Markets, by decentralizing decision-making and encouraging entrepreneurial innovation, unleash a wide range of options. You can purchase several variations of smokers, or grills for that matter — Chris does want to remind Midwesterners that barbecue is a noun rather than a verb — to properly celebrate your Independence Day. Because consumers are spending their own money on themselves, as Milton Friedman famously noted, they have a strong incentive to economize and seek the highest possible value. Because of this, individual decisions get aggregated into a “hivemind” that economist Deirdre McCloskey refers to as “market-tested betterment,” where investment is continuously pulled away from failing or obsolete products and redirected toward better ones. And the market even serves seasoned pitmasters who can’t find the right commercial smoker to meet their exacting needs. They can either order a custom smoker or purchase the raw materials to make one themselves. In this sense, markets give autonomy and agency, along with responsibility, to individuals to make their own independent choices to reflect their own preferences and individuality.

Compare this to a society where people must collectively decide on one government-issued BBQ smoker. Societies may pursue this for goals such as eliminating the duplication of production or profits. While the disbandment of the market has many well-identified knowledge and incentive problems, such as undermining the incentives for consumer-improving innovation, reducing dynamic flexibility, and eliminating the incentives to conserve scarce resources in production, they also encourage conflict as we transition from individual to group decision-making.

We have strong preferences when it comes to smoking BBQ. Chris puts years into a single meal by planting trees to harvest (and we won’t even get started on how opinionated he is about his preferred chainsaw), the proper wood to dry a year before it hits the firebox to get maximum bark and flavor. Dan, on the other hand, is perfectly fine trading off a bit of flavor and bark to avoid this immense time and hassle.

In a market society, both of us get to buy the smoker we prefer, and our choices do not generate conflict (beyond brotherly teasing). But if we had to agree on one smoker, our preferences would come into stronger conflict because one of us would be imposing a decision on the other. While between brothers we could likely work out a mutually acceptable side bargain to avoid conflict, it would be prohibitively costly to reach such an agreement between all voters across the United States, especially with the full range of different BBQ or grilling platforms.

If you will be spending some extended time with family or friends over Independence Day weekend, you will likely realize there are myriad ways in which your preferences diverge from even close family and friends. As individuals, we often disagree on our preferred type of coffee maker, hamburger joint for a meal on the road, television subscriptions, and so on. These all have important tradeoffs that reasonable people value differently. Chris and Dan have different preferences over not only smokers, but what BBQ rub or sauce to use, and what to drink while making dinner. 

Collectively deciding on any of these consumer items would politicize each decision and potentially turn it into a heated conflict with one side winning and the other losing.

And these are less important decisions. Imagine more difficult decisions that are less clear-cut and thus prone to deep-seated disagreement, such as the type of education your child receives, your healthcare coverage, or the investments in your retirement portfolio. Making decisions collectively turns individual decision-making into political battles. The collective decision-making process, where politicians spend someone else’s money on others, can also be compromised by special interest groups that can secure concentrated benefits by disbursing the costs across society. And it also introduces the possibility that a majority with slight preferences can readily outvote a minority with strong preferences.

This Independence Day, while Chris tends his offset smoker and I relax with my pellet grill, we’ll enjoy the same fireworks, the same family laughter, and, most importantly, the same freedom to choose our own path to great barbecue. Our harmless disagreement remains harmless precisely because no one is forced to adopt the other’s preference.

That is the underappreciated genius of the market. It doesn’t demand that we all agree. It simply allows us to disagree peacefully. In doing so, it preserves harmony in our families, friendships, and our larger society.

So, the next time you hear calls for government to impose a single “best” solution on complex personal choices, whether it’s smokers, schooling, or healthcare, remember that reasonable people can differ deeply on worthwhile tradeoffs. Markets let us express those differences without turning them into political wars. Centralized control does the opposite.

True independence isn’t just celebrated with flags and fireworks. It is lived every day when free people are allowed to make their own choices, even if that choice is between a 14-hour labor of love (not including cutting and splitting the wood) and an “Adult Easy-Bake Oven.”

So, fire up or plug in whatever smoker or grill you prefer. Just be grateful you’re free to choose.

Kurt Couchman’s Fiscal Democracy in America: How a Balanced Budget Amendment Can Restore Sound Governance offers some possibilities. Couchman’s book is a serious contribution to the debate over debt, congressional dysfunction, and constitutional reform. His subject is a balanced budget amendment, but the book’s deeper concern is Congress itself. The federal budget process no longer disciplines tradeoffs, reveals costs, or gives most legislators meaningful responsibility for governing.

Budgeting as the Core Function of Congress

Couchman begins from a sound institutional premise. Budgeting is at the center of governing. Through the budget, elected representatives decide what the federal government will do, how much it will do, and how those activities will be financed. When budgeting breaks down, the damage is not limited to deficits or debt. Bad budgeting weakens Congress, empowers the executive branch, conceals tradeoffs, rewards special interests, and allows current officeholders to transfer costs to future taxpayers.

That framing gives the book more force than a conventional argument for fiscal restraint. Couchman does not present a balanced budget amendment as a partisan weapon, a slogan, or a shortcut to smaller government. He presents it as a constitutional commitment device. Ordinary budget statutes are too easy to waive, ignore, or rewrite. A constitutional rule would elevate balance as a governing norm and raise the political cost of evasion.

The book’s strongest argument rests on incentives. Legislators face steady pressure to approve spending, preserve tax preferences, and avoid the immediate pain of offsetting those choices. Organized interests press for concentrated benefits. The costs are diffused across taxpayers or shifted into the future through borrowing. Persistent deficits create fiscal illusion, making government appear cheaper than it is. Couchman’s balanced budget amendment is designed to reconnect benefits with costs.

His proposed amendment is deliberately spare. Expenditures and receipts must be balanced, though balance may occur over more than one year. Debt service and borrowing are excluded from the relevant definitions. Congress would have ten years after ratification to achieve balance. Emergency departures would require two-thirds approval in both houses, and debts incurred for emergencies would have to be repaid as soon as practicable.

That design reflects one of the book’s major strengths. Couchman understands why earlier balanced budget amendments failed. Annual balance would be too rigid, partisan supermajority rules would be politically fragile, and program exclusions would invite evasion. Couchman’s alternative is a neutral constitutional principle that Congress can implement through statute.

The phrase “principles-based” matters. Couchman’s amendment would not dictate the size of government or settle fights over taxes, entitlements, defense, or federalism. Those choices would remain political. Instead, the amendment would require that such arguments occur within a framework that forces members of Congress to acknowledge tradeoffs.

This is why the book should be read as fiscal institutionalism, not merely as a BBA brief. Couchman is trying to rebuild the operating system of federal budgeting. The constitutional rule is the anchor, but it depends on statutory complements. These include budget targets, credible enforcement, better treatment of emergencies, improved timing, automatic continuing appropriations, and a more comprehensive congressional budget process.

Rebuilding the Budget’s Institutional Foundation

Before reading Fiscal Democracy, I had read Couchman’s 2021 predecessor paper, Unified Budgets Can Help Revive Congress, which adds useful context. The unified budget proposal responds to Congress’s procedural failure. Couchman would put all spending and revenue in the same annual budget bill. Lawmakers would have to debate discretionary appropriations, mandatory spending, and tax expenditures in one fiscal forum. 

That idea strengthens the book’s central claim. A balanced budget amendment without a functioning budget process would risk frustration, evasion, or symbolic compliance. Congress cannot balance the budget responsibly if most of the budget runs on autopilot and most members have little role in setting priorities. Unified budgeting would force lawmakers to compare programs, tax provisions, and spending categories against one another. It would make tradeoffs harder to avoid and easier for voters to understand.

It would also change incentives facing unelected officials. Agencies, trust funds, government corporations, and quasi-public entities operate within institutional settings that reward mission creep, budget growth, personnel expansion, and discretionary authority. Fragmented budgeting strengthens those incentives by allowing each program or entity to defend its activities apart from the broader fiscal tradeoffs. Unified budgeting would not eliminate bureaucratic self-interest, but it would make administrative government more visible by requiring those claims to compete in a single fiscal forum. 

Colorado’s Taxpayer Bill of Rights, discussed in the book, offers a useful test case for Couchman’s framework. TABOR constrains revenue and expenditures but does not stop the growth of government by other means. Exemptions, federal funds, public enterprises, user fees, unfunded liabilities, and regulatory expansion. Fiscal rules can matter, but they must be paired with comprehensive budgeting and regulatory discipline.

David Hebert’s critique of balanced budget requirements sharpens the same point. Budget numbers are constructed through baselines, scores, accounting rules, timing conventions, and classifications. A rule requiring expenditures and receipts to match does not automatically constrain the underlying fiscal reality if lawmakers can redefine, delay, or reallocate the relevant costs.

This is the main challenge to Couchman’s project. A fiscal rule is only as strong as its definitions, measurement conventions, and enforcement mechanisms. Judicial enforcement offers no easy answer. Courts are poorly suited to managing federal budgeting, and judicial control over fiscal policy could create its own constitutional problems. Couchman’s more plausible path is political and congressional enforcement, supported by implementing legislation and public accountability. That may be the right answer, but it leaves a persistent difficulty: Congress would still be policing itself.

Couchman’s best answer is that the amendment is only one part of a larger institutional package. A constitutional rule can set the norm. Unified budgeting can widen the budget’s field of vision. Together, those reforms could make evasion more visible and politically costly.

Chronic deficits are failures of consent across time. Current voters and officeholders authorize benefits that future taxpayers must finance. Some borrowing is defensible, but structural deficits allow the political class to promise government without admitting what government costs.

The book also has a broader constitutional theme: Congress must reclaim responsibility. When Congress fails to budget, power migrates elsewhere. The executive branch gains discretion, leaders substitute closed-door deals for committee work, and rank-and-file members lose the ability to represent their constituents in meaningful budget choices.

The book’s value lies in insisting that budgetary choices must be made openly, repeatedly, and under rules that prevent indefinite postponement. Couchman’s contribution is to take that institutional problem seriously and to propose a constitutional rule embedded in a broader reform architecture.

Fiscal Democracy in America is a serious defense of a principles-based balanced budget amendment and of rebuilding Congress’s capacity to govern. Whether the proposal succeeds depends less on the phrase “balanced budget” than on the institutional machinery built around it.

This competitor dominated the market at such a low price that domestic candlemakers were “reduced to complete stagnation.” Was this rival the British? The Americans? Neither; it turned out to be “none other than the sun!” 

Bastiat’s Petition of the Candlemakers lays bare the absurdity of protectionism. Offering preferential treatment to less efficient domestic producers artificially raises prices, restricts consumer choice, and decreases exports. Tariffs harm consumers, workers, and exporters while failing to accomplish their stated goals: they fail to meaningfully shift the balance of trade or promote domestic industry and employment, and more generally harm everyone involved, including protected industries. Given these realities, it is no surprise that a negative opinion of tariffs has been a virtual consensus among economists for centuries — just ask Adam Smith:

“Such taxes, when they have grown up to a certain height, are a curse equal to the barrenness of the earth.”

–        Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations

Agreement among economists has not, however, stopped the current administration from going gung-ho on protectionism, at least until late February, when the Supreme Court in a six-to-three ruling shut down three quarters of the tariffs Trump had unilaterally placed throughout 2025. With the Trump administration scrambling to find new ways to institute tariffs, it’s important to remind ourselves of the harm tariffs have done to the American economy, and the danger they present to economic freedom.

Throughout his first year in office, President Trump reiterated his belief that tariffs will improve the United States’ balance of trade, protect American jobs, and reshore outsourced jobs. However, despite what the President claims, other countries don’t pay for tariffs, working Americans do. Tariffs raise the cost of imported goods for obvious reasons, but also have an inflationary effect on domestic products, as American producers often purchase inputs from overseas, which are then subject to tariffs. These costs are then passed on to consumers through higher retail prices. This has already been occurring, as the prices of imported goods have increased by seven percentage points relative to the pre-tariff trend, with domestic goods costing nearly 4 percentage points more. More solid evidence of the harm of trade barriers comes from the first Trump administration. Raised trade barriers caused more than a $130 billion decline in annual imports, unsurprisingly increasing the domestic prices for goods. If Trump had his way, his second administration’s full slate of tariffs were projected to reduce after-tax income by nearly four percent for those in the bottom 50 percent of the income distribution, increasing the tax burden on middle-class households by at least $1,700 annually.

American producers also receive the short end of the stick. Trade barriers spike the price of inputs, raising the cost of production for domestic firms, especially ones that export goods. This effect only expands in the event of retaliatory tariffs, which in 2018 alone cost American exporters over $2 billion per month, greatly diminishing the value of American exports, and redirecting nearly $200 billion worth of trade. Domestic firms often respond to cuts in exports by laying off employees. Industries more vulnerable to tariff increases, such as manufacturing, see larger reductions in employment compared to non-affected industries precisely due to the increases in input costs. For example, the 2018 tariffs directly eliminated 75,000 manufacturing jobs. History seems to be repeating itself, as since 2025, Trump’s tariffs have cost automakers over $35 billion, and the manufacturing sector has continued to bleed tens of thousands of jobs due to uncertainty over tariffs providing unfavorable conditions for firms to hire new workers. That doesn’t sound like bringing manufacturing back.

Even the benefits that do go to domestic producers quickly evaporate because of retaliation from other nations. Tariffs antagonize other nations, stoking conflict and harming future economic cooperation efforts. In 2018, the United States placed tariffs on nearly $300 billion of Chinese goods, to which China responded by placing tariffs on over $100 billion of American goods. The European Union, Russia, Mexico, and Turkey soon retaliated with trade barriers that amounted to a 16 percent cut of United States exports, wiping out over half of the producer surplus generated from American tariffs. Altogether, by the end of 2018, tariffs were projected to have cost American consumers and companies who import foreign goods $3 billion per month in taxes and $1.4 billion in deadweight loss. American business owners and consumers are already overburdened with frivolous taxes and red tape; tariffs only make it harder for working Americans to do business.

In conclusion, the current administration’s trade policy is so frustrating primarily because of the blatant ignorance of the overwhelming evidence that tariffs have damaged the American economy. This mirrors a crucial misunderstanding of the benefits of trade. Protectionists regard imports as inherently harmful because they increase the trade deficit, making the United States more reliant on other nations. But imports are the benefit of trade. The fact that Americans can truck, barter, and trade with individuals and firms from nations all over the globe means Americans have access to the best and cheapest products. Restricting trade in the name of “self-sufficiency” is not desirable; it is impoverishing.

