crisis dramatically reduced labor force recovery. 

Since then, many states have followed suit in expanding unemployment insurance benefits. Other federal programs from food stamps to Medicaid to Section 8 housing to SSI have ballooned as well. COVID opened even more avenues of distortion from stimulus checks to refundable child tax credits to extra unemployment benefits.

Likewise, many areas of pain, such as high housing and car prices, have largely been created by government distortions – not laissez-faire markets.

Although the quality of cars continues to rise, the primary reason they have not gotten cheaper in real or relative terms is because the EPA continues to raise emissions standards – and in the past few years has begun requiring auto makers to manufacture electric vehicles to meet their regulatory standards. Housing costs have been driven up in large part by cheap and widely accessible credit in the 1990s and the early 2000s. Pre-1990, median home prices were only a couple times median income. Now they are over five times higher.

Cultural issues also play a role in Gen Z’s seeming economic woes. Unrealistic expectations fed by media and degree-granting institutions are one problem. Another is comparing themselves with their parents’ current situation rather than with their parents’ situation thirty years ago. And ironically, it is the ease of living comfortably today compared to twenty-five or fifty years ago that encourages sloth and “failure to launch.” 

Cheap, ubiquitous, high-quality entertainment provides an increasingly attractive alternative to a career. So do parents’ bigger houses with plenty of room for adult children. The gig economy allows people to earn some spending money with minimal tax implications rather than full-time career work. Less family formation, driven by cultural and social changes, also reduces pressure on young people, especially young men, to become productive, responsible breadwinners.

Mr. Owens recognizes some of these cultural pressures. But he wrongly points to a raw economic deal for Gen Z as the fundamental cause of less labor force participation, lower family formation, and other social problems. Gen Z has not gotten a raw economic deal. In many ways they have gotten the best economic deal in human history. 

What they have gotten, though, is a raw cultural and political deal. And that is where we should focus our reform efforts.

Politicians want to create jobs, “good-paying union jobs,” in existing industries.  But that’s not what markets do. The “destructive” part of creative destruction eliminates jobs in existing industries. In a dynamic economy, innovations in division of labor can create good-paying jobs  in new industries, but new industries require entrepreneurs, not politicians.

Frederic Bastiat had two devastating satires of how policies designed to “create jobs” actually cause economic disaster. The first was the “Candlemakers’ Petition,” asking government to require heavy curtains and blacked-out windows, to create jobs making candles. Second was the “Seen and Unseen,” where breaking windows would create jobs for glaziers and carpenters.

In both cases, the problem comes from ignoring “the unseen”: the people making candles, or repairing broken windows, would be doing something else without the misguided policy. And the resources spent on unneeded candles, and wasted windowpanes, would have been spent on something else. We see the jobs, but we don’t see the costs of foregone alternatives given up to “create” those jobs .

I recently was thinking about another famous story of “creating jobs,” one that is often told about Chicago economist—and Nobel Prize winner—Milton Friedman. Stephen Moore told one version of the story, in The Wall Street Journal:

At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

A little digging (ha!) reveals that essentially the same story is also told about other famous people, and the supposed location of the incident ranges from China and India to Canada or the UK. But it turns out that none of these is the actual origin of the tale, which was first put in print in Philadelphia in 1901.  That version goes like this:

An incident which struck me at the time as quite amusing occurred not long since on North Broad Street. A steam shovel at work had attracted a large number of spectators, including two Irishmen, who, judging by their appearance, were toilers temporarily out of employment.

As the big shovel at one lick scooped up a whole cartload of dirt and dumped it upon a gondola car, one of the Irishmen remarked: “What a shame, to think of them digging up dirt in that way!” “What do ye mane?” asked his companion. “Well,” said the other, “that machine is taking the bread out of the mouths of a hundred laborers who could do the work with their picks and shovels.” “Right you are, Barney,” said the other fellow.

Just then a man who had been looking on and who had overheard the conversation remarked: “See here, you fellows. If that digging would give work to a hundred men with shovels and picks, why not get a thousand men and give them teaspoons with which to dig up the dirt?”

The Irishmen, to their credit, saw the force of the remark and the humor of the situation and joined heartily in the laugh that followed, and one of them added: “I guess you’re right, Captain. The scoop’s the thing after all.”

—Philadelphia Public Ledger

The example is amusing, and the fact that the unemployed laborers came around to see “the force of the remark” is a tidy closing of the circle. But don’t they have a point? And isn’t that point especially forceful when it comes competing with other countries, which after all are using “cheap labor” and not steam shovels to take “our” jobs?

That’s certainly the argument many policy-makers have used to justify tariffs, quotas, and other kinds of trade barriers: we have to protect American jobs! Stop shipping jobs overseas!

