The Federal Reserve held its target range for the federal funds rate at 3.5 to 3.75 percent on Wednesday, a decision markets had fully priced in. Governor Stephen Miran dissented in favor of a cut. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan dissented from the easing bias preserved in the statement. The eight-to-four vote marked the most divided Federal Open Market Committee (FOMC) decision since October 1992. 

At the post-meeting press conference, Chair Jerome Powell reported total PCE prices were expected to have risen 3.5 percent over the 12 months ending in March, “boosted by the significant rise in global oil prices” tied to the conflict in the Middle East. Core PCE was expected to rise 3.2 percent, which he attributed to tariffs. The increases were confirmed by today’s PCE data release. 

To put these figures in context, the median committee member projected PCE inflation of 2.7 percent for 2026 at the March FOMC meeting. The annualized pace so far this year is around 4 percent, well above the median member’s projection and inconsistent with the Committee’s expected disinflationary path.

Powell described an economy “expanding at a solid pace,” a labor market little changed at 4.3 percent unemployment, and inflation that has “moved up and is elevated.” Consumer spending is resilient. Business investment is brisk. Slower job growth, Powell said, reflects lower immigration and labor-force participation, not collapsing demand. In short: this is not an economy that requires further easing.

The conflicting dissents reflect deep divisions at the FOMC. Miran’s view, that policy remains too tight, is most consistent with a model in which inflation is largely driven by transitory supply shocks. Hammack, Kashkari, and Logan, in contrast, believe that policy is too loose, and that signaling further easing risks compounding an inflation problem the data already show. Their view, by contrast, suggests inflation is largely driven not by supply shocks, but persistent excess nominal spending. FOMC members are not arguing about timing. They hold fundamentally different views about the drivers of inflation today.

Tariffs and oil shocks change relative prices. They do not, by themselves, sustain inflation. A tariff raises the price of imported goods relative to domestic ones; an oil shock raises the price of energy and energy-intensive goods and services relative to everything else. These shocks push the price level up, as output falls relative to trend. But the effect diminishes as output recovers. Supply shocks may have a permanent effect on the level of prices. But they only have a temporary effect on the rate of inflation.

Sustained inflation requires persistent growth in nominal spending. It is a monetary phenomenon. A sequence of supposedly one-time shocks cannot indefinitely explain inflation that has been above target for four years. Either past shocks should already have rolled off, or monetary policy is doing something the FOMC has yet to acknowledge.

The disagreement is understandable given the saliency of recent events. The economy has been hit by a series of supply shocks over the last year or so, with the ongoing conflict in the Middle East being the most recent. But the Fed has also failed to bring nominal spending back down to a level consistent with its longer run inflation target following the surge in inflation in 2021 and 2022. 

Fed officials must determine the extent to which today’s above-target inflation is due to those supply shocks and whether demand will moderate on its own if the Fed holds rates steady. That’s no easy task, and there is plenty of scope for disagreement. For now, markets are pricing in fewer rate cuts than the median FOMC member projected back in March.

Wednesday’s press conference is almost certainly Powell’s last as chair. His term ends on May 15. Kevin Warsh, who advanced out of the Senate Banking Committee on Wednesday morning, is positioned to succeed him following confirmation from the Senate. 

Tradition dictates a departing Fed chair step down rather than staying on for the remainder of his or her term as governor. But Powell announced he intends to remain on the Board, citing what he called “unprecedented” legal pressure on the Fed’s independence. 

Powell’s decision to stay may pose a problem for Warsh, who wants to reform the institution. But the bigger, more-pressing problem relates to the scope of disagreement among FOMC members. Some members think the ongoing inflation is supply-driven. Other members think it is demand-driven. He will need more than a little luck to generate consensus.

Historian, former Republican senator, and former college president Ben Sasse is dying of pancreatic cancer. 

In a recent and profoundly moving interview, Sasse, who recently turned 54, offered wisdom on maintaining personal autonomy in our digital age. Sasse argued that technological advances such as smartphones “allow our consciousness to leave the time and place where we actually live, the places where we break bread, the people who are living next door to us, the people that you can physically touch and hug, the small platoons of real community.”

Sasse predicts that as a consequence, even more “human addictions and distractions” are coming. His honesty about his own “misprioritization” helps provide space to confront our own “regrets” before the clock runs out.

Sasse is no Luddite, but he predicts that the future “grand divide” in society will not be by class but “about intentionality and what you do with your affections and these supertools.” 

The divide he envisions is not between rich and poor, educated and uneducated, or left and right, but between those who govern their own attention and those who have surrendered it. 

“Hell” on earth, he warns, will be experienced by those “who agree to outsource [their] attention and affections to somebody else’s algorithm.”

Sasse warned that our temptation to let these tools pull us into an “eternal now, now, now, now, now, now slot machine of dopamine hits is super dangerous.” Artificial intelligence (AI), he predicts, will be transformative for those who bring genuine intentionality to it and devastating for those who don’t.

Freedom is more than the absence of authoritarian edicts that conflict with individuals’ ability to pursue their own ends. Sasse argues that a free society requires “communitarian thickness” to provide the “self-restraints” necessary for us to use technology’s tools rather than be used by them. If we lose the capacity to govern our attention and our passions, we lose the capacity for self-governance.

In his Pensées, the seventeenth-century French mathematician and philosopher Blaise Pascal made one of the most profound single-sentence observations in history: “The sole cause of man’s unhappiness is that he does not know how to stay quietly in his room.” 