An exception carved for a single institution is not law in the proper sense of the term. Law is general; it applies the same rule to like cases. A doctrine that subjects every agency to presidential control — with “no ifs, ands, or quasis about it,” as Slaughter put it — and then exempts the most powerful agency of all is not based in principle. It is a preference. Justice Barrett, no firebrand, named the contradiction directly: “How can history support both a categorical rule and a carveout?” The majority never answers.

Justice Thomas took up the question the majority dodged. The Fed is a federal agency that wields executive power. The Board writes rules carrying the force of law, examines private financial institutions, levies fines, and bars individuals from the banking industry on pain of civil and criminal penalty. Its monetary and credit powers are similarly executive powers, carrying out as delegated functions from Congress. Under our Constitution, executive authority is vested in the president, and subordinates who exercise it are properly removable by him.

That is the heart of the matter. The majority could not deny it. In a revealing footnote, the Court declined to bless the Fed’s regulatory powers “attenuated from monetary policy.” This is a quiet admission that the supervisory and enforcement machinery the Court shielded sits uneasily with the logic of its own decision.

President Trump’s motives are beside the point. Whatever one thinks of the case for removing Cook, the Chief Executive decides to whom he delegates power. The prerogative does not depend on the wisdom of any particular exercise of it. That is what it means for the executive power to be vested in one accountable officer, rather than parcelled out among insulated technocrats. Justice Thomas plainly got it right.

The majority’s history is as shaky as its law. To explain why the country supposedly needed an insulated central bank, Roberts points to a century of “ruinous financial panics” from 1837 to 1907, which he attributes, citing the journalist Roger Lowenstein, to Andrew Jackson’s destruction of the Second Bank of the United States. Meddle with the central bank, the story goes, and chaos follows.

This gets cause and effect backwards. America’s recurrent panics were not because it lacked a central bank. They were the predictable product of how the government chose to regulate banking. 

Two design defects stand out. First, restrictions on branching left the nation with thousands of small, undiversified, undercapitalized banks, each dependent on a single local economy. Second, the law tied note issue to holdings of government bonds, so the currency could not expand to meet seasonal demand. The resulting currency inelasticity turned every autumn harvest into a potential liquidity crunch. Banking economists Charles Calomiris and Stephen Haber have a phrase for a system built this way: fragile by design.

These were features of the antebellum state systems. Eventually they were federalized, but not repaired. The National Banking System of the 1860s was, at bottom, a Civil War financing strategy. It created demand for federal war debt by requiring national banks to back their notes with Treasury bonds. The system transferred the same fiscal prerogatives from the states to Washington and reproduced the same fragility on a national scale.

The Court’s majority almost perceives this. Its own opinion laments that the country had “no elastic currency that could expand to meet demand.” That’s right. But that inelasticity was a regulatory choice written into the banking acts, not a void waiting for an independent technocracy to fill. For proof, look north: Canada, which permitted nationwide branch banking and a flexible note issue, escaped most of America’s panics. It did not create its central bank until 1935. Stability came from sound banking structure, not from an unaccountable monetary authority.

Strip away the romantic history and the Fed’s exemption is exposed as a special dispensation with no footing in the Constitution. The Fed’s power, prominence, and importance cannot be an excuse for legal ad-hockery. The more concentrated power an organization possesses, the greater the need for it to answer to the public.

There is still room for hope. The Court ruled narrowly. It did not hold that Cook’s alleged misconduct fails to justify removal, did not vindicate her on the merits, and did not condemn the president. It found only that he owed her notice and an opportunity to respond before acting, leaving him free to try again.

SCOTUS’s constitutional carveout in Trump v. Cook simply does not mesh with its same-day decision in Trump v. Slaughter. Frankly, the findings are irreconcilable. Either for-cause removal protections violate the separation of powers by unconstitutionally limiting the president’s authority, or they don’t. The Court cannot indulge that contradiction forever. When it is finally forced to choose, the Constitution, not the Fed’s mystique, must decide the matter.

Whichever way the Court rules, the underlying problem of Fed independence will remain, for reasons that have less to do with the case than with how the Fed has operated for the past year. 

The Independence Dilemma

The case for central bank independence rests on a narrow problem: elected officials face short election cycles and a standing incentive to lean on the central bank for looser money before a vote, whether or not economic conditions warrant. If the public expects political pressure to win out, then the public assumes higher inflation as the norm — seriously compromising future monetary policymaking.

Congress’s fix to this problem was long and staggered terms for Fed Board members, with narrower limits on their removal from office “for cause” only, rather than being at-will political appointments. Over the past year, the boundaries of that limit have been tested with threats of removal, litigation, and informal arm-twisting. 

The combined effects have led to a monetary policymaking dilemma: are monetary policy decisions being made to counter political pressure, conform to it, or because they are really the right policy moves for the nation? If Fed officials are operating under constant political threat, the institution’s own decisions become illegible. If political pressure for, say, lowering rates points in the same direction as the Fed’s technical analysis, then lowering the rates can be read as technical independence or capitulation to political pressure.

When the Right Call Looks Political

From the outside, it’s impossible to tell if the Fed is conducting monetary policy according to what it believes is right or knowingly doing something else to protect its credibility, or worse, caving to political pressure. Two recent episodes show the damaging effects of this dilemma in practice.

For most of 2025, the Fed refused to cut rates despite extreme public pressure from Trump. The data backed holding rates steady, but that’s exactly the problem. A Fed holding the line when it already agrees with holding the line cannot prove it would have done the same thing absent the pressure. Former Fed Chair Jerome Powell’s repeated public refusal to cut rates might have been the correct policy call, institutional defiance, or some mix of both. The public has no way to tell which. 

The same illegibility now follows Kevin Warsh. Can the public trust Warsh’s claims of independence, given that Trump endorsed him in part because he expects Warsh to deliver lower rates? 

Trump reportedly trusts Warsh enough to give him room to act. While Warsh built part of his case for the top Fed job on the argument that productivity gains could justify cutting rates, at his first meeting as Fed chair this month, he signaled essentially the opposite. 

The Warsh-led Fed cut the FOMC policy statement to roughly a third of its previous length. It dropped language signaling a bias toward rate cuts; the same language three regional Reserve Bank presidents pushed to remove at April’s meeting. And the FOMC’s projections shifted toward a possible hike, not a cut, for 2026. Warsh himself declined to submit a projection at all. 

That hawkish opening would normally count as evidence of independence. But in light of the past year’s experience, it could also just be a pretense of independence from someone who will try to deliver low rates at a later point. If the president’s trust survives this apparent defiance, the decision was never much of a test of Warsh’s independence.

Why the Court Can’t Settle It

The Supreme Court’s ruling in Trump v. Cook is very unlikely to solve this dilemma, regardless of the outcome. 

In oral arguments back in January, the administration contended that the President’s decision to remove a Fed governor for cause is essentially unreviewable, while Cook’s side maintained that “for cause” has historically implied misconduct in office, with an associated review process. 

A ruling for Trump would tell every future Fed governor that “for cause” means whatever a president decides it means. Justices seemed alert to the drawbacks of that possibility. Justice Kavanaugh observed that “history is a pretty good guide” and that “once these tools are unleashed, they are used by both sides,” regardless of which party wields them first. 

A ruling in favor of Cook, on the other hand, still may not provide the clearest jurisprudence on what it takes to remove a Fed governor. 

In the Supreme Court’s May 2025 ruling in a different case related to independent agencies, the Court exempted the Fed from its general removal-power decision, describing it as “a uniquely structured, quasi-private entity” with a “distinct historical tradition” separate from other independent agencies. Having carved out the Fed from that decision and protected its officials from removal, the justices may now prefer to rule narrowly in Cook on case-specific grounds. The result: what justifies “for cause” removal remains murky and subject to future litigation. 

A narrow ruling protects Cook. It does nothing for the next Fed governor that a future president decides to target. 

If every future governor is faced with the threat of being fired and needs to lawyer up on a case-by-case basis, central bank independence will de facto erode. So, too, its credibility, as every monetary policy decision can be second-guessed as to whether it was the right call for the broader economy or only for the politically connected.

Congress Must Fix the Fed’s Independence Ambiguity

Central bank independence is not a claim that politics has no place in monetary policy in a democracy. But independence and accountability sit on a single dial, as my colleague Alex Salter has pointed out. Where Congress sets it is a revisable policy choice. 

If Congress wants to insulate the Fed from political cycles, then it should remove the ambiguity in statute and define “for cause” as issues with conduct or job performance, and ensure notice and a chance to respond before removal. This approach would put less reliance on the court’s interpretation and avoid future disputes over removals. It would also remove the ambiguity shrouding the motivations for monetary policy decisions. Congress created the original ambiguity. Only Congress can close it definitively, and do so proactively, to bring an end to the Fed independence dilemma.

It’s easy to see such numbers and fall into despair about America’s prospects. 

If you have ever been tempted to withdraw from public concerns and simply enjoy your own life, who could blame you?

Tom Paine would.

Paine and the Problem of Complacency

When we think of Paine, we think of his 1776 Common Sense, a book that made the case for independence. An incredible twenty percent of Americans at that time owned a copy.

Today, the challenge is not winning independence but preserving liberty. For that latter challenge, Paine’s The American Crisis offers valuable practical guidance.

The American Crisis is not a single book but a wartime serial of sixteen pamphlets, thirteen of which are numbered. Pamphlet 1, written in December 1776 when the Revolutionary War was going badly, opens with perhaps the most famous Paine line: “THESE are the times that try men’s souls.”

The opening paragraph of Pamphlet 1 is packed with poetic wisdom, including: “What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value.”

Is this the source of the threat specific to America’s 250th birthday? Are we like the proverbial fish, asking what water is? Our liberty can seem less like an achievement to be defended than an inheritance too easily taken for granted. What is unknown and unvalued goes unguarded. 

Not knowing our precious heritage and the conditions under which humanity thrives may lead to apathy and leave liberty defenseless. Other people’s apathy toward the crisis facing us is no excuse for our own withdrawal from civic life. Paine wrote, “’Tis the business of little minds to shrink; but he whose heart is firm, and whose conscience approves his conduct, will pursue his principles unto death.”

Panics as Moral Touchstones

“All nations and ages” are subject to panics. To Paine and others, a panic was a contagious, collective fear that swept through a population faster than reason could overcome it. 

Economic downturns were called panics in the nineteenth and early twentieth century. I fear we are one severe economic panic away from an American crisis that will widen partisan gulfs beyond repair and make the preferences expressed in the Heartland poll a dystopian reality.

Panics, Paine observed, “produce as much good as hurt,” adding that “their peculiar advantage is that they are the touchstones of sincerity and hypocrisy, and bring things and men to light which might otherwise have lain forever undiscovered.”

A touchstone was an instrument of a jeweler or merchant, a tablet of dark stone against which you rubbed a piece of gold or silver. If you merely judged the metal by its surface, you might be defrauded. So when Paine calls panic a touchstone, he means that a crisis is the “stone” people rub against, and the streak shows what they are actually made of, whatever they had appeared to be.

In good times, those truly committed to the principles of liberty and those who merely profess them can sound alike, because no crisis has yet arisen to separate them.

What Crises Reveal

Crucially, the crisis does not manufacture hypocrisy; it exposes what beliefs are already there but hidden. As Paine put it, panics “sift out the hidden thoughts of man, and hold them up in public to the world.” 

Untested virtue is unverified virtue. We cannot know whether our attachment to liberty is true metal or cheap alloy until it is tested against the stone, because until then, the two appear identical.

And I’m not merely referring to those on the “other side” of our own beliefs.

The COVID-19 panic revealed erstwhile champions of liberty clamoring for extraordinary government interventions they purport to oppose. Their professed principles should have made them more wary of concentrated power and emergency policymaking. When the cause of liberty needed their voice, they were in retreat. They were a modern-day version of Paine’s “summer soldier,” shrinking from the service of liberty.

Most people experience a crisis as pure loss. Paine sees something else in it. It exposes hypocrisy, reveals one’s true allies, and strengthens those who hold fast to their principles. Paine wrote, “The mind soon grows through them [panics], and acquires a firmer habit than before.” The summer soldiers reveal themselves.

Today, constitutional limits do not command much public reverence. We routinely elect candidates who promise policies that stretch or violate constitutional limits. The oath they swear to “support and defend the Constitution of the United States against all enemies, foreign and domestic” is treated less as a binding principle than as ceremonial language.

Meanwhile, the public drifts back to its favorite distractions as liberty continues to erode. In Common Sense, Paine identified this complacency as a grave threat to liberty: “A long habit of not thinking a thing wrong, gives it a superficial appearance of being right.”

The republic is endangered wherever arbitrary power becomes normalized.

Another form of acquiescence to arbitrary power is the habit of helpless complaint—asking why things must be this way while forgetting that much of history is the struggle against precisely such conditions.

Virtue Under Pressure

In “On Providence,” the Stoic philosopher Seneca explains, much as Paine does, that what we label as bad things can be a gift of providence. 

Seneca urges us to think of adversity as training. What moral man, he asks, “is not hungry for honest work and ready to undertake duties at great risk?”

Demetrius, a philosopher exiled by Nero, is quoted by Seneca as saying, “Nothing seems to me more unhappy than someone to whom nothing adverse has ever happened.” These adverse events, Seneca argues, allow people to test themselves.

Seneca’s untested man is the philosophical twin of Paine’s “summer soldier.” Both thinkers understood that a life entirely shielded from friction produces a character lacking resilience. Adversity tests personal virtue and, on a societal level, reveals whether we truly value liberty.

Paine railed against the selfish, short-term thinking of a man who stood at a tavern with his child and said, “Well! give me peace in my day.” Paine argued the mindset of a “generous parent” must be forward-looking: “If there must be trouble, let it be in my day, that my child may have peace.” Preserving liberty requires accepting present friction so that future generations inherit a free society, rather than pushing the burden of conflict down the road.

Paine wrote, “I love the man that can smile in trouble, that can gather strength from distress, and grow brave by reflection.” 

Liberty and the Long View

This is a mindset of liberty: the recognition that external conditions (the “crisis”) do not dictate one’s internal resolve. It is the conscious choice to meet centralized power or societal panic with calm, reasoned fortitude rather than despair.

People who inherit liberty cannot know whether they still deserve it until liberty is put in jeopardy. Each of us answers, rubbed against the touchstone. 

The summer soldier still has time to become something else. That, and not despair, is Paine’s message for America at 250.

Core inflation, which excludes food and energy prices and is thought to be a better gauge of the underlying rate of inflation, also ticked up. Core PCEPI grew at an annualized rate of 3.9 percent in May 2026, up from 3.0 in the prior month. It grew at an annualized rate of 4.1 percent over the last six months and 3.4 percent over the last year.