To see why that logic is no better than “give them spoons!”, one has to consider the nature of international trade in manufactured goods.

The Only Way to Gain Jobs is to Lose Jobs

A good angle to approach the problem of “losing jobs” is ask a simple question:

What country in the world lost the most manufacturing jobs between 1990 and 2010?

The answer (and it’s not close) is China.

In 1990, Chinese “manufacturing” in many cases consisted of a large shed, filled with tables and containing hundreds, maybe thousands, of men or women working with needles and thread, or looms, or a hammer and some pieces of leather, or a small hand-operated metal press and boxes of parts. 

The scale of the employment was huge, perhaps 100 million or more.  But the productivity of these workers, in 1990, was terrible.  One person, working as hard as he can work, with a hammer and a shoe last and some cut pieces of leather, can produce no more than 2 or 3 pairs of shoes in a day.  A thousand workers, working hard (and they didn’t, always, because these were state-run factories where quotas rather incentives dominated) might produce 5,000 pairs of shoes in a day, and the quality was decidedly inferior.

In the mid- to late-1990s, China began doing two things.  First, they cut back on state-owned factories.  Millions of workers lost their jobs, whole cities were out of work.  Second, China’s private sector began to exploit the division of labor by developing highly specialized factories that made toys, clothing, and simple electronics. These factories, because they were substantially automated, were much more productive than the old system of exploiting cheap labor. China began to exploit productivity. Moving from hundreds of men with shovels to handful of men driving bulldozers and trucks actually increases the amount of work done, with less labor. All of those jobs that had produced, and paid, little were wiped out by jobs that produced, and paid, more.

To be fair, this has also been happening in the US. Our total manufacturing has actually increased dramatically, without pause, over this whole period. But the number of manufacturing jobs in many industries has fallen, as workers have become more productive. Still, overall, there has been a sharp resurgence in US manufacturing, as many companies have engaged in “on-shoring.”

In short, the US did not “ship our jobs” to China. If anything, China lost more manufacturing jobs than we did. The whole world lost jobs to increased productivity. As a result, prices of many products have fallen, in some cases substantially, if we adjust for inflation.

Why did this happen? China began to use a market system to reward investment in increased productivity. When one factory converted from a thousand people with sewing machines to twenty people operating an automated production line, the 980 people who had “lost” their jobs found other jobs elsewhere, and at an increased wage, because those industries were automating also. In many cases, that is true in the US as well, though there are some industries where the transition to new jobs has been slower.

But having slower adjustment in the US is not surprising, because China started at a much lower level of wealth and prosperity. China’s GDP per capita is almost $13,000; in the US, that number is nearly $70,000. The US no longer has the option to give out spoons, or for that matter shovels, to “create” jobs, because no one is willing to work at the wage that spoon-jobs pay. Most American workers spend their time using some version of a bulldozer, whether that be writing code or using physical machines that increase productivity. It’s still true that “the scoop’s the thing, after all.”

While the book’s purview stretches across South Asia since colonial days, the focus lands on 1960s India. Myrdal saw its democracy as invaluable, while conceding that federalism and civil society served as guardrails on majoritarian excess. Frustrated with the slow pace of change, he coined the neologism “soft state” to capture how New Delhi’s edicts rarely filtered down to the village.

Myrdal eschewed simple narratives. He was no apologist for colonialism, but could point out how empires had suppressed conflict and facilitated trade and migration. He dismissed stories of a halcyon past: no civilization prone to sati (the practice of a widow throwing herself onto her husband’s funeral pyre) would have granted female suffrage without European influence. Likewise, he dismissed Gandhi’s romanticized self-sufficient village as an impossible-to-achieve chimera. Still, those criticisms appear scattershot and couched in empathy, whereas Myrdal’s scorn for Marxism manifests often and without reservation. He disdained its predetermined conclusions, untested hypotheses, and rigid determinism.

Instead, Myrdal started with the evidence, much of which he deemed flawed, arbitrary, or both. At what point has someone achieved literacy? What constitutes “healthy” in malarial regions? How do we quantify the salary of villagers living outside the monetized economy? Instead, he suggested economists track more prosaic measures, like the percentage of houses made of mud. But whatever metrics they select, researchers inevitably filtered them through concepts that assume particular social conditions. When those assumptions belie reality, scholars possess an illusion of knowledge worse than ignorance.

Friederich Hayek, winner of the other half of the 1974 Nobel Prize, called this illusion “the pretense of knowledge,” in his acceptance speech.

Economists who would scoff at attempts to measure, say, unemployment in medieval Europe breezily applied the notion to rural Bihar. Myrdal downplayed concerns about overpopulation, observing that low agricultural output implied that many areas could accommodate far more inhabitants. He had seen that India’s large tertiary sector resulted not from efficient factories, but from displaced peasants hawking trinkets. Only his vision of a better future prevented that skepticism from descending into nihilism.