Today, for many, sitting quietly in a room alone is virtually impossible. When we are stripped of distractions, our internal dialogue often runs wild, and we seek an immediate escape from the noise, leading to our addictions. In the modern era, as Sasse and many others have pointed out, escape is always in our pockets. 

In his “Moral Letter 7,” the Stoic philosopher Seneca argued that prolonged exposure to crowds degrades our moral character, even when we believe ourselves resistant to its influence. He wrote, “Do you ask what you should avoid more than anything else? A crowd. It is not yet safe for you to trust yourself to one.”

Seneca was writing from experience, including his service in Nero’s court:

I’ll freely admit my own weakness in this regard. Never do I return home with the character I had when I left; always there is something I had settled before that is now stirred up again, something I had gotten rid of that has returned.

Seneca was not a misanthrope, nor was he advocating withdrawing from the world. He was observing how the values and beliefs of those around us gradually reshape what seems normal to us.

At least Seneca could leave the crowd and go home. Too often, we allow the digital crowd to follow us home. 

Philosopher Matthew B. Crawford and computer science professor Cal Newport have sounded Seneca’s alarm in today’s digital age.

In his book Digital Minimalism, Newport explores the erosion of autonomy caused by our use of technology. He explains that we have allowed technology and social media “to control more and more of how we spend our time, how we feel, and how we behave.”

Crawford observes in his book The World Beyond Your Head that “Without the ability to direct our attention where we will, we become more receptive to those who would direct our attention where they will.”

They can include social media companies, government agencies, and pharmaceutical and other companies that compete for our attention. Many of us may think we are beyond such influence, but Crawford warns that our “preferences” are not always “expressing a welling-up of the authentic self.” Satisfying our preferences may give us a false sense of assurance that our freedom is intact.

Crawford observes, “To attend to anything in a sustained way requires actively excluding all the other things that grab at our attention. It requires, if not ruthlessness toward oneself, a capacity for self-regulation.”

Let’s be clear about what’s at stake. Without the capacity for what Sasse calls “intentionality,” and what Crawford calls “self-regulation,” the individual becomes too weak to sustain liberty and too distracted to notice when it is being taken away.

When our attention is fragmented, we lose the capacity for what Newport calls “deep work.” Newport defines deep work as “professional activities performed in a state of distraction-free concentration that push your cognitive capabilities to their limit. These efforts create new value, improve your skill, and are hard to replicate.”

Cultivating this depth requires sustained attention and active resistance to the urge to seek easier, shallower work. Shallow efforts, such as compulsive email checking, create little new value and are easily replicated. 

If you are concerned about losing your job to AI, the answer is deep work. 

Newport advocates “a full-fledged philosophy of technology use, rooted in your deep values, that provides clear answers to the questions of what tools you should use and how you should use them and, equally important, enables you to confidently ignore everything else.” Newport doesn’t believe that “people who struggle with the online part of their lives are… weak-willed or stupid.” As a path to change, recognizing what our current habits cost us is more effective than relying on willpower. 

Crawford argues that genuine agency arises:

not in the context of mere choices freely made (as in shopping) but rather, somewhat paradoxically, in the context of submission to things that have their own intractable ways, whether the thing be a musical instrument, a garden, or the building of a bridge.

A craftsman is constantly discovering what doesn’t work. A social media warrior is constantly proclaiming. In the digital world, people offer angry opinions without reckoning with the limits of their knowledge. 

Newport argues, “The craftsman mindset focuses on what you can offer the world.”

Crawford himself learned motorcycle repair. He understands that a craftsman’s discipline seems “to relieve him of the felt need to offer chattering interpretations of himself to vindicate his worth.” Crawford continues:

He can simply point: the building stands, the car now runs, the lights are on. Boasting is what a boy does, who has no real effect in the world. But craftsmanship must reckon with the infallible judgment of reality, where one’s failures or shortcomings cannot be interpreted away. 

Our digital cries for validation are a poor substitute for the deep pride generated by handicraft or deep work. 

As we shift our attention away from the noise of the digital world, Crawford argues, we experience “feelings of wonder and gratitude — in light of which manufactured realities are revealed as pale counterfeits, and lose some of their grip on us.”

Ben Sasse, facing the end of his life, genuinely knows this. The question is whether we will learn it in time to choose differently.

Chicago Public Schools has struck a deal with the city’s teachers’ union that turns students into political props. On May 1, a regular school day, children will participate in rallies and civic lessons before being bused to a union rally at Union Park. The agreement promises no retaliation for participants and for joint lobbying in Springfield.

This deal does nothing to advance education. It simply enables the union to use children as pawns to demand more money from the very taxpayers funding the system.

The choice of May 1 is no coincidence. May Day has long been celebrated as a labor and communist holiday (and perhaps it’s a warning cry for a reason). The mask slips when the union schedules its political action on this date. Chicago Public Schools will provide the buses and the time. Taxpayers will foot the bill for the union to lobby against them, using their own children as the foot soldiers in the effort to extract more government funding.

The agreement exposes the cozy relationship between the union and the school district. The Chicago Teachers Union deploys its money and political muscle to handpick candidates for office. The union then pressures the school board, stacked with union allies, to do its bidding. The result is a district that serves the interests of adult employees far more than it serves students.