Constrained energy supplies associated with the Middle East conflict are partly to blame. Energy prices were 24.3 percent higher in May than they had been a year earlier. But that’s only part of the story, as greater price pressure appears to be widespread. Goods prices, which grew at an average annualized rate of -0.1 percent over the five years just prior to the pandemic, have grown 4.8 percent over the last year. Services prices have grown 3.8 percent over the last year, compared with 2.3 percent over the five years just prior to the pandemic.

Persistent, high inflation is a problem for the Fed, particularly when it is widespread. And the newly appointed Fed Chairman has vowed to tackle that problem. 

“We recognize that inflation has been running well ahead of the Fed’s longstated inflation goal of two percent,” Warsh told reporters at the post-meeting press conference earlier this month. “That’s been going on for more than five years. […] But the recent past need not be prologue.” He said “members of the FOMC are unambiguous and unanimous” in declaring that they “will deliver price stability.”

The Summary of Economic Projections, released in conjunction with this month’s meeting, offers more tough talk from FOMC members. The median member (excluding Warsh, who did not submit a projection) thought the federal funds rate target range would be 25 basis points higher by year-end. Five members projected it would be 50 basis points higher and one projected it will be 75 basis points higher.

Back in March, all 19 members said they thought the federal funds rate would be within or below the current 3.5 to 3.75 percent target range at the end of 2026.

The change in tone at the Fed is noteworthy. But FOMC members still appear to be behind the curve. In June, the median FOMC member revised up their inflation projection for the year, from 2.7 percent to 3.6 percent. Given the inflation realized through May, however, the latest projection implies prices will grow at an average annualized rate of just 2.2 percent over the next seven months. That seems unlikely.

Despite the undue optimism from FOMC members, market participants seem to have accepted the tough talk at face value. Indeed, they expect the FOMC will deliver a bigger rate hike than was projected. According to the CME Group, there is a 39.9 percent chance that the federal funds rate will be 25 basis points higher following the December 2026 meeting; a 30.5 percent chance they will be 50 basis points higher; and a 10.9 percent chance they will be more than 50 basis points higher. In other words, market participants expect FOMC members will soon realize inflation is worse than they thought and adjust policy accordingly.

The FOMC’s tougher tone has bolstered its credibility. But tough talk becomes cheap talk if the FOMC does not follow through. Assuming inflation continues to run above the median FOMC member’s projection, Warsh and his colleagues will have to revise their views quickly and act accordingly. Market participants believe the FOMC will deliver, for now. Warsh’s first major test is to prove them right.

So what were the results? Not as clear-cut as you may guess. Apart from the first year, students report greater well-being. Academically the picture is more complex. Overall, there was little to no statistically significant impact on test results. There were some positive impacts for particular groups (high school math test scores improved, for instance). On the flip side, slightly negative impacts were observed for middle schoolers. 

Furthermore, the study finds some negative effects on classroom attention. psychologist Jonathan Haidt observes, however, teachers reported higher satisfaction. Insofar as teachers’ satisfaction is derived from students paying attention or improving academically, this suggests the results may be more positive than some of the findings indicate. 

The mixed results of the study seems to have muted some of the optimism around the screen-theory of the universal decline in test scores across the country. 

While this new study is the largest, it is not the only paper we have. Other research by Figlio and Ozek finds Florida’s 2023 ban on smartphones led to student score improvements in the second year. Interestingly, the authors suggest these improvements could be due to a lower number of unexcused absences, perhaps implying that students are less likely to skip school when they can’t communicate with their friends who are in school under a phone ban. 

A Norwegian study by Abrahamsson shows unambiguously positive effects of a ban. She finds lower rates of bullying and academic improvement, especially from girls, as a result of the ban. On the flip side, a 2025 Lancet study found no evidence of mental wellbeing improvement as a result of phone restrictions. 

Smaller scale experiments have also been run on this question. In 2022, The Wall Street Journal ran an article with a provocative title: “This School Took Away Smartphones. The Kids Don’t Mind.” The article details how a small boarding school replaced their students’ smartphones with the intentionally “dumb” Light Phone. The most recent reporting indicates the change has stuck, and the students are happy. Although Buxton (a small boarding school in Massachusetts) may not be representative of typical schools, it follows an interesting pattern found in many other studies. That is, after an initial period of being upset, students report being subjectively happier after the bans. 

This consistent finding is perhaps indicative of teenagers facing a prisoner’s dilemma, wherein if all their peers coordinate to put their smartphones away, everyone is better off. Each person, though, has an incentive to individually use a smart phone, and this leads to everyone adopting it, making the whole group worse off than if no one did. 

Despite mixed results, there does seem to be some reason to be positive about the impact of bans. Much of the theory behind why smartphone bans will succeed is based on the idea that access to smartphones has an impact on children’s attention spans. By highschool, most kids have had access to some kind of smartphone or tablet for years already, so some lag on impact would be expected. The fact that several results are finding positive impacts after a couple of years seem suggestive of more positive impacts down the line.

The School as Laboratory 

So should smartphones be banned? My own inclination is to keep smartphones away from my children. Like the administrators at Buxton, my kids will get browser-free, app-free Light Phones. The early evidence (and my general intuition) is that dopamine-centric algorithms aren’t good for the happiness or growth of children. 

But that personal judgment is different from advocating a national policy. Whether public schools should implement bans is a different question, and it’s an empirical one that can be answered through further studies like the NBER paper. But the current public school system is poorly positioned even to discover an answer, much less how to implement it. If smartphone bans make a difference, we’d expect to see parents “vote with their feet,” moving to districts that ban smartphones. Schools that use — or exclude — technology effectively would gain students, and schools that tried to accommodate them would lose students until they shaped up.   

But the institutional incentives of our current system do not allow for such competition and choice. In the world of for-profit, a business which fails to satisfy customers loses money and ultimately goes under. But government school administrators maintain their budgets even when their policies — and indeed, the education offered — are ineffective. Research compiled by Brookings suggests that school spending and learning outcomes are, at best, weakly related. 

Ideally, our school system should be a kind of laboratory where competing ideas for what makes the best education are allowed to play out to see which idea is the most successful.  But modern government schools do not have to participate in this laboratory, they often lose in head-to-head comparisons with private schools, homeschooling, and even the government schools of years past. Government school supporters often explain away private and homeschool success with selection bias, but this cannot account for the reason why families with successful outcomes are the type of people to select out, nor can it explain the falling standards of public schools over time.  

Given this, government schools have weak incentives to ban phones even if that’s the best outcome for students and parents. Students’ educational failure imposes no costs, and the friction caused by bans might. 

The data will take decades to really understand. But if my children were being educated in a public school, I’d be begging their district to run the smartphone ban experiment.

The UN-backed Roadmap for Eradicating Poverty Beyond Growth proposes 80 policies meant to reduce society’s dependence on growth. A separate Global Justice Report, led by Thomas Piketty and researchers at the World Inequality Lab, puts numbers behind this vision.

The reports differ, but they share the same central mistake. They treat growth as an obstacle to justice rather than the force that has lifted billions of people.

What Degrowth Would Mean

The Piketty-led model would push rich countries toward output of roughly €60,000 per person, or about $69,000, by 2100. It would hold annual per-person growth in wealthy regions near zero. That figure requires context.

US GDP per capita was about $89,962 in 2025. The proposed level is about $21,000 lower, or roughly 23 percent below current American output per person. GDP per capita is not the same as a worker’s salary. It measures the total value produced in the economy divided by the population. For another comparison, personal income per capita was running near $77,800 in early 2026.

Not content to slow some distant, future excess, the plan envisions an America that produces less than we do today. The model would also cut annual work hours by more than half, shifting labor away from construction and manufacturing. As Veronique de Rugy notes, “a comprehensive program for global managed decline…making everyone poorer” isn’t just a likely forecast — it’s the plan’s whole design.

But building fewer homes will not solve a housing shortage. Making fewer goods will not make necessities more affordable. Restricting work will not help families trying to move ahead.

Growth Is Human Progress

Economic growth is not just a line on a government chart. It is the process through which people create more value from limited resources. That process gives us better medicine. It makes food easier to afford. It allows workers to earn more while spending fewer hours producing the same goods.

Productivity is the engine of rising living standards. When a worker produces more value per hour, wages and leisure can rise together. Degrowth reverses this process, reducing production and hoping people will enjoy the loss. 

Emile Phaneuf and Christopher Lingle put the stakes plainly in “Degrowth Kills People—Yes, Literally.” Wealthier societies are healthier, safer, and better able to survive crises. Scarcity carries a human cost.

The Poverty Record Is Clear

The strongest argument against degrowth is what growth has already accomplished. Around 60 percent of the world lived in extreme poverty in 1950. By 1990, the share was about 40 percent. The World Bank now estimates that it fell to 10.4 percent in 2024 and could fall to 10 percent in 2026.

The number of people in extreme poverty also fell sharply, even as the world’s population grew. Under the World Bank’s updated $3-per-day standard, about 847 million people remained in extreme poverty in 2024. That is still far too many. But the direction matters.

Since 1990, roughly 1.5 billion people have escaped extreme poverty. Much of that progress occurred in Asia as countries expanded trade, welcomed investment, and allowed more private enterprise. They did not become wealthier by closing factories.

The World Bank also finds that poverty reduction accelerated after 1990. The average decline doubled from about half a percentage point per year before 1990 to roughly one point annually afterward. That is what economic liberalization made possible.

Poverty Is Not Inequality

Degrowth advocates often move between poverty and inequality as though they mean the same thing. They do not.

A poor family does not gain because a wealthy family loses money. A worker is not better off because a factory closes and makes an inequality chart look more balanced. Making fewer goods will not make necessities more affordable. Equality achieved by destroying wealth is shared deprivation.

As I have argued at AIER, the better question is why government policy blocks people from earning, investing, and moving upward. The goal should be to expand opportunity, not punish success. Growth does not guarantee that every outcome is equal. It does create more room for people to improve their lives. Stagnation makes mobility harder.

The Plan Undermines Itself

The Piketty proposal depends on a global fund financed by taxes on income and wealth. Yet it would weaken the economies expected to finance that fund. It also assumes poorer countries can keep growing while rich countries consume and invest less. That does not add up.

Developing countries need capital. They also need customers. If the United States and Europe stagnate, both become scarcer. A development plan cannot succeed by weakening the world’s largest sources of investment and demand.

Degrowth also creates a political problem. Someone must decide how much people may work. Someone must choose which industries shrink and which goods are no longer produced. Those decisions will not remain inside an academic model.

Markets coordinate millions of choices through prices and voluntary exchange. No global commission has enough knowledge to replace that process. Managed scarcity eventually requires managed lives.

Prosperity Is the Better Path

Rejecting degrowth does not mean ignoring pollution or other real harms. Property rights matter. So does accountability. Innovation can reduce environmental damage without forcing society backward.

As Joakim Book explained in his review of The Capitalist Manifesto, prosperous societies have more resources to adapt and invest in cleaner technology. Poor societies must focus on survival. The world’s poorest people do not need comfortable academics deciding they have reached “enough.” They need the freedom to work, save, invest, and build.

Degrowth is a luxury belief because its advocates already enjoy the abundance they would restrict. Poverty cannot be overcome by rationing scarcity. It is overcome by economic freedom that lets people create abundance.

Since October 2008, the Fed has been paying interest to private commercial banks. Banks currently earn 3.65 percent interest on reserves (IOR) that they hold at the Fed. According to their 2025 financial statements, the Fed paid almost $167 billion in interest to US depository institutions and overnight reverse repurchase agreements (ON RRPs), but it earned less than $155 billion on its assets. This resulted in a net loss of more than $12 billion in 2025. The cumulative total losses since 2023 stand at $243 billion. If the Federal Open Market Committee (FOMC) raises its interest rate targets this year, as financial markets are predicting, future losses could be even greater. 

Why is a government institution like the Fed paying interest to private banks? What role does IOR play in the Fed’s monetary policy, and what problems might it cause?

The Start of IOR

In early 2008, many banks and nonbank financial institutions experienced huge losses as market values of mortgage loans and mortgage-backed securities (MBSs) collapsed. The Fed initially opened several major lending programs to provide liquidity to the banking and financial systems. To prevent general liquidity from increasing (and driving up prices), the Fed sold Treasury securities. By sterilizing its lending programs with Treasury sales, the Fed was able to provide liquidity to the banking system without increasing inflation.

By late summer, the scale of the lending facilities caused the Fed’s Treasury holdings to dwindle. This created a problem for Fed officials, who were worried about the “upside risks to inflation.” They thought additional lending and large-scale asset purchases would be necessary to prevent the banking system from failing. But they no longer had enough Treasurys to sell to prevent that lending from driving up prices. How could the Fed continue to provide liquidity to the banking system without increasing inflation?

The Fed’s solution to this problem was to pay banks interest to hold their reserves at the Fed. By paying interest on reserves (IOR), the Fed could create the reserves necessary to extend loans to and purchase risky MBSs from banks, thereby strengthening those banks’ balance sheets, while giving banks a strong incentive to hold the newly created reserves rather than lending them out. So long as banks increased their reserve-to-deposit ratios sufficiently, the newly created reserves would not increase broader monetary aggregates, spending in the economy, or inflation. 

The plan worked. Paying banks to hold reserves caused the reserve-to-deposit ratio to rise. Total reserves in the banking system increased from $45 billion at the start of 2008 to $1.2 trillion by 2010 and $2.8 trillion in 2014. Banks’ asset and deposit growth, however, slowed over this period, causing their reserve ratios to jump.

The Fed’s Floor System

The introduction of IOR moved the Fed from a corridor system of monetary policy, in which the Fed targets short-term interest rates within some range, to a floor system in which IOR creates a lower bound, below which short-term rates cannot fall. The transition, however, was anything but smooth.

The Fed first paid IOR on October 9, 2008 at a rate of 1.4 percent. The following day, the federal funds rate, the market rate at which banks borrow from and lend to each other, fell to just 0.79 percent, and the rate on three-month US Treasury was just 0.25 percent. Short-term interest rates were trading below the supposed floor, and continued to do so for almost a decade.

Rather than admit that the floor system was not functioning as expected, the FOMC moved from a target rate to a target rate range. The rate of IOR was set as the top of the range, with zero being the bottom. In 2014, the FOMC introduced a facility for ON RRPs, which functions like IOR for nonbank financial institutions. The ON RRP rate is typically set at the bottom of the FOMC’s target range.