Of course, Myrdal had a worldview, which he codified as his “Modernization Ideals.” Polities should raise firms’ productivity through coordinated policies, while reforming attitudes and institutions. They should simultaneously strive for greater equality, economic autonomy, and national consolidation.

Myrdal considered these ideals a package deal.  A dynamic labor market could not abide the static world implied by caste. India’s most destitute needed aid before they could be healthy enough to work the regular hours required by modern industry. Myrdal knew that trade had enriched the West but conceded the Indian intelligentsia’s demand for autarky. The book practically groans trying to contain these fissures. To Myrdal, only an enlightened elite could overcome these obstacles, if they understood his model of “circular causation.”

What this notion lacked in mathematical tractability it made up in fidelity to reality. Redistribution would have no lasting effect without increasing literacy rates. Education policy required accounting for population growth. Demographic trends resulted from the collision of modern healthcare and traditional mores. And elected leaders’ jobs depended on delivering the benefits of modernity without offending their constituents’ core beliefs. Much of the book amounts to a survey of these circles of influence and effect. Myrdal pointed out what reformers have discovered time and again: “A Western economy is a technical (and cultural) complex, not a set of isolated pieces of technology.”

India needed hard currency to import capital goods. But with exports concentrated in a handful of agricultural products, devaluation would only increase the rupee price of imports with scant effect on the exports’ inelastic demand. Even if India won market share, Myrdal expected that farmers and manufacturers in the West would clammer for protection.  Multinational corporations could have leveraged India’s huge labor force, but memories of the East India Company ruled out foreign direct investment. That left import-substitution: purchasing foreign capital goods and limiting consumption to domestic output. For this to work, planners had to allocate resources effectively inside the country, while relying on currency controls to discriminate between necessities and luxuries. Boxed in, Myrdal reluctantly offered planning as “… the intellectual matrix of the entire modernization ideology.”

Myrdal saw that centralized planning would almost certainly fail because he knew that moving private decisions to the public sphere would encourage regulatory capture in Parliament and bribery behind closed doors. Controlling foreign reserves meant import restrictions, creating industries with an interest in perpetuating those restrictions. At every level of the bureaucracy, both the upright few and the ignoble many would create ever more rules; the former to protect themselves from charges of corruption, the latter to obtain more chances for graft. Time and again, Myrdal argued that coordinated planning could overcome the tectonic forces driving India’s poverty, then penned an entire appendix exploring how tin, sugar, and tea cartels had already failed to stabilize their respective industries. He explained how India’s pitiful education system followed colonial patterns, only to conclude that Indian parents could not discern effective private schools.

Rather, Myrdal put his tenuous faith in PC Mahalanobis, the bureaucrat responsible for India’s Five-Year Plans.  Mahalanobis saw the future emerging from offices staffed by statisticians, not the butchers, brewers, and bakers actually responding to the market. Instead of allowing entrepreneurs to experiment with novel goods and ideas, PhDs built input-output tables to guide the allocation of currency and capital. The result was more Kafka than utopia. India’s conglomerates flourished while the masses still depended on US aid for famine relief. The country built atomic weapons before it could document the ownership of small farms.  Even the Leftist Arundhati Roy recognized the absurdity; her novel The God of Small Things used a villainous food inspector to show how governments stifling economic freedom rarely stop there.

In the end Myrdal lent his prestige to the License Raj, India’s web of controls that strangled growth for decades.  But even as academics ballyhooed, the country moved on. Hybrid seeds heralding the “Green Revolution” arrived in 1966. Voters delivered an unprecedented rebuke of the ruling Congress Party in 1967. In 1968, India’s IT sector took figurative root with the founding of Tata Consultancy Services.  But not until the currency crisis that haunted Myrdal finally arrived in 1991 could the nation enact meaningful reform.

Today, more people recall the other recipient of the 1974 Nobel Prize: Friedrich Hayek. His 1945 essay The Use of Knowledge in Society conceded that all economic activity entailed planning, but then asked “Who should plan?” Instead of some committee of “experts” without business experience, or industry-spanning monopolies, perhaps entrepreneurs and competitive firms could best apply “… the knowledge of the particular time and place.”

At the award ceremony, a Swedish grandee found both men were “…subordinated to a common attitude towards social science research: the conviction that the major socio-economic questions of our time cannot be fully understood without an interdisciplinary broadening.” That approach remains valuable today. Fifty years’ hindsight lets us see over Myrdal’s horizons, but his integrity as a scholar and dedication to the poor still deserve our respect.