Other Chicago schools will be empty on May 1 for a related reason. Consider Frederick Douglass Academy High School. The school is 97 percent empty. It enrolls just 27 students in a building with capacity for over 1,000. It employs 28 staff members, creating a roughly one-to-one staff-to-student ratio. Despite tiny class sizes that would be the envy of any educator, not a single child at Douglass Academy is proficient in math or reading. The district spends more than $90,000 per student in operational funding alone at the school. The outcomes remain abysmal.

The dysfunction extends far beyond one building. Chicago has 80 public schools where not a single child is proficient in math. Another 145 standalone public schools are more than 50 percent empty. These statistics reveal a system bloated with underutilized facilities and excess staff. Yet the union’s solution remains the same: pour in even more taxpayer dollars.

Chicago Public Schools desperately needs competition. School choice would empower parents and force the district to improve. Instead, the union successfully killed the state’s Invest in Kids scholarship program. That program helped more than 9,000 low-income children attend the school that best fit their needs.

Meanwhile, the Chicago Teachers Union president sends her own son to a private school after she called school choice “racist.” The hypocrisy could not be clearer. Union leaders want options for their own families while denying them to the low-income families the union claims to champion.

The latest antics will only make the Chicago Teachers Union’s brand more toxic among Chicago voters. A recent poll found that just 27.5 percent of Chicago voters hold a favorable view of the union. More than half, 53.6 percent, view the union unfavorably. That yields a net favorability rating of negative 26 points.

Half of voters say they are less likely to support a candidate who takes money from the union. In the most recent primary elections, most of the union’s endorsed candidates in contested races lost. Some politicians avoided bragging about their CTU endorsements altogether.

Nobel laureate economist Milton Friedman famously said, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” In an open market, dissatisfied families can vote with their feet and take their money elsewhere. But when it comes to a monopoly like the government school system, children are trapped in failing institutions with no recourse. 

Union President Stacy Davis Gates has been remarkably candid about the union’s priorities. As president, she’s admitted that the organization engages in political activity so that “Black women can maintain a standard of living” and “have the ability to sustain life without a husband.” There was no mention of improving student achievement. The union’s focus remains on preserving a jobs program for adults. 

The numbers confirm the union’s priorities. Chicago public school enrollment has dropped 10 percent since 2019. Over the same period, the district has increased staffing by 20 percent. While families vote with their feet and leave the system, the bureaucracy grows.

The Chicago Teachers Union is also under congressional investigation for failing to provide its own members with financial audits for five years in a row. The union’s own members, with help from the Liberty Justice Center, had to sue to force transparency. The organization that claims moral authority to shape Chicago’s education policy cannot even manage basic financial accountability for the teachers it represents.

Parents and taxpayers in Chicago have had enough of the union’s tactics. The deal to hijack the school calendar for political gain will accelerate the backlash. The district cannot continue to operate as a jobs program for adults while students fall further behind. The solution lies in breaking the monopoly. School choice would introduce competition, empower families, and finally put the needs of children first.

The union’s influence runs deep in Chicago politics, but the public is waking up to the costs. Families see empty schools draining resources while proficiency rates hover near zero. Taxpayers watch their dollars fund rallies instead of reading lessons.

The pattern is unmistakable. The Chicago Teachers Union prioritizes power and paychecks over results. School choice offers the only real path forward. Parents deserve the freedom to choose schools that deliver, not just buildings that employ union members. Until competition arrives, expect more days like May 1, where the union commandeers the classroom for its own ends.

The idea that artificial intelligence could usher in a “post-money” world — and that such a world would also render firms obsolete — rests on a misunderstanding of what firms are and why they exist. Even if, for the sake of argument, we accept the highly implausible premise that money would disappear beneath an AI/robotics explosion of superabundance, it does not follow that firms would disappear with it. Firms are not artifacts or by-products of monetary exchange; they are organizational responses to coordination problems, uncertainty, and the costs of markets.

The classic insight comes from British economist Ronald Coase, whose theory of the firm begins not with money, but with transaction costs. Costs do not necessarily connote prices. Markets are not frictionless arenas in which individuals seamlessly contract for every task. Searching for counterparties, costs of instantaneity, negotiation, enforcement, and adapting to unforeseen changes all impose costs. Firms arise precisely to economize on these costs by internalizing certain transactions. Instead of navigating every step of production through the price system, firms substitute managerial direction for repeated market exchange.

Nothing in that logic depends on money per se. One can imagine a world in which prices are denominated in some non-monetary unit, or — in the scenario that Musk and others like him are envisioning — a world in which advanced AI systems coordinate resource allocation without explicit prices. But the underlying coordination problem remains. Complex production — whether building aircraft, running cloud infrastructure, or developing pharmaceuticals — requires an alignment of hundreds or thousands of interdependent tasks. Even in a hypothetical AI-managed system, there must be boundaries within which decisions are made, hierarchies to resolve conflicts, and mechanisms designed to allocate effort. Those are the defining features of firms.

Going a bit further, the elimination of money would, if anything, increase the need for firms (or firm-like) structures. Prices are compressed information signals, conveying relative scarcities and preferences. Without them, the information burden shifts elsewhere. AI might assist in processing vast datasets, but it does not eliminate the need to define objectives, contend with tradeoffs, or assign accountability. Someone, or something, must decide whether a given unit of labor or material is better used in healthcare, energy, or transportation. These are not simply technical questions: they involve prioritization, constraints, and considerable opportunity costs. Firm structures provide the locus for making such decisions in a structured manner.