Under the floor system, the rate of IOR has become the primary tool of Fed policy. The Fed still buys and sells bonds, but these open market operations are intended to alter the quantity of reserves in the banking system and (in theory) do not affect short-term interest rates. Large-scale QE purchases do influence interest rates, but they are intended to target longer-term interest rates in the financial system rather than short-term rates and bank lending.

The move to a floor system is arguably the biggest change to monetary policy in the history of the Fed. It has led commercial banks to accumulate a massive quantity of reserves, which have increased bank liquidity while reducing bank lending. In a study published in the Journal of Macroeconomics in 2021, I found that IOR accounted for more than half of the decline in bank lending in the decade following the 2008 financial crisis. The floor system did not work as planned and has made monetary policy more complicated. 

Fed officials argue that paying IOR is beneficial since it gives them more tools in the monetary policy toolkit. Given the Fed’s past failures, however, one might question whether more tools will lead to better policy. 

Will Chair Warsh allow the Fed to continue to take losses? Reducing the rate of IOR (at least relative to its interest rate targets) could improve the Fed’s fiscal position so that it behaves more responsibly and finally stops losing money.

Ozempic is a story of pharmacological success, but also of entrepreneurial failure. The tale provides a strong reminder that inventions and discoveries mean little unless they are combined with sound entrepreneurial judgment.

According to a paper published in the Perspectives in Biology and Medicine, a startup produced a GLP compound in the late 1980s, and pharma giant Pfizer sponsored human trials that confirmed the drug’s efficacy in reducing blood glucose levels and slowing gastric emptying. One member of the startup team, Jeffrey Flier of Harvard, explained what happened next:

I was shocked when told that senior Pfizer leadership had concluded that there would never be another injectable therapy for diabetes other than insulin. What led them to this conclusion was never explained….I had been deeply impressed by their rapid decision to invest in our company, and I was equally dumbfounded by their decision to end their investment despite convincing early evidence of the program’s success.

Confident in its own conclusions, Pfizer pulled the plug on the drug in 1991. The startup folded.

Under the terms of Pfizer’s agreement, the license remained with the Boston hospital where researchers discovered GLP-1’s mechanism and conducted the human trials. It was then acquired by Novo Nordisk in 1992, where scientists used it to develop what eventually became semaglutide, the pharmaceutical sold as Ozempic and Wegovy. While it is unclear whether, as Max Marchione put it on Twitter, the GLP-1 agonist data simply “sat in a filing cabinet for 30+ years,” Pfizer’s decision to abandon the project likely delayed its development.

While it is unclear whether, as Max Marchione put it on Twitter, the GLP-1 agonist data simply “sat in a filing cabinet for 30+ years,” Pfizer’s decision to abandon the project certainly delayed its development. Had the company continued investing in the research, it might have brought the drug to patients years earlier—and captured a significant share of what has become a $190 billion market.

Clearly, mistakes were made in the development of Ozempic, but what’s notable is that the product’s success required far more than the idea. Even a great idea is not a product and may never become one — much less a successful one. Business history is filled with cases in which inventors appear to have been deprived of the rewards of their discoveries. Many great inventions were, in some sense, stolen ideas commercialized by someone other than their inventors. George Westinghouse bought patents from Nikola Tesla, and undertook illuminating the nation while Tesla, the lone genius, struggled with poverty. Elias Howe invented the sewing machine but lost most of the revenue to Isaac Singer, who was only later compelled to pay the inventor royalties. Antonio Meucci invented the telephone but couldn’t afford to secure or defend patents from Alexander Graham Bell’s enthusiastic dissemination of the device. 

Inventors frequently failed to recognize the full market potential of their ideas. Entrepreneurial outsiders notice the discovery, develop it into a desirable technology or product, and implement strategies for manufacturing, distributing, and marketing the invention. 

Some unethical behavior, fraud, exploitation, and outright stealing certainly does exist in these stories. But it would be a mistake to reduce this entrepreneurial instinct to taking advantage of or free-riding on a mistreated genius who would otherwise have realized the great benefit, himself. In a very real sense (as GLP-1 development demonstrates), what actualizes the value of an idea is the execution: operationalizing a discovery into a product or service that people find valuable. The idea has relatively little value, compared to the scalable solution built upon it. 

We typically do not learn about it much in school, but there is such a thing as second-mover advantage. This phenomenon (that the first mover is not profitable but the second mover is) is often explained in terms of avoiding the costly mistakes that the first mover makes. But cost is not the true story. Second movers recognize — imagine — a new idea’s utility to some market segment. Like Novo Nordisk and George Westinghouse, they strive to make the implementation of the idea as valuable as possible, positioning it as valuable to potential customers. The creation may be every bit as valuable as the idea, and often more so. 

Henry Ford, for another historical example, was not the inventor of the automobile, but the innovator of the affordable car. Existing manufacturers of automobiles did not recognize the potential appeal of their horseless vehicles. Henry Ford did — and made it happen. Far from the first mover, or even the second mover, he was the first to recognize what a mass market of ordinary people wanted from a car. The other producers did not. Ford transformed a toy for the wealthy into practical transport for the ordinary.

The same type of story can be told about many successful innovations. The invention (the new thing) might have limited value, until its utility is captured, marketed, and made available to people. Entrepreneurs and investors look for the value proposition in new ventures: what would make buyers want this new thing? They ask not “is this a new thing?” but “is this new thing generating value someone is willing to pay for?” The questions may have the same answer but often do not.

The story of Ozempic is one of failed entrepreneurship, but also of its eventual success. Pfizer, judging from how the story has been told, did not recognize the value of the drug. Viewing GLP-1s as a treatment for diabetes, and nothing else, Pfizer execs failed to imagine how other consumers might value these clinical effects. 

Perhaps they were right — from the perspective of treating diabetes, another injectable may not be necessary. But they were wrong regarding the value of the drug, which arises from a different use by a different market segment. 

The Ozempic craze of today is not driven by diabetics seeking to manage their disease, which Pfizer viewed as its only potential application. Millions of non-diabetics now choose the compound for other reasons. Pfizer completely missed that value proposition.

LEADING INDICATOR (50)

The Leading Indicator came in at 50, with six of 12 components improving, none unchanged, and six declining.

Positive contributions came from a mix of labor, financial, market, and demand-sensitive measures. US Average Weekly Hours All Employees Manufacturing SA rose 0.2 percent. US Initial Jobless Claims SA declined 6.4 percent and was scored positively after inversion. The Conference Board US Leading Index Stock Prices 500 Common Stocks increased 4.5 percent, while Adjusted Retail and Food Services Sales Total SA rose 0.4 percent. United States Heavy Trucks Sales SAAR increased 4.4 percent, and Debit Balances in Customers’ Securities Margin Accounts rose 6.8 percent.

Those gains were offset by weakness in several important forward-looking areas. The University of Michigan Consumer Expectations Index fell 7.0 percent, pointing to softer household expectations. Conference Board US Leading Index Manufacturers’ New Orders Consumer Goods and Materials slipped 0.2 percent, and Conference Board US Manufacturers New Orders Nondefense Capital Goods Ex Aircraft declined 1.3 percent. US New Privately Owned Housing Units Started by Structure Total SAAR dropped 8.5 percent, while the Inventory-to-Sales Ratio Total Business declined 0.8 percent. The 1-Year to 10-Year US Treasury Yield Spread widened 1.3 percent, but because that measure is inverted in the BCM scoring system, it was scored negatively.

Taken together, the leading components suggest a forward-looking environment that remains divided. Financial market measures, retail activity, heavy truck sales, and initial claims provided support, but weakness in consumer expectations, housing starts, new orders, and the yield curve signal prevented the Leading Indicator from moving above neutral.

ROUGHLY COINCIDENT INDICATOR (67)

The Roughly Coincident Indicator registered 67, with four of six components improving and two declining.

Current activity showed broad enough strength to move the index higher. Conference Board Coincident Manufacturing and Trade Sales rose 0.2 percent, while Conference Board Consumer Confidence Present Situation SA increased 0.2 percent. US Industrial Production SA advanced 0.9 percent, representing one of the stronger coincident gains, and US Employees on Nonfarm Payrolls Total SA edged higher by 0.1 percent.

Offsetting those gains, Conference Board Coincident Personal Income Less Transfer Payments declined 0.4 percent, and the US Labor Force Participation Rate SA slipped 0.2 percent. Those declines suggest that while production, payrolls, sales, and present-situation sentiment improved, the income and participation backdrop remained somewhat weaker.

Overall, the roughly coincident data point to a firmer current environment than in March. The move from 58 to 67 reflects a modest broadening in real-time activity, though the improvement is not uniform and remains tempered by softness in income and labor force participation.

LAGGING INDICATOR (67)

The Lagging Indicator stood at 67, with four of six components improving and two declining.

Several slower-moving measures continued to show strength. US CPI Urban Consumers Less Food and Energy Year over Year NSA rose 7.7 percent, indicating renewed pressure in the core inflation measure. Conference Board US Lagging Average Duration of Unemployment fell 3.6 percent and was scored positively after inversion. Conference Board US Lagging Commercial and Industrial Loans increased 0.1 percent, and US Manufacturing and Trade Inventories Total SA rose 0.5 percent.

Two components weakened. US Commercial Paper Placed Top 30 Day Yield declined 0.5 percent, and Census Bureau US Private Construction Spending Nonresidential SA slipped 0.2 percent. Those declines point to softer short-term credit conditions and mild weakness in nonresidential construction spending.

The lagging data remain expansionary, though less strongly so than in March. The decline from 83 to 67 suggests some easing in the strongest backward-looking signals, but the category continues to reflect underlying firmness in prices, inventories, commercial lending, and unemployment-duration dynamics.

April’s BCM results still describe an uneven economy, but not one that’s broadly rolling over: the Leading Indicator stayed at 50 (neutral), the Roughly Coincident Indicator climbed from 58 to 67 (firmer current activity), and the Lagging Indicator cooled from 83 to 67 while remaining expansionary (still-solid trailing conditions). Relative to March, the story is mainly a shift away from unusually strong lagging strength toward a better coincident read—smoother than last month, but not yet a clean, broad-based pickup. 

DISCUSSION (May/June 2026)

Recent inflation data point to a complicated but somewhat less alarming price environment, with consumer prices showing signs of restraint even as upstream pressures remain firm. May’s CPI report was softer beneath the headline than the energy-driven increase suggested: core inflation slowed, the breadth of price increases narrowed, food inflation moderated, shelter cooled from April’s pace, and several discretionary goods and services categories showed evidence that consumers are resisting further price hikes. Gasoline and airfares remained important sources of pressure tied to the Iran conflict and higher fuel costs, while core goods softened overall, apart from scattered strength in metal-sensitive categories such as appliances, sporting goods, and jewelry. Producer price data complicate that benign consumer-side message, however, as May’s PPI showed costs still moving through the production pipeline in energy, transportation, finance-related services, manufacturing inputs, and commodity-sensitive components. Some of those pressures have not yet reached consumers, implying either continued margin absorption by firms or delayed pass-through later this summer, while PPI components feeding into the Fed’s preferred PCE measure point to a firmer reading through airfares, healthcare services, and portfolio management fees. The result is not broad inflation reacceleration so much as an uneven handoff: consumer caution, weak housing demand, and fading tariff pass-through are restraining retail prices, but producer-side costs and energy shocks keep the Fed from declaring the inflation problem resolved.

Labor market data have turned more constructive than earlier in the year, though the improvement remains uneven. May payroll growth came in well above expectations, prior months were revised higher, and gains were concentrated in leisure and hospitality, health care, local government, construction, and a modest rebound in manufacturing, while financial activities, information, and parts of professional and business services remained weak. The unemployment rate held broadly steady, participation was unchanged, and wage growth stayed firm without showing renewed acceleration. ADP’s private payroll measure and low initial claims reinforced the view that employers are still adding workers and layoffs remain contained. Beneath the headline, however, the labor market looks more stable than broadly resurgent: job openings rose sharply in April, but the increase was concentrated heavily in professional and business services, while vacancies declined in several more cyclically sensitive areas. With quits lower, layoffs subdued, and continuing claims contained, labor conditions appear characterized by selective hiring and reduced worker mobility rather than rapid churn. For the Federal Reserve, firmer payroll gains and limited layoffs reduce the urgency for rate cuts, but the narrow breadth of hiring and uneven sectoral demand argue against treating the labor market as unambiguously tight. 

Manufacturing and goods sector data improved notably in May and June, though some of the strength appears tied to supply concerns and inventory rebuilding rather than a purely organic acceleration in final demand. The ISM Manufacturing Index rose to its strongest level in several years, supported by stronger domestic and export orders, rising backlogs, and faster production as firms worked to meet demand amid lean inventories. S&P Global’s June survey reinforced that improvement, with factory activity reaching its strongest level since 2022 and new orders advancing at the fastest pace in more than four years. Still, the details point to caution: manufacturers sharply increased input purchases and built stockpiles rapidly, suggesting precautionary behavior amid supply chain fears, while fuel costs, tariffs, metals, semiconductors, supplier delays, and elevated materials prices continue to cloud the outlook.

The services sector also expanded in May and June, but the underlying message was less reassuring than the headline gains suggested. The ISM Services Index rose on stronger new orders, yet export orders and backlogs softened, inventories increased more quickly, employment contracted slightly faster, and prices paid reached their highest level since mid-2022. S&P Global’s June survey showed some improvement in services activity, helped in part by World Cup-related demand and better news from the Middle East, but growth remained subdued relative to manufacturing as high prices and weak consumer confidence continued to weigh on demand. Overall, services remain a source of expansion, but not an unambiguous offset to broader risks: activity is still positive, yet soft hiring, rising prices, and fragile demand leave the sector vulnerable if higher costs or weaker confidence begin to restrain discretionary spending.

Consumer and business sentiment moved in opposite directions in late May and early June, but both remained highly sensitive to inflation, fuel costs, and policy uncertainty. The University of Michigan survey showed a modest improvement in consumer sentiment, helped by lower gasoline prices and some easing in inflation expectations. Consumers assessed both current conditions and the near-term outlook somewhat more favorably, while long-run inflation expectations moved lower — a development that should offer the Federal Reserve some reassurance. Even so, sentiment remains weak in absolute terms: households continue to view inflation as a greater near-term risk than unemployment, buying conditions for homes deteriorated, and plans for large purchases remain subdued despite small improvements for vehicles and household durables.