Moreover, incentives do not vanish with money. Even in a non-monetary economy, individuals will inevitably face tradeoffs in time, effort, status, access, or other scarce benefits. Systems will need to motivate participation, discourage shirking, and reward performance. Compensation may take the form of wages, privileges, reputation, access to scarce resources, or combinations thereof; the fundamental problem of aligning individual incentives with organizational goals persists. Firms, properly understood, are the institutional solution to this problem.

Perhaps the largest issue involves the unavoidable nature of risk and uncertainty. Production unfolds in time, along a term structure, and often requires upfront investment in projects whose outcomes are uncertain. Firms internalize, bundle, assess, and manage risks, deciding which projects to undertake and how to allocate resources among them. Even if AI could forecast outcomes with greater accuracy than human managers, uncertainty would not disappear. The future remains inherently unknowable in countless dimensions, partially driven by attempts to ameliorate them in the present. That is particularly the case where innovation is concerned. Organizational structures that can absorb, distribute, and respond to risk would still be critical, whether or not the form they take is familiar.

The notion that “no money means no firms” conflates the medium of exchange function of money with the structure of production. Money (in addition to having other roles) facilitates exchange across decentralized actors; firms exist precisely because not all coordination is best handled through decentralized exchange. They are islands of planned coordination and networks of contracts, arbitraging between functions more efficiently undertaken outside versus within their notional borders, whether that system is market-based, AI-mediated, or something else entirely.

Many similar predictions were made early in the internet era, and more recently, where DAO (Decentralized Autonomous Organizations) innovation has occurred. (If the markets for those tokens are indicative, nothing of the sort is expected any time soon.) 

Nothing about either of those, nor AI, abolishes the economic problems that give rise to firms; at most, they would shift. New problems may indeed arise. Coordination, incentives, uncertainty, and transaction costs do not disappear in a world of abundance or advanced technology. They simply take new forms. And as long as those problems exist, so too will the need for organizations that solve them. They will be firms by another name, perhaps — but firms nevertheless.

The Federal Open Market Committee is widely expected to leave its policy rate unchanged at this week’s meeting. The CME Group puts the odds that the FOMC will continue to target the federal funds rate within the 3.5 to 3.75 percent range at 99.5 percent. But the near certainty regarding this week’s decisions masks the growing problem Fed officials face. 

The rise in energy prices tied to the conflict with Iran is the sort of negative supply shock that makes monetary policy especially difficult. It puts upward pressure on inflation even as it threatens to slow growth and weaken employment.

That puts the Federal Reserve in an awkward position. Under its dual mandate, the Fed is supposed to promote both price stability and maximum employment. Ordinarily, Fed officials have the luxury of focusing on one of those objectives at a time. When inflation is increasing, the Fed can raise rates to cool demand. When growth slows and unemployment rises, it can cut rates to support spending and hiring. An adverse supply shock is different because it simultaneously threatens both goals.

What the Rules Say

The difficulty posed by adverse supply shocks makes it all the more important to seek guidance from monetary rules. The latest Monetary Rules Report from AIER’s Sound Money Project shows that the Fed’s current policy rate already sits near the lower end of the recommended range. 

The Taylor Rule remains the most familiar place to start. It says that the Fed should set interest rates higher when inflation runs above target and lower when economic activity or employment fall below sustainable levels. Using the most recent data available, the original version of the rule points to a federal funds rate of 4.66 percent. A modified version that minimizes interest rate volatility and accounts for forecasts of future inflation implies a policy rate of 3.99 percent. If anything, the Taylor Rule suggests Fed officials ought to consider an increase in the federal funds rate target. 

Rules based on nominal gross domestic product, or NGDP, suggest somewhat lower rates, with an NGDP level rule at 3.93 percent and an NGDP growth rule at 3.53 percent. These estimates are in line with the current stance of policy and support the expected decision to hold steady at 3.5–3.75 percent. 

How Rules Account for Supply Shocks

In normal circumstances, both types of rules provide a useful way to translate incoming data into a policy rate prescription. But supply shocks make the Taylor Rule harder to interpret, because they create conflicting signals. Higher energy prices put upward pressure on inflation, which points toward tighter policy. At the same time, they raise production costs and squeeze household budgets, which can weaken output and employment, pointing toward easier policy. As a result, the Taylor Rule gets pulled in opposite directions.

That tension has also shown up in recent commentary from policymakers. Some of the more dovish voices inside the Fed and around the administration — who have been quite eager to lower rates — have admitted that any cuts are more likely to come later in the year, after the current Middle East conflict subsides. That shift reflects how difficult it is to formulate policy when a negative supply shock strains both sides of the Fed’s mandate at once.

A Better Guide During Supply Shocks

This is where rules based on nominal spending become especially useful. NGDP is simply the total dollar value of spending in the economy. Its growth rate combines inflation and real output growth into a single measure. That makes it an especially useful guide when supply shocks hit. Instead of forcing policymakers to weigh inflation and growth separately, NGDP rules ask a broader question: what is happening to total spending?