Small-business sentiment softened, reflecting a more difficult operating environment for firms exposed to rising input costs and uneven demand. The National Federation of Independent Business (NFIB) Index slipped in May as uncertainty stayed elevated, pricing pressures intensified, and supply-chain disruptions continued to affect a large share of firms. Business owners reported more difficulty passing higher costs through to customers, particularly as fuel prices became more volatile, and that appears to be weighing on plans for both capital spending and hiring. While recent profit trends improved somewhat, forward-looking indicators were weaker: capex intentions fell to very low levels, and hiring plans dropped to their weakest reading since 2020. Taken together, the sentiment data point to an economy in which consumers are slightly less pessimistic than they were, but firms remain cautious, cost sensitive, and reluctant to commit to expansion until the inflation and policy backdrop becomes clearer.

Retail and consumption data suggest that households continued to spend at a solid pace in May despite higher gasoline prices and elevated borrowing costs, with sales gains spread across most categories and particular strength in autos, gasoline stations, and online spending. The control group also advanced firmly, pointing to a consumer sector that remains resilient, though the report was supported by nominal price effects, larger-than-usual tax refunds, a rising stock market, and deal-seeking behavior rather than a clear easing of household constraints. Beneath the headline, the picture remains bifurcated: higher income households appear to be carrying much of the spending momentum, while lower income consumers remain pressured by tight budgets, weaker real wage growth, elevated borrowing costs, and a lower saving rate. Online retail strength suggests shoppers are becoming more selective and promotion-sensitive, with AI-powered shopping tools potentially becoming a larger influence over time. For now, sustaining consumption into the summer will depend less on one strong retail print than on labor market conditions, real disposable income growth, and whether households can continue absorbing higher energy prices without cutting back on discretionary purchases. 

Industrial production and capex data show a goods-producing sector with pockets of real strength, but not a broad manufacturing revival. Total industrial production rose only slightly in May, while manufacturing output was essentially flat after a strong April, as gains in durable goods were offset by weakness in nondurables such as chemicals and petroleum products. The stronger areas were tied to business equipment, data center construction, onshoring, defense and space equipment, and energy production, with oil and gas drilling responding to higher prices. Durable goods output improved broadly, and business equipment production continued to advance, suggesting that capex plans remain intact in strategically important sectors. But the breadth of factory growth remains limited: consumer goods output declined, nondurables weakened across most categories, and factory utilization was little changed. Overall, the production data fit the broader pattern of the report — activity is still expanding in select investment-heavy areas, but the industrial base remains uneven, cost sensitive, and exposed to supply chain stress, war-related disruptions, and rising input prices. 

The latest Beige Book reinforces the broader picture of an economy still expanding modestly, but with a more cautious tone beneath the surface. Most Federal Reserve districts reported slight to moderate growth, and manufacturing stood out as a relative bright spot, supported by defense activity, data-center demand, and selective hiring in industrial sectors. But that strength remains narrow rather than broad-based, and other parts of the report point to growing strains: consumer spending is increasingly split by income, with higher-income households still spending while middle- and lower-income consumers become more price-sensitive; loan delinquencies have risen in several categories; and businesses remain focused on protecting margins as energy costs ripple through shipping, packaging, groceries, and other inputs. Employment conditions also remain subdued, with most districts describing a low-hire, low-fire environment in which firms fill only critical roles and workers are less willing to change jobs amid uncertainty. Overall, the Beige Book supports the view that the economy remains resilient enough to keep the Fed from cutting rates immediately, but not strong enough to rule out easing later if consumer stress, credit deterioration, and business caution continue to build.

The monetary policy backdrop has turned decidedly more hawkish, even as the most likely near-term outcome remains an extended pause rather than an immediate rate increase. The Federal Reserve left its benchmark rate unchanged in June, but the updated projections showed a committee more divided and more concerned about inflation than it had been earlier in the year, with officials raising their core inflation forecast and marking down growth slightly. The statement also shifted in tone, emphasizing price stability, solid activity, strong productivity and capital investment, and inflation pressures tied partly to energy and other supply shocks. Warsh’s first meeting as Fed chair reinforced that message: his press conference was notably focused on price stability, and the Fed’s communications have moved steadily in a more hawkish direction since early 2026. At the same time, Warsh’s decision not to submit a dot-plot projection, along with his stated preference for less forward guidance, introduces a new uncertainty around how much information markets will receive about the likely path of policy. For now, the Fed appears inclined to stay on hold while it waits to see whether energy-driven inflation fades and whether labor-market conditions soften more materially, leaving policy restrictive but not yet moving decisively toward either hikes or cuts. 

Fiscal, trade, and affordability policy are becoming a larger source of macro uncertainty, even as the administration presents tax cuts, deregulation, and energy production as offsets to higher living costs. The debt ceiling is already back on the horizon after last year’s increase, with federal debt projected to rise further above GDP and annual deficits remaining politically salient. 

At the same time, the White House’s affordability agenda has struggled to gain traction: housing legislation has stalled, efforts to cap credit-card interest rates have met resistance, and executive actions on mortgage access and builder regulation appear likely to have only limited near-term effects. Those difficulties have been compounded by the Iran conflict, which pushed gasoline and mortgage costs higher, weakened the spring housing market, and muted attempts to highlight tax refunds, drug price negotiations, and other pocketbook measures. Trade policy remains similarly unsettled after the Supreme Court rejected the administration’s sweeping global tariffs, prompting a recent shift toward more targeted tools such as Section 301 investigations while preserving broad discretion through exemptions and inclusions. The result is an uneven and unpredictable tariff map, with some smaller economies gaining relief, others facing higher burdens, and major partners still exposed to renegotiation risk or sector-specific duties. Overall, the policy environment is simultaneously stimulative, protectionist, and fiscally strained: tax relief and deregulation may support demand at the margin, but debt-limit politics, tariff uncertainty, affordability pressures, and volatile energy costs continue to weigh on confidence, business planning, and the durability of the expansion.

All together, the May/June US economic data reveal an economy that is still expanding, but with a narrower and more fragile foundation than the headline figures imply. Consumer spending and selected areas of manufacturing remain resilient, labor conditions have stabilized, and investment tied to data centers, defense, and business equipment continues to provide support. But inflation pressures have not fully cleared the pipeline, service demand looks less firm, lower-income households are under strain, firms are cautious about hiring and capex, and policy uncertainty has become a larger drag on confidence and planning for households and firms alike. The near-term outlook is therefore cautiously positive but increasingly conditional: growth can continue if energy pressures fade, consumers remain employed, and investment momentum holds, but the economy is becoming more vulnerable to shocks from inflation, tariffs, credit stress, or policy missteps. 

LEADING INDICATORS

ROUGHLY COINCIDENT INDICATORS

LAGGING INDICATORS

CAPITAL MARKETS PERFORMANCE

The public reaction will be predictable. Some will see it as proof that capitalism has gone too far. Others will see it as proof that entrepreneurship still works. The relevant question is not whether one man should have so much money. The better question is what kind of society produces builders capable of changing whole industries (cars, rockets, satellites, logistics, and communication), and more importantly, whether we still have the wisdom to learn from them rather than villainize them. 

Elon Musk was born in South Africa, migrating to Canada before ending up in the US. He encapsulates, in one career, the drama of being an entrepreneur in the twenty-first century. He was part of the PayPal team (alongside Peter Thiel, later co-founder of Palantir, and Reid Hoffman, co-founder of LinkedIn) that sold to eBay for $1.5 billion in 2002. Musk’s share was $175.8 million. He was just getting started.

Instead of preserving that fortune, Musk invested it back into uncertainty. He invested heavily in SpaceX ($100 million), Tesla ($70 million), and other flammable projects. The decision to risk his PayPal proceeds on rockets and electric vehicles is the heart of the entrepreneurial story. The entrepreneur does not merely accumulate capital; he reallocates it toward an uncertain future, investing in what others can’t yet see. 

Founded in 2002, SpaceX entered an industry dominated by governments, defense contractors, and the assumption that rockets were too expensive and too complex for a private start-up to disrupt. In fact, SpaceX’s first three Falcon 1 launches failed, and the company came close to running out of money before the fourth launch succeeded in 2008: the first successful private orbital launch. But Musk’s ambition was larger: reusable rockets. SpaceX managed to fight through these failures and on December 22, 2015, did the impossible: its Falcon 9 rocket executed a graceful descent and controlled vertical landing. The money-saving and horizon-expanding potential of reusable rockets was gifted to the world, born from Musk’s old PayPal payout. 

By comparison, NASA’s Apollo program cost the United States taxpayer $25.8 billion between 1960 and 1973, roughly $309 billion in 2025 dollars. Our national achievement was a monument to state capacity, funded by taxpayers. SpaceX points toward a different model: public agencies as customers, private firms as builders, reusable rockets and other previously unthinkable feats of engineering lowering costs and improving outcomes. 

Long curious about electric cars, Musk became the defining investor of Tesla Motors in 2004, after contributing $6.5 of its $7.5 million Series A funding round. He secured a role on the board, and since 2008, Musk has been CEO of the firm. At that time, the idea that an electric car company could challenge the world’s largest automakers looked almost absurd. In 2012, presidential candidate Mitt Romney would still call Tesla a “loser,” and in 2015 former GM vice chairman Bob Lutz warned that the company was facing a “trifecta of doom.” Tesla did face production delays, cash shortages, short sellers, media skepticism, and the basic manufacturing nightmare of building cars at scale. Recalling SpaceX’s public failures, Tesla’s 2019 Cybertruck reveal produced an embarrassing moment when its supposedly durable windows cracked onstage. 

But by the 2020s, Tesla was leading US electric vehicle (EV) sales, while the Model Y became Europe’s favorite all-electric car. Against the odds, the company survived long enough to force major automakers to respond. From Detroit to Berlin, electric vehicles suddenly became a real discussion because Tesla proved that EVs could be desirable, fast, software-driven, and commercially scalable. Entrepreneurship does not merely create a firm; when it succeeds, it changes the decision-making of every incumbent around it. The most innovative firms are disruptors — creative destroyers. The change looks impossible up until the moment it becomes inevitable. 

Once success becomes visible, the years of struggle fall from public view. The near-bankruptcies, the fizzled rockets, the viral embarrassments, and the years of ridicule disappear from memory. What remains is the billionaire. The risk is forgotten, and the fortune seems suddenly to be the only fact anyone sees or cares about.

Here, the politics of resentment and envy enter the story. Once the entrepreneur becomes rich enough, the public conversation often stops asking what he built and starts asking why he has so much — forgetting along the way that humanity’s natural state is poverty. The builder becomes a symbol, and the symbol becomes a villain. The original act of creation is replaced by a moral narrative of extraction, enforced through the power of government. 

The phrase “tax the rich” captures this shift perfectly. What began as a fiscal demand has become a cultural signal. When Alexandria Ocasio-Cortez wore a white gown with “Tax the Rich” written across the back to the 2021 Met Gala, the message was not buried in a policy paper or argued in a budget committee. It was displayed as political theater at one of the most elite social events in the country. Vogue described the dress, worth $18,000, as a deliberate political message, written in red across the back of the gown at “fashion’s glitziest night”.

Bernie Sanders has carried the same slogan into formal politics. His recent “Make Billionaires Pay Their Fair Share Act” spends 154 pages describing wealth inequality, suggesting it can be solved with a new wealth tax: “In the case of an applicable taxpayer, there is hereby imposed a tax computed equal to five percent of the net value of assets held by the taxpayer for the calendar year.”

The hypocrisy is striking: 73 out of 100 US senators have a net worth over one million dollars on a base salary of $174,000 (and are seeking a raise while running up deficits). Scapegoating billionaires for society’s problems — or, in many cases, government’s problems — treats wealth itself as suspicious, as if the existence of a billionaire is already evidence of social failure. 

The tragic murder of UnitedHealthcare CEO Brian Thompson in Manhattan showed how dark that atmosphere has become. Criticizing the American healthcare system is reasonable — treating a man’s death as a symbolic victory against an industry is not. In addition, the health system is often treated as proof of private-sector failure, despite the many distorted incentives created by the government’s extensive role in American insurance and healthcare. Over 143.3 million people are enrolled in or heavily subsidized by major federal health insurance programs, while government policies vastly expand healthcare spending and reduce transparency for patients.

New York’s current political tone, unfolding in the wake of that highly publicized, ideological murder, becomes even more troubling. After such a public act of violence, one might expect greater caution from political leaders about turning named wealthy individuals into targets. Instead, Zohran Mamdani’s tax-the-rich campaign has leaned into personalizing attacks on wealth, using Ken Griffin’s Manhattan residence as a prop for a broader fiscal message. Pointing public anger toward one rich man’s home is not serious governance. It is resentment politics dressed up as public finance.

Jeff Bezos’s recent CNBC interview offers a useful contrast. Rather than framing tax policy as a campaign to punish the rich, Bezos argued that the bottom half of American earners should pay no federal income tax at all. For tax year 2023, the bottom 50 percent of taxpayers (those with annual incomes under $53,801) paid 3.3 percent of all federal individual income taxes. By contrast, the share of income taxes paid by the top one percent has increased by almost that much in the past two decades: from 33.2 percent in 2001 to 38.4 percent in 2025.

According to Cato Institute calculations, the US already has the most progressive tax system in the world, “with a relatively low marginal rate of 10 percent for lower-income filers and a top rate of 37 percent for higher incomes.”

The greatest irony is that AOC, Sanders, and Mamdani never had to battle the failures and tribulations of competing in a market. Their failed careers include bartending, teaching, farming, and rapping, but they are now able to wield the power of government. With it, they seek to punish those who have built empires in tech, logistics, and finance. 

Thomas Sowell captured the moral inversion well, “I have never understood,” he wrote, “why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”

In 2016, The New York Times published an analysis titled “Forty Percent of the Buildings in Manhattan Could Not Be Built Today.” Using data from Quantierra, the article found that, out of Manhattan’s roughly 43,000 buildings, 40 percent — about 17,000 — violate at least one current zoning rule. Many were too tall or covered too much of their lots. Some had too many apartments; others had too many retail stores. In other words, much of Manhattan’s built environment survives only because it was grandfathered in before today’s rules could prohibit it.

The forbidden builds include iconic buildings like the Empire State Building, the Chrysler Building, the original World Trade Center Twin Towers, and scores of landmarks all over the city.

In an important sense, New York City is living in its past. It is hampered from creating a dynamic future, frozen in place by zoning laws that typically force buildings to be squat, “wedding cake” shaped, or simply indistinguishable from neighboring buildings. Under these rules, it would be impossible to build world-famous skyscrapers like the Empire State Building, or Art Deco masterpieces like the Chrysler Building, the Flatiron Building, The Dakota (famous home of John Lennon and Yoko Ono), and scores of others.