The NGDP growth rule, for instance, suggests that monetary policymakers aim for annual 4 percent growth in nominal spending. The 4 percent benchmark reflects the fact that the Fed targets a 2 percent inflation rate and annual output growth tends to average 2 percent. It effectively wraps both sides of the Fed’s dual mandate into a single statistic. Importantly, in the context of a negative supply shock, it also accommodates offsetting movements in those two objectves. For instance, if spiking energy prices push inflation to 3 percent and pull real growth down to 1 percent, overall NGDP growth would remain at 4 percent and the Fed would be justified in keeping rates steady — despite inflation moving temporarily above target. 

In other words, if oil prices rise because of geopolitical conflict, inflation may move higher even though overall spending is not accelerating in a way that calls for tighter monetary policy. At the same time, weaker real growth alone does not necessarily mean the Fed should cut, so long as nominal spending remains reasonably stable. Looking at NGDP helps policymakers avoid overreacting to only one dimension of the shock.

In the April report, the NGDP rules are broadly consistent with leaving policy unchanged. The NGDP growth rule, in particular, suggests that current policy is roughly on target, with the most recent data showing NGDP growth of 4.2 percent — very close to the rule’s 4 percent benchmark. That figure is backward-looking, so it is reasonable to worry that it may not fully capture recent developments tied to the conflict in the Middle East. Even so, more recent inflation data and forecasts of real output growth still point to nominal spending growth of around 4 percent. That reinforces the case for keeping policy where it is. 

What This Means for the Fed

Supply shocks create some of the most challenging problems for monetary policymakers because they blur the line between inflation risk and economic weakness. That is what makes the current moment so uncomfortable for Fed officials. But discomfort need not mean confusion. The leading rules still offer a useful signal: when overall nominal spending remains close to trend, policymakers should be careful not to overreact to either dimension of a supply disturbance. Fed officials can remain confident by keeping policy within the range offered by the leading monetary policy rules.

The Federal Open Market Committee is widely expected to leave its policy rate unchanged at this week’s meeting. The CME Group puts the odds that the FOMC will continue to target the federal funds rate within the 3.5 to 3.75 percent range at 99.5 percent. But the near certainty regarding this week’s decisions masks the growing problem Fed officials face. 

The rise in energy prices tied to the conflict with Iran is the sort of negative supply shock that makes monetary policy especially difficult. It puts upward pressure on inflation even as it threatens to slow growth and weaken employment.

That puts the Federal Reserve in an awkward position. Under its dual mandate, the Fed is supposed to promote both price stability and maximum employment. Ordinarily, Fed officials have the luxury of focusing on one of those objectives at a time. When inflation is increasing, the Fed can raise rates to cool demand. When growth slows and unemployment rises, it can cut rates to support spending and hiring. An adverse supply shock is different because it simultaneously threatens both goals.

What the Rules Say

The difficulty posed by adverse supply shocks makes it all the more important to seek guidance from monetary rules. The latest Monetary Rules Report from AIER’s Sound Money Project shows that the Fed’s current policy rate already sits near the lower end of the recommended range. 

The Taylor Rule remains the most familiar place to start. It says that the Fed should set interest rates higher when inflation runs above target and lower when economic activity or employment fall below sustainable levels. Using the most recent data available, the original version of the rule points to a federal funds rate of 4.66 percent. A modified version that minimizes interest rate volatility and accounts for forecasts of future inflation implies a policy rate of 3.99 percent. If anything, the Taylor Rule suggests Fed officials ought to consider an increase in the federal funds rate target. 

Rules based on nominal gross domestic product, or NGDP, suggest somewhat lower rates, with an NGDP level rule at 3.93 percent and an NGDP growth rule at 3.53 percent. These estimates are in line with the current stance of policy and support the expected decision to hold steady at 3.5–3.75 percent. 

How Rules Account for Supply Shocks

In normal circumstances, both types of rules provide a useful way to translate incoming data into a policy rate prescription. But supply shocks make the Taylor Rule harder to interpret, because they create conflicting signals. Higher energy prices put upward pressure on inflation, which points toward tighter policy. At the same time, they raise production costs and squeeze household budgets, which can weaken output and employment, pointing toward easier policy. As a result, the Taylor Rule gets pulled in opposite directions.

That tension has also shown up in recent commentary from policymakers. Some of the more dovish voices inside the Fed and around the administration — who have been quite eager to lower rates — have admitted that any cuts are more likely to come later in the year, after the current Middle East conflict subsides. That shift reflects how difficult it is to formulate policy when a negative supply shock strains both sides of the Fed’s mandate at once.

A Better Guide During Supply Shocks

This is where rules based on nominal spending become especially useful. NGDP is simply the total dollar value of spending in the economy. Its growth rate combines inflation and real output growth into a single measure. That makes it an especially useful guide when supply shocks hit. Instead of forcing policymakers to weigh inflation and growth separately, NGDP rules ask a broader question: what is happening to total spending?

The NGDP growth rule, for instance, suggests that monetary policymakers aim for annual 4 percent growth in nominal spending. The 4 percent benchmark reflects the fact that the Fed targets a 2 percent inflation rate and annual output growth tends to average 2 percent. It effectively wraps both sides of the Fed’s dual mandate into a single statistic. Importantly, in the context of a negative supply shock, it also accommodates offsetting movements in those two objectves. For instance, if spiking energy prices push inflation to 3 percent and pull real growth down to 1 percent, overall NGDP growth would remain at 4 percent and the Fed would be justified in keeping rates steady — despite inflation moving temporarily above target. 