What future landmarks will never be built under today’s zoning rules?

Poke around on this interactive map to see how today’s zoning would have quashed buildings on nearly every city block.

The Twin Harms of Zoning: Scarcity and Loss of Dynamism

Two main harmful consequences result from zoning laws and their cousin, landmarks laws. (Landmarking in NYC essentially prevents any new construction in vast zones of the city. It is like a form of super-severe zoning. More on it below.)

First Harm: An Artificial Scarcity of Housing

The first harm is that zoning makes housing (and office rents – this analysis applies equally to office buildings) much more expensive by reducing the supply of new housing in the city. In order to preserve access to “light and air” for pedestrians and residents, zoning restricts the size and density of buildings. It does this by limiting heights, square footage, and imposing a variety of other rules, such as requiring empty backyards and street setbacks.

The first comprehensive zoning law in the United States was passed in New York City in 1916. Its purpose was to preserve “light and air” by reducing the size of new buildings. It divided the city into zones, each with a different limit on building size. The law further separated the city into use-zones. Parts of the city could only be used for their designated purpose: residential, commercial, manufacturing, and many more narrowly prescribed uses. Using a building in a zone for a different purpose (say, converting a warehouse or defunct office space into apartments) was expressly forbidden.

As time went by, the power to restrict building sizes and uses became a tool for residents who wanted to preserve their views or who simply didn’t want more neighbors. These concerns expressed themselves in the major 1961 revision to the zoning laws, which effectively “downzoned” much of NYC’s potential density. Before 1961, forecasters had predicted that NYC could eventually reach 20 or 25 million residents. (Note that such populations have already been attained in similar physical space by Tokyo, Jakarta, and Mexico City, among others.)

After 1961, NYC effectively froze in place. The total population of all five boroughs in 1960 was 7.8 million. Today it is 8.5 million, representing an anemic annual growth rate of 0.13 percent. In 66 years, it has barely grown, and zoning (and the resulting cost) is the major reason why. In the prior 60 years, from 1900 to 1960, NYC’s population grew at a much faster rate, more than doubling from 3.4 million people in 1900. (Rent control was also a major factor in thwarting New York City’s growth, as I’ve written before.)

Strict zoning largely locks in place existing uses and densities. It may allow for some growth, but usually in areas (zones) that are already high-density, such as Midtown Manhattan (which is why Billionaire’s Row is located there.) 

Landmarking does the same thing, but it is far more severe. It imposes a near-complete ban on new construction in designated “landmarked” historical zones. Essentially, landmark preservation is a form of severely restrictive zoning; only a very small amount of replacement construction will be permitted, and only where building heights and sizes are strictly at or below neighboring buildings.

Landmarking was enacted in 1965 in response to the demolition of the original Penn Station. Originally intended to protect specific buildings, it has been expanded into vast landmarked zones, where new construction has essentially been foreclosed. Today, 27 percent of Manhattan’s building lots fall within landmark districts, largely off-limits to development. In much of Manhattan, including the Upper West Side, Upper East Side, Greenwich Village, SoHo, and Tribeca, this percentage is much higher. The map below shows Manhattan’s Upper West Side neighborhood. Nearly the entire region is landmarked, and essentially off-limits to new construction. Each colored area shows a different landmark district.

The Story of 19 Jones Street

The story of one building illustrates how zoning curtails new development. The photo below shows 19 Jones Street in the Greenwich Village neighborhood of Manhattan.

19 Jones Street was built in 1910, before NYC’s first zoning law. As the New York Times reports:

Were 19 Jones built today, it would have to be significantly smaller. The number of apartments would fall sharply, to just eight from 24. The building’s total dimensions would be nearly halved, and a story or two would have to be chopped off.

In other words, if built under today’s zoning rules, two-thirds of the existing apartments would be gone. Extrapolate this to the whole city, and it is as if a bomb has destroyed the future growth of the city. Artificial scarcity makes fewer apartments available, making housing unaffordable.

Second Harm: Ossifying the City

The second effect of zoning is that it freezes existing uses of property in a way that stifles creativity and growth. The best examples of this are two once completely illegal neighborhoods that are now beloved by New Yorkers and millions of tourists: SoHo and DUMBO. The only reason these neighborhoods could become something new and wonderful was that artists and others violated the obsolete zoning law that had prohibited the new uses. If the obsolete zoning laws had been rigidly enforced, these neighborhoods would have languished as semi-abandoned wastelands. As it was, zoning stood in the way of the conversion to new uses, making it take decades longer to happen, and at much greater cost.

SoHo: Illegally Re-Used, Now Beloved

Today, the SoHo (South of Houston) neighborhood in Manhattan is treated as one of New York’s great urban success stories: cast-iron buildings, lofts, galleries, restaurants, retail, and a streetscape that tourists and New Yorkers both recognize instantly. But SoHo’s revival began with activity that zoning did not permit. Its famous cast-iron buildings had been created and zoned for commercial and industrial uses. As manufacturing began leaving the city after World War II, artists moved into former factory spaces because the spaces were large, cheap, and full of light. But living there was illegal; zoning meant these spaces could only be used for manufacturing. Because of this illegality, early tenants had to hide their presence by blacking out windows so police could not see lights at night.

The illegality came first. The neighborhood’s cultural success came next, only after significant delay. Legalization came only decades after the fact, after the artists and others had already transformed the neighborhood. In 1971, New York created a special path only for “certified artists” to live in joint living-work quarters in SoHo, but even that was a narrow legalization rather than a broad recognition that the neighborhood had evolved beyond its old manufacturing-only logic. Full legalization of SoHo’s residential and retail spaces did not occur until just a few years ago, on December 15, 2021, when the City created the Special SoHo-NoHo Mixed Use District. One of the most famous mixed-use neighborhoods in the world existed for decades under a legal cloud before zoning rules finally legalized what the neighborhood had already become.

DUMBO: Down Under the Manhattan Bridge Overpass

DUMBO tells a similar story in Brooklyn. Today, DUMBO is an urbanist’s dream: historic warehouse buildings, cobblestone streets, tech firms, design companies, galleries, apartments, restaurants, and the gorgeous waterfront Brooklyn Bridge Park. But its transition also began as a mismatch between old land-use rules and new economic reality. The Department of City Planning’s own DUMBO rezoning materials describe the area’s evolution from an industrial hub into a mixed-use neighborhood through adaptive reuse of loft and warehouse buildings, noting that artists illegally began moving into large loft buildings in the late 1970s. Residential occupancy increased through both illegal conversions and costly ad hoc zoning variances.

Again, the market discovered the neighborhood before the zoning code did.

The official story often reverses the causation. We talk as if planners create livable neighborhoods by assigning the correct uses in advance, but as in SoHo and DUMBO, the actual order was different. Entrepreneurs, artists, tenants, small businesses, and property owners discovered new uses for old buildings. They took declining industrial districts and made them valuable again. Then the city slowly and expensively changed its rules after the fact to accommodate and legalize what private action had already produced.

Zoning continues to hold back more valuable new uses today. After COVID-19 shutdowns and with the rise of remote work, the demand for office space has waned, yet many attractive buildings that could be converted to much-needd residential units must languish for years as special zoning exemptions and variances — costly in time and money — are obtained. Other new uses, such as co-living and “ghost kitchens,” are also hampered by current zoning rules.

The Apartments That Never Get Built

The question is not whether some apartments built without zoning would be less desirable, dimmer, less well-ventilated. Of course they would. Would abolishing zoning would reduce the total supply of apartments with light and air, or merely add another category of apartments: sub-optimal, but cheaper and still valuable to people who cannot afford today’s expensive, regulated ideal. The likely answer is the latter. Zoning might preserve sunlight on paper, but at street level, it rations that legally preferred kind of apartment to those rich enough to afford it, preventing the construction of cheaper alternatives for everyone else.

The visible benefit of restrictive zoning is easy to imagine: more light on a particular block, a lower building next door, less change in a familiar neighborhood. The unseen cost is harder to picture because it consists of things that never happen: the cheaper apartments never built, the family never housed, the student priced out, the worker forced into a longer commute, and the young person who decides New York is no longer a place where he or she can afford to start a life.

A zoning rule does not announce, “I just raised your rent.” It simply says the next building must be smaller, less flexible, more expensive… or impossible. The rent increase arrives later, when the restricted supply of new buildings fails to meet demand. That is the lesson of the research by Edward Glaeser, Joseph Gyourko, and Raven Saks on Manhattan housing prices, and of Jason Barr’s work on New York’s “FAR Dome”: much of the city’s inherited density remains legal only because it was grandfathered, while comparable new density is forbidden. The result is higher prices for fewer available apartments. (Note: “FAR” stands for “Floor Area Ratio.” Zoning restricts density by specifying maximum FAR limits in each zone.)

New York’s housing problem is not mysterious. People want to live here. Firms want to hire here. Students, immigrants, families, and young professionals want access to the jobs, schools, culture, and transit that make the city valuable. Zoning prices these newcomers out. Instead of an unaffordable “light-and-air-filled” apartment, they are denied the option to live more cheaply in a less-luxurious apartment in the city center.

New York forces housing through FAR limits, use restrictions, discretionary approvals, historic reviews, parking rules, community opposition, and political bargaining. Supply is never allowed to meet demand. But everyone acts surprised when rents rise.

A First Step, Then Repeal

The first step in reform should be simple: stop making it illegal to rebuild the city that already exists. End the 1961 downzoning. If an old building is torn down, it should be legal to replace it with a new building of equal density. New, modern construction should not have to mean fewer apartments, fewer offices, and greater scarcity.

But that first step should not be mistaken for the final goal. The deeper solution is not to make zoning slightly more flexible. The deeper solution is to end zoning completely.

Building densities and uses should be determined by market demand, not political maps and political pull. If people want apartments near transit, ground-floor retail under housing, offices in old industrial buildings, or studios and restaurants in former warehouses, owners should be free to provide them without a rezoning, variance, or years of political negotiation. They should be able to build as of right, without permission.

This does not mean every use must be permitted regardless of harm. The law should and would still prevent real injuries to neighbors: smoke, fumes, toxic discharges, excessive noise, dangerous vibrations, fire hazards, and other nuisances. A chemical plant next to apartments is not the same thing as a coffee shop, bookstore, studio, office, restaurant, or small manufacturer operating peacefully nearby. Zoning is the wrong solution for these problems, which are already covered under tort and nuisance law.

The proper principle is not “planners decide the use.” It is “owners are free unless they harm others.” That principle would have allowed SoHo, DUMBO, and countless other neighborhoods to adapt sooner, legally, and more affordably. Cities are discovery processes. Nobody in 1916 or 1961 could have planned the SoHo of the 1970s, the DUMBO of the 2000s, or the New York economy of today. The knowledge of what a building can become is discovered by owners, tenants, builders, businesses, and residents experimenting with space.

Legalize the Once and Future City

New York should begin by legalizing the city New Yorkers already love. But the ultimate reform is more fundamental: abolish zoning and its political allocation of densities and uses, and rely instead on property rights, market prices, contracts, building safety standards, and nuisance law. Markets are not perfect, but they are far better than zoning boards at discovering where people want to live, what buildings should become, and which uses can productively coexist.

The promise of zoning was light and air, but the cost has been scarcity, rigidity, and exclusion. New York protected theoretical open space while sacrificing real living space. It preserved sunlight on paper while pricing people out in reality. A city is not made livable by forbidding change. It is made livable by allowing people to live there.

Little did I know then, A&P was once regarded as a retail behemoth. A monopoly needing to be cut down to size. Their crime? Volume discounts. This allegedly nefarious practice was at the center of anti-chain-store sentiment that reached a fever pitch with the passage of the Robinson-Patman Act in 1936. 

Casting chain-store grocers like A&P as greedy villains during the Great Depression, the populist Texan US Representative Wright Patman rode a wave of sentiment from smaller grocers to take down the nationwide grocer. In response to the Supreme Court striking down FDR’s National Industrial Recovery Act (NIRA), Patman sought to reimpose portions of the NIRA, which would have faced enormous opposition and risked being struck down by the Supreme Court. Instead, he cleverly decided, along with co-sponsor Senator Joseph Robinson of Arkansas, to impose the bill as an amendment to the long-standing Clayton Antitrust Act (1914).

Entitled the Robinson-Patman Antidiscrimination Act, it was popularly known as the “Anti-Chain-Store Act”, but more aptly known as “The Wholesale Grocers’ Protection Act.” Indeed, it was largely written by the wholesalers’ trade association. The bill aimed to protect smaller competitors from the allegedly anti-competitive restraints on trade posed by retail giants like A&P. This was an easy sell to the public at a time when unemployment was at 18 percent, with many small-town retailers closing up shop. 

In order to secure passage, the legislators amended Section 2 of the Clayton Antitrust Act of 1914, with enforcement assigned to the Federal Trade Commission (FTC), a move that helped minimize opposition.. That section was intended to “supplement existing laws against unlawful restraints and monopolies, and for other purposes”. The “other purposes” would eventually be made known, to the detriment of consumers throughout the nation.

The specific wording of the Robinson-Patman Act reveals its fundamental economic error. It made it unlawful for “any person engaged in commerce…to be a party to, or assist in, any transaction of sale, or contract to sell, which discriminates to his knowledge against competitors of the purchaser.” In frank language, it became illegal for a wholesaler to offer a bulk discount to larger retailers like A&P. This essentially prohibited suppliers from offering A&P the volume discounts their efficiency and scale had earned, and passed on to their beleaguered consumers. A single offense could land the wholesaler in hot water with the FTC, with potential fines up to $5,000 and up to a year in prison, or both. 

This law wasn’t designed to enhance competition, protect grocers, or serve customers. Rather, its design was to impose a price floor that protected wholesalers from the retailers who had enough market knowledge and a good enough reputation to work with competing wholesalers willing to sell for less. Hence, the more fitting title: The Wholesale Grocers’ Protection Act.

In an ironic twist, the Roosevelt administration — which had created the NIRA and imposed higher retail prices — opposed the bill. They objected on the grounds that it would prohibit the kind of discount pricing by retailers that the Depression-ridden public needed to make ends meet. But Congress had its way on this matter. Historian Marc Levinson observed that the Robinson-Patman Act “had less to do with economics than trying to hold together a society that was fraying badly after six years of the Depression.” It wasn’t about sound economics; it was about populist PR. 

More than seventy years after its passage, the bipartisan Antitrust Modernization Commission (AMC) recommended its repeal. The commission concluded that “the RPA protects competitors over competition and punishes the very price discounting and innovation in distribution methods that the antitrust laws otherwise encourage.” 

Independent grocers from the 1930s weren’t being victimized by A&P. They were losing out to a model that better served customers. The Robinson-Patman Act was designed to prevent discounts before they could be passed on to consumers. Dominic Armentano, writing in 1986, made it even clearer that both the Clayton Antitrust Act, Section 2 and the RPA “explicitly intend to restrict price rivalry in the name of preserving competition. Government antitrust suits against firms that price discriminate almost always result in the defendant firm raising some of its prices to comply with the law.”

This historic record shows that Main Street populism has unintended consequences. By limiting competition in defense of the so-called “mom and pop” stores, the RPA delivered higher prices that hurt the lowest-income households throughout the US at the height of the Great Depression. What was sold to the public as a fight for the little man was in reality a tax on consumers to subsidize local merchants.

Although the act saw minimal enforcement by the FTC or the Department of Justice throughout its history, it reared its ugly head under the Biden administration in 2024. In December of that year, the FTC filed suit against Southern Glazer’s Wine & Spirits, the nation’s largest wine and spirits distributor. The agency alleged that it was offering that most heinous of crimes: bulk discounts to large retailers. A similar suit was then filed against the PepsiCo. While the PepsiCo suit has been summarily dismissed, the litigation against Southern Glazer continues. The current FTC Chair, Andrew Ferguson, wrote a clarion dissent against the Biden administration’s use of the RPA and while litigation continues, this bodes well for Southern Glazer. If the FTC prevails, however, the pain will immediately be felt by consumers who are the beneficiaries of their discounts.

While my childhood visits to A&P are now distant memories, the feeling of middle-class families needing to stretch their dollars in an inflationary environment is as fresh as those donuts I enjoyed as a kid. With the Consumer Price Index (CPI) for food at home up 31.8 percent since 2020, grocery store discounts are what’s holding some households together. The time is long past for retiring the Robinson-Patman Act. As Alden Abbott has eloquently put it, “repeal remains the first-best response to a law long criticized as ‘corporate welfare at consumers’ expense.’”

In the rush to secure a domestic source of semiconductor chips, Washington has unleashed circular incentives tying business to politics.

Beginning in 2024, Intel, Washington’s chosen American semiconductor champion, received a reported $7.86 billion in direct funding under the CHIPS and Science Act. The line was crossed more clearly in 2025, when the federal government acquired a 9.9 percent stake in Intel for $8.9 billion, acquiring roughly 433 million shares at $20.47 per share. This was not merely a grant, loan, or tax credit. It made the federal government a shareholder in a private semiconductor company.

The conflict deepens when private financial exposure enters the picture.

Trump’s financial disclosures listed Intel holdings in 2025, and 2026 transaction reports showed additional purchases of Intel securities valued between $15,001 and $50,000 before Intel’s stock surged. Indeed, in March 2026, Trump bought Intel when the share price was roughly $40. Within months, Intel’s share price had more than doubled, and by early June it traded above $110.

With Intel’s astronomical rise, Yahoo Finance reported, “Intel (NASDAQ: INTC) has been on an astounding run on the stock market over the past year. Shares of the semiconductor giant have gained a whopping 427 percent during this period.” The rally raises a harder question. To what extent, if any, does Intel’s stock reflect underlying performance versus policy-driven tailwinds and political exposure?

Once the government becomes shareholder, regulator, subsidizer, and patron of a strategic industry, its power does not stop at the factory gate. It travels through customers, contractors, procurement channels, and politically favored firms. That is where Dell enters the picture.

On May 27, 2026, Dell Federal Systems was awarded a single-award, firm-fixed-price blanket purchase agreement under the Department of War Enterprise Software Initiative. The agreement, valued at a reported $9.7 billion, was scheduled to begin on June 1 and run for five years. Its purpose is to consolidate Microsoft software licenses such as Microsoft 365, cloud subscriptions, Software Assurance, and related enterprise technology needs across the Department of War, the Intelligence Community, and the US Coast Guard.

Kirsten A. Davies, the Department of War’s chief information officer, said the agreement would deliver “unprecedented scale and cost efficiency” and save an initial $422 million annually. In short, Dell was awarded the federal channel for one of the largest Microsoft services procurement agreements in the government.

This deal comes after President Trump urged on February 19, 2026  and May 8, 2026,  “to go out and buy Dell.” In addition to this, Trump owns Dell securities in valuation up to positions valued at up to $5 million. Since the beginning of the year, Dell’s stock price has more than tripled, rising from about $126 to nearly $400.

The Pentagon deal is only the latest tightening of politics and business. Michael Dell, chairman and CEO of Dell Technologies, sits on President Trump’s Council of Advisors on Science and Technology alongside Nvidia CEO Jensen Huang, AMD CEO Lisa Su, and many other tech titans. In December 2025, Michael and Susan Dell pledged $6.25 billion to Trump Accounts, one of the administration’s signature family-investment programs, with contributions scheduled to begin on July 4, 2026.

While others warned about direct government investment in Intel, Michael Dell endorsed the arrangement, calling Intel “the most important company to a strong and resilient US semiconductor industry.”

The Dell-Intel connection matters because it is commercial, not merely political. In 2024, Dell accounted for 19 percent of Intel’s revenue, followed by Lenovo at 11 percent and HP at 10 percent. The relationship runs in both directions: Intel accounts for roughly two-thirds of Dell’s US laptop, desktop, and all-in-one processor-brand offerings.

The political layer became even more visible when Trump publicly called for Intel CEO Lip-Bu Tan to resign. According to Semafor, Michael Dell, Nvidia CEO Jensen Huang, and Microsoft CEO Satya Nadella were among the executives who reached out to Trump or senior aides to defend Tan before his August 11 White House meeting. Trump later softened his position, praising Tan’s “amazing story.”

In other words, executives tied to the same technology network were not merely selling products to the government. They were also participating in shaping the boundaries of acceptable leadership at the head of a government-backed semiconductor champion. The White House ballroom donor list points in the same direction. Roughly one-third of the listed White House ballroom donors came from technology, chip, and artificial intelligence firms.

Put plainly, the circle is closing. Michael Dell supported the government-backed Intel strategy, helping protect one of Dell’s most important semiconductor suppliers. Dell then appeared not as a distant observer or neutral player in the market, but as a major federal technology contractor through the Pentagon’s nearly $9.7 billion Microsoft-services agreement. Washington backs Intel, Intel depends heavily on Dell, and Dell receives major federal technology business.

Lord Acton’s warning that “power tends to corrupt and absolute power corrupts absolutely” feels less like a slogan here than a diagnosis. Public power protects private firms. Private firms return as contractors, advisers, donors, and political allies. The same circle feeds itself again. The snake is eating itself, and taxpayers are asked to call it industrial policy.

Greenspan arrived at the Federal Reserve in 1987 with strong credentials and a clear philosophy. He studied economics at New York University and Columbia, built a successful consulting firm, and chaired the Council of Economic Advisers under President Gerald Ford. In his youth, he was a member of Ayn Rand’s circle, and he carried into office a sincere conviction that free markets allocate resources better than planners do. On most questions, that belief served him well and helped shape a long and consequential career.

For much of that career, the results were impressive. Greenspan presided over the Great Moderation, a long stretch of low inflation and steady growth running from the mid-1980s to the 2007 financial crisis. He calmed markets within weeks of the 1987 crash, and steadied them again after September 11. Milton Friedman, no easy grader of central bankers, called him the “most effective” in the Fed’s history. By the time he retired in 2006, Washington treated his judgment as close to oracular.

Yet Greenspan’s legacy is complicated by a number of inconsistencies. The most notable was the tension between his theoretical belief in free enterprise and his practical faith in discretionary money management. 

The Fed does not preside over a free market in money and credit. Its interventions in financial markets can have large effects on interest rates. The only real question is whether the Fed conducts policy by rule or by discretion. Greenspan chose discretion nearly every time. He kept interest rates low and held them there, most consequentially after the 2001 recession, when rates sat well below what the standard monetary rules of the day recommended. Cheap credit encouraged Americans to borrow heavily, and much of that borrowing flowed into housing.

He compounded the problem with a deliberate opacity. 

Greenspan cultivated the impression that monetary policy was an arcane craft, intelligible only to insiders, and that the public should defer to the experts who practiced it. Friedrich Hayek, who shared the Nobel Prize for economics in 1974, had a name for this conceit. He called it the pretense of knowledge, the belief that a central authority can gather and act on information that is in fact scattered among millions of people. A Fed wrapped in mystique is a Fed that escapes scrutiny, which suits the Fed and its allies yet harms everyone else.

The deeper damage came from what markets learned to expect. Again and again — in 1987, in 1998, and after 2001 — Greenspan met financial trouble by cutting rates and flooding the system with liquidity. Investors drew the obvious lesson. If their bets paid off, they pocketed the gains; if the bets went bad, the Fed would arrive to cushion the fall. This was the famous Greenspan put, and it taught financial institutions to gamble. When the housing bubble burst, the cost of all that risk-taking fell on taxpayers and ordinary families.

Greenspan was too quick to wash his hands of the wreckage. He did concede, in his 2008 testimony, that he was wrong in his assumption that banks would police themselves. The admission was real but partial. Greenspan implicitly framed the crisis as a failure of capitalism, despite the fact that America had operated with a discretionary central bank for nearly a century. He continued to defend his interest-rate decisions and blamed the housing bubble on global forces beyond his control. Admittedly, the crisis had many authors, among them a federal housing policy that pushed relentlessly toward homeownership. But Greenspan carried his own share of the blame, and he never fully owned it.

None of this erases what Greenspan achieved. He got a great deal right. 

His broader confidence in business over government was well-founded, and the country was better for it. His error was to exempt the one market the Fed strongly influences, governing it by his own judgment instead of a binding rule. Sound money depends on clear rules applied consistently, with little room left for improvisation. 

We can acknowledge Greenspan as an accomplished public servant while recognizing his select lack of epistemic humility. There’s another of Milton Friedman’s opinions we would do well to remember: “Any system which gives so much power and so much discretion to a few men that mistakes — excusable or not — can have such far-reaching effects is a bad system.”

Shanghai Commercial Bank just took an 85 percent loss on a half-finished Manhattan condo project. The example demonstrates “extend and pretend” loan games at work: the troubled property had been refinanced multiple times since 2016, repeatedly pushing back the maturity date and inevitable financial reckoning, even as costs mounted. 

This “extend and pretend” behavior is visible across various economic sectors. Debts have been refinanced and modified rather than repaid. Policymakers, lenders, and borrowers have responded to recent financial stress in the same way: not by addressing the pain, but by postponing it. Lenders, mortgage servicers, student borrowers, credit card swipers, and millions of others have relied on creative reshufflings, COVID-era accommodations, and a decade of unusually cheap credit to delay facing reality.

As economic growth slows, interest rates remain elevated, and temporary relief measures expire, the bill for years of “extend and pretend” is finally coming due. 

“Extend and Pretend” Starts In Commercial Real Estate

When a commercial buyer cannot meet contract terms, the lending bank has the option of simply adding a couple years to the loan. The bank pretends the loan is performing, and avoids depleting its capital. The borrower buys some time and avoids default. The increasing mismatch between price and value is swept under the rug, and financial fragility quietly builds in the background. 

The Federal Reserve’s own research suggests “credit risk in the CRE market has substantially increased in the post-pandemic period but banks — weakly capitalized ones in particular — have been sluggish in assessing the associated losses… Nonperforming loans and net charge-offs have remained low by historical standards.” Commercial lenders pushed forward maturity dates for half of all commercial real estate loans ending in 2025, with billions in potential property defaults “adjusted” to avoid fire-sale conditions. Over $1.5 trillion in commercial real estate loans will mature by the end of 2026. Many of those loans should’ve been marked as defaults in 2023 or 2024, but weren’t. The pain of pruning malinvestment was delayed, guaranteeing markets wouldn’t get healthier. 

The credit cushion that allowed this widespread kick-the-can behavior is running out. Sunbelt cities are seeing apartment loans underperform by 30 percent. Many of the distressed properties are second-tier office buildings struggling to reach full occupancy in the era of remote work. Their unrealistic valuations have become a burden, forcing lenders to reprice and offload overleveraged buildings. Unrealized losses for private creditors continue to compound.

Similar “extend and pretend” dynamics are at work in student loans, residential mortgages, and personal consumption. 

Student Loans: Extend and Pretend at Government Scale

Student loan terms are remarkably unforgiving, but most of the draconian provisions haven’t been active for the past five years. The New York Federal Reserve reports a total of $1.65 trillion in student loan debt, with an average monthly payment of $434 per borrower. The unpaid balances amount to $14,390 per federal taxpayer, floating out there in the liability ether.

Federal student loan payments were almost universally paused during the 2020 shutdowns. Interest resumed in October 2023, but many graduates moved to Biden’s SAVE plan, with its promise of erasing the remaining debt after 20 years. Young borrowers, understandably, slowed their rate of repayment to extend the timeline, rather than pay off the loan. Households subject to the repayment pause, Chicago Booth researchers later found, did indeed spend more and goose the economy — by taking on an additional $1,800 in debt. The SAVE plan was eventually struck down, but millions of loans were placed in interest-free forbearance and delinquencies were not reported to credit agencies.

Not until Q4 2025 did new student loan defaults begin appearing in credit reporting data — and the data are grim. Roughly a million borrowers defaulted at the end of 2025, and another 2.6 million defaulted in Q1 2026. Delinquencies are reported after 90 days of nonpayment, so 17 percent of student loan borrowers have been three months behind at least once in the months since reporting resumed. Total student loan delinquencies now exceed 25 percent.

But there’s a still-hidden second wave coming. One-fifth of all student loan recipients — 8.8 million Americans — have at least one loan still in general forbearance, accumulating interest. The almost four million borrowers who’ve already defaulted aren’t included. That unpaid balance is $504 billion or about $60,000 per borrower — deferred distress excluded from official statistics. 

Subprime Mortgages: Modify Until the Music Stops

When people have trouble paying their mortgages, banks and other lenders use a combination of tools to make the mortgage “sustainable.” Missed payments may be tacked onto the end of the loan term or rolled into the total principal. Loan terms may be extended or the interest rate adjusted. Banks undertake these loss-mitigation efforts to keep troubled loans current and prevent costly foreclosures.

But residential loans were another hotspot of COVID-era government protections, and the Federal Housing Administration offered “home retention options” that favored borrowers and extended risk beyond what banks would ordinarily tolerate. The “relief” policies masked the growing troubles with taxpayer funds.