In other words, if oil prices rise because of geopolitical conflict, inflation may move higher even though overall spending is not accelerating in a way that calls for tighter monetary policy. At the same time, weaker real growth alone does not necessarily mean the Fed should cut, so long as nominal spending remains reasonably stable. Looking at NGDP helps policymakers avoid overreacting to only one dimension of the shock.

In the April report, the NGDP rules are broadly consistent with leaving policy unchanged. The NGDP growth rule, in particular, suggests that current policy is roughly on target, with the most recent data showing NGDP growth of 4.2 percent — very close to the rule’s 4 percent benchmark. That figure is backward-looking, so it is reasonable to worry that it may not fully capture recent developments tied to the conflict in the Middle East. Even so, more recent inflation data and forecasts of real output growth still point to nominal spending growth of around 4 percent. That reinforces the case for keeping policy where it is. 

What This Means for the Fed

Supply shocks create some of the most challenging problems for monetary policymakers because they blur the line between inflation risk and economic weakness. That is what makes the current moment so uncomfortable for Fed officials. But discomfort need not mean confusion. The leading rules still offer a useful signal: when overall nominal spending remains close to trend, policymakers should be careful not to overreact to either dimension of a supply disturbance. Fed officials can remain confident by keeping policy within the range offered by the leading monetary policy rules.

President Donald Trump is discovering what Joe Biden learned the hard way: voters don’t easily forgive price increases. Despite inflation cooling from its peak, two-thirds of Americans disapprove of how Trump is handling inflation, according to an April Economist/YouGov poll.

The Republican Party’s victory lap over no tax on tips and no tax on overtime rings hollow, considering persistent public frustration with the cost of living. It doesn’t help that Trump’s tariff war and the war in Iran are further fueling rising prices.

And voter frustration isn’t just about recent price changes. It’s also about the lasting damage from the inflation surge of 2021–2022, which pushed the overall price level permanently higher.

There’s one cure, however, that Washington continues to miss. Inflation is increasingly driven by unsustainable budget policy, and politicians on both sides of the aisle keep pouring gasoline on the fiscal fire.

When debt grows persistently faster than the economy, it eventually forces difficult choices. Investors begin to question how the government will meet its obligations. There are only three answers: raise taxes, cut spending, or allow inflation to erode the real value of debt. When the first two options are repeatedly postponed, inflation becomes the likely path of least resistance.

This is the risk of so-called fiscal dominance. Even a formally independent Federal Reserve cannot ignore the consequences of excessive borrowing. If interest costs rise rapidly and financial markets come under stress, the Fed will face pressure to lower borrowing costs at the risk of fueling inflation.

In that world, debates about whether a Fed chair is politically independent miss the bigger picture. The real danger is that fiscal policy leaves the central bank with no good options.

Recent experience offers a clear warning. The inflation surge earlier this decade was not primarily caused by pandemic-related supply disruptions. Nor does the corporate greed theory hold any water. It was mostly driven by unprecedented deficit-financed stimulus spending combined with accommodative monetary policy.

In short, the government spent too much, and to enable this excessive government spending,  the Fed printed too much money.

Bringing inflation back down required interest rate hikes, raising borrowing costs across the economy. That painful adjustment underscores a key lesson: restoring credibility after inflation takes hold is far more costly than maintaining discipline in the first place.

Yet Washington is not only failing to change course but doubling down.

Despite campaign promises to rein in spending with efforts like the Department of Government Efficiency (DOGE) and vows by President Trump to balance the budget, the Trump administration and Congress have continued to expand the federal debt.

From extending and expanding the Trump tax cuts without commensurate spending reductions to doing an end-run around the appropriations process to boost defense and immigration enforcement, Republicans have repeatedly sidestepped budget rules to pass deficit-financed, partisan measures.

Interest costs on the national debt now exceed federal spending on national defense. That could soon change, however, as President Donald Trump pushes to reverse the imbalance — not by lowering interest rates, but by increasing defense spending.

Republicans aren’t the only ones to blame. Democrats under Biden also abused the budget process and executive powers to enact green energy subsidies, forgive student loan debt, and accelerate the cost of food stamps.

Meanwhile, neither party is willing to confront the unchecked growth of entitlement programs. Social Security, Medicare, and Medicaid are expanding faster than the economy and faster than federal revenues. Demographic shifts, including an aging population and lower birth rates, mean fewer workers are supporting more beneficiaries.

The bigger problem is poor program design. Social Security benefits grow with wages, exceeding inflation, and federal health care programs are open-ended entitlements devoid of market incentives to control price pressures.

Absent meaningful reform, the conclusion is unavoidable: inflation will rise to reduce the fiscal burden of the debt.

Sound fiscal policy is the only answer. When Congress credibly stabilizes debt, it anchors inflation expectations and reduces the risk premium investors demand. Lower long-term interest rates ease borrowing costs across the economy and slow the growth of federal interest payments.

Congress should adopt a credible and enforceable fiscal target to stabilize debt relative to the economy. Its members should stop the misuse of emergency spending provisions to bypass budget constraints. And most importantly, they must reform the entitlement programs driving long-term spending growth.

That means refocusing Social Security on preventing poverty in old age while adjusting benefits and eligibility to reflect higher earners’ ability to save on their own and longer life expectancies. It means slowing Medicare’s growth through stronger budget constraints and cost discipline, best achieved by giving beneficiaries more control over how their subsidies are spent. And it means restructuring Medicaid to limit federal exposure and improve accountability, with states bearing a larger share of costs.

None of these steps are politically easy. An independent fiscal commission could help break the partisan deadlock and advance these reforms.

Trump’s declining approval ratings on inflation are a warning sign. Voters know something is wrong. Until policymakers confront the underlying source of the problem — unsustainable federal spending — inflation will remain a recurring threat, and the Federal Reserve’s independence will erode under the weight of the nation’s debt.

A few weeks ago, social media skeptics received their best news in years.

In KGM v. Meta, a jury found Meta and Google negligent for their role in fueling a youth mental health crisis. Now, six million dollars in damages is basically meaningless to companies that gross hundreds of billions in revenue annually. But the reason this case has gotten so much media attention is for what it might represent. Some have compared the case to the beginning of litigation against Big Tobacco last century, which culminated in a $206 billion master settlement with more than 40 states.

In this case, however, the jury got it wrong. It concluded three things:

• Instagram and YouTube were designed in ways that encouraged uncontrollable use and addictive behaviors.
• The companies failed to adequately warn users, especially minors, about the risks.
• The design of their platforms was a considerable factor in causing the plaintiff’s mental health problems.

All three of these things could be true, but neither Meta nor Google should be held liable for any of them. Unlike prior cases involving social media, KGM treated YouTube and Instagram as fundamentally defective products. The central question wasn’t whether malicious users could misuse these platforms, but whether the platforms themselves posed inherent risks. In general, online companies aren’t legally accountable for what users post due to Section 230 protections — Meta, for instance, wouldn’t be held liable for someone using its products to incite violence. In this case, though, Judge Carolyn Kuhl ruled that platform design elements — like algorithm-driven feeds, autoplaying videos, and push notifications — could be challenged. 

In other words, Instagram and YouTube should be held liable because they’re addictive, and too effective at providing content users want.

In a motion denying summary judgment, Judge Kuhl wrote: “The fact that a design feature like ‘infinite scroll’ impelled a user to continue to consume content that proved harmful does not mean that there can be no liability for harm arising from the design feature itself.” In other words, Meta and Google can be held responsible for designing a product that fulfills a consumer desire. Such an argument is dubious. Product innovation exists precisely to meet the demands of consumers — and that’s a good thing.

If such a conclusion holds, where could it not apply? Oreos are delicious — should Mondelez International be forced to make their product less appealing because a “design feature” of Oreos causes repeated consumption of Oreos, with negative health outcomes? Should TV shows that end on a cliffhanger be banned because such a “design feature” creates an addictive cycle, causing the viewer to continue watching? In excess, many other products besides social media can become addictive, but it’s not the government’s job to single out certain products or consumer desires as addictive. 

And then there’s the First Amendment problem. Even assuming that social media is addictive in a way analogous to tobacco, the two differ in a key respect. Social media companies are being held liable for their speech, which is protected by the First Amendment. As Erwin Chemerinsky, Dean of the UC Berkeley School of Law, put it:

The plaintiffs in these lawsuits argued that companies design algorithms that are tailored to individual users to keep them hooked. But algorithms are themselves speech, and there is no reason to treat this speech differently from the code that encourages people to keep playing video games.

Or, as the Supreme Court Justice Elena Kagan wrote in Moody v. NetChoice, “the First Amendment … does not go on leave when social media [is] involved.” And while social media is almost certainly a drain on society — decreasing attention spans, increasing depression, and spreading misinformation — neither restricting First Amendment-protected speech nor regulating the free market is the answer.

Forcing social media companies to restrict access to social media won’t necessarily lead to meaningfully lower social media usage by teenagers. For one, even the most extreme option — simply banning social media usage by teenagers — is easily circumvented by most teenagers. Teenagers have cleared visual age checks. As one Australian teenager put it, “I scrunched my face up to get more wrinkles, so I looked older, and it worked!” Perhaps not a high-tech workaround, but it nevertheless worked, and many other techniques do, too.

And even if the current mainstream social media companies — Meta, Google, TikTok, etc. — were forced to make their products less addictive, that would just open the door for competitors to replace them. And then what? Regulate those products until they’re less addictive, too? At some point, the government will just be playing First Amendment Whac-A-Mole. 

Ultimately, this is not a problem for the courts — nor even legislatures — but rather for civil society. Regulating trillion-dollar companies out of existence won’t fix the underlying problem. If social media were intrinsically detrimental, in the way that cigarettes cause a chemical addiction and subsequent health problems, then almost every teenager who uses social media would struggle with addiction and see some demonstrable negative impact on their life. But that’s not the case. About one in five teens say social media has hurt their mental health. Another study found that social media usage beyond three hours a day increased internalizing problems (like anxiety/depression) by about 60 to 80 percent. Neither of these numbers are great. But they also reveal that a significant percentage of teenagers who use social media are perfectly fine. 

So what explains how one teen could use social media and neither become addicted nor have their mental health suffer, and another teen could experience the opposite? Very likely having access to a robust civil society — family, activities, community organizations, religious groups, and other social supports. Social media accounts for about one percent of the variation in life satisfaction. By contrast, family situations explain about a third of life satisfaction for young adults. Running to government for legislation to fix our minor woes allows these important community bonds to atrophy. An important aspect of the liberal political order is the recognition that voluntary, robust civil society can play a much more effective role in addressing these societal problems than can even well-intentioned meddling by the government. Social media is no exception.