The Office of the Comptroller of the Currency reports 97 percent of mortgages remain in good standing, but loss-mitigation schemes simply can’t go on forever. Delinquencies reported so far do not capture true loan stress. 

For starters, FHA-sponsored modification programs are expiring. President Trump ended COVID-era mortgage assistance in April 2025, overturning President Biden’s attempt to extend it indefinitely. Some observers point to the rapid increase in delinquency as an artifact of the reporting rule change, but nobody denies: the new data are more accurate and the news isn’t good. 

“The long tail of loss mitigation is now coming into view as FHA’s post-pandemic relief tools give way to repeat defaults, exhausted options, and a swelling foreclosure pipeline,” summarized Katie Jensen for National Mortgage Professional.

Foreclosure activity remains 30 percent lower than it was in pre-pandemic years. Pandemic programs to “help borrowers” recreated some of the worst features of the 2008 subprime mortgage meltdown. Borrowers didn’t have to prove hardship. Verification tools were suspended. “Partial claims” policies encouraged the FHA to use taxpayer funds to bring delinquent mortgages up to date every three to four months. The FHA made more than half a million “incentive payments” to delay foreclosure, so even defaulted mortgages provide revenue to servicers.

Up to 60 percent of those mortgages are in serious delinquency — some seven percent never even made the first payment. When FHA modifications expire, mortgage finance specialist John Comiskey warns, “the music stops,” and the foreclosure machine will lurch to life. Mark Zandi, chief economist for Moody’s Analytics, recently said the FHA delinquency rate is “a proverbial canary in the coal mine.” 

Through FHA, VA, USDA, Fannie Mae, Freddie Mac, and the rest — taxpayers now back about half of all residential mortgages. 

Consumer Credit and Phantom Debt

The motivations behind extend-and-pretend are pretty clear. All share the same core logic: defer visible distress today, allow it to accumulate invisibly, and postpone the inevitable long-term consequences. For our last category of debts, that extend-and-pretend trap is, in fact, the whole business model.

Credit card balances now total $1.25 trillion, a 63 percent increase from 2021 lows. Millions of borrowers are making monthly minimum payments while accumulating inescapable debts. Delinquencies are at a 15-year high, on par with the Great Financial Crisis, with one in eight accounts at least 90 days behind. Half of borrowers carry a balance from month to month. That’s forty percent of the US adult population tapping tomorrow’s funds for today’s expenses.

Auto loans are also under pressure, with outstanding auto loan debt totaling $1.67 trillion. High interest and ever-more-expensive vehicles are concealed by “manageable” monthly payments, with loan terms extending out to 84 months. Car dealers explicitly execute the extend-and-pretend mechanism by rolling the negative equity into a new loan, transferring unpayable debt onto the new vehicle’s financing. Delinquency and repossession stats actually hide most of this, and even so, are at record highs.

Extend-and-pretend consumer behavior is made literal with the Buy Now, Pay Later installment plan craze. With double-digit annual growth, these services are custom-designed to lure almost 90 million unwary buyers into long-term debt. Major BNPL firms only recently opened their books to credit bureaus: now we know at least $3.02 billion is outstanding, and that’s just the beginning. Users often juggle multiple BNPL accounts creating phantom debt that’s invisible to other commercial lenders, but silently stacks the risk of cascading default.

Institutional Origins and a Warning

Economic storm clouds are gathering. Inflation is once again outstripping wage growth. Americans are running out of savings cushions and the savings rate has “tanked.” Meanwhile, assets and equities, led by tech stocks, have jumped 30 percent in the past 12 months, propping up GDP numbers. 

But high corporate profits largely reflect consumer spending, while an unknown amount of current consumer spending isn’t backed by income or savings. We are living on invisible leverage as the real value of our paycheck crumbles. Extend-and-pretend doesn’t have to be an explicit policy choice to be so pervasive — it’s an emergent behavior born of the disconnect between sticky prices and buyers’ genuine purchasing power. Lenders defer, rather than absorb, those losses. Consumers go on consuming in excess of what they actually earn, both for necessities and hedonic luxuries, dancing ever closer to the financial edge. 

Between 2008–2022, the Federal Reserve presided over 14 years of near-zero or below neutral interest rates. During the same period, it increased its balance sheet tenfold, from $900 billion to $9 trillion. Quantitative easing injected easy money into the banking system, inflating asset prices by purchasing mortgage-backed securities. The Fed’s primary mechanism — nudging up asset prices to use the wealth effect as a policy tool — is structurally regressive. Buying power at the lower end of the income distribution was hit hardest. The working class was priced out of assets, but received unprecedented access to student loans and consumer credit — lifelong amounts, for many. The Fed doesn’t act alone: much of the blame for this asset expansion belongs to Congress and the executive branch, whose obsession with spending beyond their means led an entire nation to do the same. 

Extend-and-pretend is a denial of economic realities. Each time-buying intervention obscures price signals, misallocates capital, and encourages even greater risk-taking. The result is an economy that appears stable on the surface while underlying imbalances continue to grow. Eventually, reality reasserts itself, and the longer that reckoning is delayed, the more painful it becomes. 

To me, this was a choice between the devil and the deep blue sea. Which should I pick, Scylla or Charybdis? By whom would I rather be mugged — Scarface or Machine Gun Kelly? Given the awful track record of central banks, and the appealing alternative of free, private, competitive banks in a market economy, I thought the question was rather loaded, akin to asking a believer in the separation of church and state, “Which religion should we establish as the official one?” 

The conventional wisdom — frequently wrong — holds that central banks should be independent so they can work for the good of us all, and then we can live happily ever after. It rarely questions whether empowering any person or persons to control a nation’s money and credit supply and its banking practices is a good idea. I wanted to answer the student’s query with another query, something like “Should the supply of green beans be managed by politicians or by a committee of people the politicians appoint?” Thanks, but green beans seem to do just fine with neither. 

If forced to make a choice between the options the student offered, next time I might respond, “I don’t like having to choose between the lesser of two evils but if pressed to do so, I would grudgingly choose independence — if I knew that those running it would be like Hans Luther.” That’s not the answer I gave, because I didn’t know of Luther at the time. 

Who was this monetary saint named Hans Luther? He was President of the Reichsbank, Germany’s central bank, from March 1930 until March 1933. Writing in The Atlantic a year ago, Timothy W. Ryback revealed that Luther was independent enough to stare down Adolf Hitler, at least for a while. 

On January 30, 1933, Hitler became Chancellor of Germany. Nazi storm troopers (the SA) forced their way into the Reichsbank to mount a swastika flag on the building. Before the day was out, Luther was in Hitler’s office to lodge a formal complaint. Ryback recounts the tense exchange: 

‘I pointed out to Hitler that the SA actions were against the law,’ Luther recalled, ‘to which Hitler immediately answered that this was a revolution.’ Luther informed Hitler in no uncertain terms that the Reichsbank was not part of his revolution. It was an independent fiscal entity with an international board of directors. If any flag were to be flying over the bank, it would be the national colors, not the banner of his political party. The next morning, the swastika flag was gone. 

Now that’s “independence”! Especially because just nine months earlier, Luther had been shot in the shoulder by two Nazis objecting to his monetary policies.  

Six weeks later, Luther was back in Hitler’s office. The Nazi leader wanted the banker to cough up cash to help finance a huge rearmament plan. Luther stunned Hitler by offering him about one-twentieth of what he wanted, not a pfennig more. Hitler was outraged, but for the moment, that’s all he got from Luther.  

Luther’s independence lasted a few more days. Seeing the handwriting on the wall and likely fearing for his life, he resigned on March 16, 1933. He strongly urged President Paul Hindenburg to ensure that the bank didn’t fall into the wrong hands. To get Luther out of the country, Hitler named him Germany’s ambassador to the United States, a post he held for the next four years. Meanwhile, Hitler’s toadies assumed control of the Reichsbank. 

Hans Luther was no stranger to politics. When he became President of the Reichsbank in 1930 at the age of 51, he had already served as mayor of the city of Essen, the Weimar Republic’s minister for food and agriculture, minister of finance, and even Chancellor of Germany for six months in 1925.  

The Treaty of Versailles that ended World War I imposed a reparations bill that Germany could not afford to pay. By 1923, massive hyperinflation destroyed the value of the German currency. Debate raged in Berlin over what to do next. When it was suggested that a new currency be based on rye (the grain), Luther killed the idea. Then he introduced a new temporary currency called the Rentenmark, backed by a basket of commodities, followed a few months later by a gold-backed currency, the Reichsmark.  

He also slashed public spending and the bureaucracy. He temporarily hiked taxes to bring in more revenue, and at the same time, he fired 400,000 government employees to help balance the nation’s budget. More than anyone else, he gets the credit for ending the inflation and restoring sound finance for a crippled Germany.

Note the irony here. This man was a central banker who, by supporting a gold-backed currency, sought to make his country’s money somewhat “independent” of a central bank. Precious metals served the world well as money for centuries because they put market forces in the driver’s seat instead of creatures of government called central banks. 

The only biography ever written of Hans Luther appeared in 2010. Titled The Lives of Hans Luther, 1879-1962 by C. Edmund Clingan, it describes its subject as a courageous man who “gave more than forty years of good and honest service to his country,” then sullied it by four years as an ambassador for a government he knew to be increasingly vicious. He once confided that Hitler was “not a normal person.” 

One of Luther’s finer moments came in February 1924 when, just weeks after stabilizing the currency, he spoke to the Reichstag. Clingan writes, 

Luther used the analogy of a house. The ground floor was private business. The upper floors were the public economy and budget while the currency was the roof. Only by lightening the tax burden on private business could it support the public budgets and the currency because the war and its aftermath had damaged the “ground floor.” 

He was a man of generally sound ideas. But in the end, the Hitler regime corrupted everything it touched, including the good things that Luther had accomplished, and to some degree, even Luther himself.  Nonetheless, if a country finds a central bank foisted upon it, it could do worse than finding someone like Hans Luther to run it.  

Warsh used his debut not to move policy but to signal how much of the Fed’s machinery he means to remake, even as the Federal Open Market Committee raised its inflation outlook and held rates anyway.

In his first press conference at the helm of the Fed, Warsh framed the leadership change as a chance “to review current practices, and to consider whether those practices best meet our objectives.” He named task forces in five areas: the Fed’s communications, its balance sheet, the data it relies on, the effect of new technologies on productivity and jobs, and, most consequentially, its “inflation frameworks.” Each, he said, deserves “a fresh look” that starts from “first principles.” He has begun recruiting members from inside and outside the Fed and expects most of the reviews to conclude by year-end.

The changes were not all prospective. Warsh pointed to the day’s statement, which was visibly shorter and “dispenses with some older language.” Gone too was forward guidance, which the FOMC judged “not well-suited to the current policy conjuncture.” And in a break with the practice of every recent chair, Warsh declined to submit his own dot for the path of interest rates in the Summary of Economic Projections, saying he had “refrained from offering any projections of my own — consistent with my long-held views on the SEP, at least as currently structured.”

Warsh conceded that inflation has run “well ahead” of the Fed’s two-percent goal for “more than five years,” and that “persistently high prices are a burden for the American people.” The FOMC’s own projections made the point sharper: the median projection for total PCE inflation this year jumped to 3.6 percent, from 2.7 percent in the March SEP, with core inflation marked up to 3.3 percent from 2.7 percent.

A five-year overshoot, an inflation projection revised up nearly a full point in three months, and a decision to hold rates steady anyway are the conditions under which a central bank falls behind the curve, as the Fed did when it dismissed the last inflation surge as transitory. Warsh’s decision to put the Fed’s inflation framework back under review is a welcome change after years in which the Fed has failed to return inflation to its two-percent target. If anything, the fact that the review begins as the inflation outlook is being revised upward only reinforces the case for reexamining a framework that has yet to deliver price stability in the post-pandemic era.

With forward guidance gone, the dot plot is now the committee’s clearest signal of where rates are headed, and its message is that the next move is more likely to be a hike than a cut. 

The median participant expects the federal funds rate — the interest rate the Fed targets — to end this year at 3.8 percent and next year at 3.6 percent, up from 3.4 percent and 3.1 percent, respectively, in the March dot plot. Among the eighteen members who submitted projections (Warsh abstained), nine see the rate above its current range by year-end, six see it at 4.125 percent or higher, and only one sees a cut. Warsh discounted the dots, noting that FOMC members had submitted them tentatively and did not feel bound by them. Markets, he argued, should price incoming data rather than parse the Fed’s signals. 

The projections also undercut the case for treating the inflation problem as the byproduct of an energy shock from the Iran conflict. A genuine adverse supply shock would be expected to push inflation up while weighing more heavily on real activity. But the FOMC’s growth projection slipped only modestly, to 2.2 percent from 2.4 percent, while unemployment held near 4.3 percent. Nor was the inflation revision confined to headline inflation, where oil prices would show up most directly. Core inflation, which excludes food and energy, was revised up to 3.3 percent from 2.7 percent. Energy shocks can pass through to core prices indirectly, through freight, production, and input costs, but they do not easily explain an inflation outlook revised upward across both headline and core measures while the economy remains near trend. The broader the price pressure, the less convincing it becomes to treat the problem as a relative-price shock rather than an aggregate-demand problem.

Warsh drew the right distinction between the Fed’s limited control over particular prices, such as oil or eggs, and its responsibility to prevent such shocks from broadening into general inflation. That distinction is correct, which makes the case for leaving rates unchanged considerably harder to understand.

Warsh has long argued that inflation is a choice the central bank can control, and he insisted the FOMC is now “unambiguous and unanimous” that it “will deliver price stability.” Yet it chose to hold while projecting headline inflation more than 150 basis points above target and a rate path that would bring inflation back to target only gradually. Pressed on why, if credibility is earned by delivering on commitments, the Fed would not tighten or at least signal it, Warsh pointed to the next meeting, six weeks away.

Warsh inherited both the inflation overshoot and a committee still divided over how to respond. The test is whether the resolve he voiced shows up in the rate decisions to come.

Even so, Warsh has given more reason for optimism than the Fed has offered in years. A chairman who calls inflation a monetary phenomenon, rejects the idea that the Fed must accept higher prices to secure more jobs, and wants to reexamine the inflation framework from first principles is saying what the institution has long needed to hear.

The next step is to match that diagnosis with a better target. A nominal spending target would reject the false choice Warsh disavows by anchoring aggregate demand directly, rather than forcing the Fed to explain persistent inflation as a series of one-time price shocks. The danger is that the Fed spends too long rethinking its framework while inflation remains above target. Warsh appears to understand the problem. The question now is whether he can move the institution quickly enough to solve it.