For nearly a century, economists struggled with the famous diamond-water paradox. Water, while so essential for life, is so cheap. Diamonds, on the other hand, are luxuries that command such a high price. 

The resolution, articulated by Carl Menger, was that value is not inherent in goods themselves but comes from the importance individuals place upon them at the margin. Prices, as such, reflect marginal valuation conditioned by scarcity, not total usefulness in general. 

A similar misunderstanding applies to today’s debate over a “living wage.” Advocates are often quite explicit in their demand. The National Employment Law Project, for example, insists that “every job should pay a living wage.” The moral appeal is clear. Economically, however, such an assertion assumes what needs to be proven: that every job creates enough value to garner such a wage. 

Wages Are Prices

Let us begin with a simple point: wages are prices. Just as the price of bread reflects supply and demand, so do wages for labor in particular occupations. They signal how scarce certain skills are and how much value workers add at the margin. 

As Friedrich Hayek explained, the price system is “a mechanism for communicating information,” and wages are a part of that system. They are not arbitrary. They communicate where labor is most urgently needed and where it is less highly valued. 

A Thought Experiment

Imagine someone who chooses to manufacture horse-drawn carriages in the modern United States. Outside of niche markets, like Jackson Square in New Orleans, demand for such a good is minimal. Call him James. He is producing something very few people want, and the economic value he is, therefore, generating is quite low. Accordingly, the wage that could be sustained by his line of work will also be low. 

James, however, is not discouraged. He insists that he deserves a “living wage” simply by virtue of being employed.

The absurdity of the demand should be apparent. It is not a question of the dignity of the work. Let us assume his craftsmanship is top-notch, and he is obviously not engaged in the production of anything morally objectionable. Yet, the value James creates is limited relative to other uses of labor and capital. So much so that, economically speaking, James is not even engaged in production but consumption.

Paying him a high wage, then, would require diverting resources away from more valuable activities. In effect, this would mean asking others to subsidize James’s “production” that consumers have already overwhelmingly revealed to be of little value. If James wishes to continue this work for personal satisfaction, he is free to do so. But it does not follow that others are obligated to sustain it.

The Living Wage Problem

The problem here is that the living wage argument implicitly assumes that wages should be determined by the needs of the workers rather than by the value of what they produce. 

As Bernie Sanders has said repeatedly, “a job should lift you out of poverty, not keep you in it.” Superficial sentimentality presents this as understandable, but it does not follow that every particular job, in every place and moment, can and should bear a wage set by need rather than productivity, and do so indefinitely. Employment does not exist in the abstract. Jobs are specific — an auto mechanic in Acworth, Georgia in 2026, not simply a “job in the United States.” If local demand for that service is limited, the wage will reflect that reality and it ought to. 

Once wages are detached from productivity, economic coordination begins to break down. If employers are required to pay wages above the value generated by certain jobs, several outcomes tend to follow:

• Some jobs disappear entirely
• Businesses substitute capital for labor
• Firms reduce hiring or restructure production
• Opportunities for low-skill or inexperienced workers decline

As economist Thomas Sowell bluntly put it, “the real minimum wage is always zero.” When the cost of hiring exceeds the value a worker can produce, employers will just not hire. This, of course, does not eliminate the need for income, but it does eliminate the opportunity to earn it. 

None of this is to deny that people should wish for wages sufficient to support themselves and their families. In fact, economic progress engineered by capitalism over the last two centuries has made that wish increasingly attainable. That progress, though, followed a clear pattern: higher productivity leads to higher value, which leads to higher wages. 

Policies that try to mandate higher wages in spite of productivity levels undermine the very mechanism generating rising standards of living. The issue lies in demanding that every conceivable job, regardless of its contribution to society, ought to sustain a person and his family. 

Wages Reflect Reality

Wages, like any other price, reflect the economic realities of a particular time and place. If wages appear low, this is not an injustice (assuming they are the result of market, not government, forces). This signals limited value currently generated by that activity relative to other possible uses of labor. 

The lesson needed today is the same as the lesson from the diamond-water paradox. Prices do not reflect how important something feels. Instead, they reflect scarcity, marginal value, and human choices. Wages are no exception.

This year marks the 250th anniversary of both the Declaration of Independence and Adam Smith’s The Wealth of Nations — no mere coincidence. The Enlightenment ideals of individual liberty and voluntary exchange that inspired America’s founders also laid the foundation of modern economics. Yet two and a half centuries later, persistent policy blunders — protectionist trade barriers, ballooning national debt, and stubborn inflation — reveal how far we have strayed from the Scotsman’s insights, endangering the principles upon which our republic was founded.

It is tempting to blame these failures solely on politicians. But economists share responsibility. Returning to The Wealth of Nations, one is struck by how little progress has been made in educating the public about sound principles, a task that must be renewed with every generation. While our internal scholarship has grown more sophisticated, the core policy debates have remained largely unchanged since 1776. Smith discredited mercantilism’s fixation on the balance of trade, deeming it “absurd” and a flawed foundation for trade restrictions. He also observed that accumulated public debt is seldom repaid honestly; governments instead print money and erode purchasing power. These debates sound strikingly contemporary.

After 250 years of theoretical and empirical advances, including 99 Nobel laureates, why do governments keep repeating the same mistakes? As Deirdre McCloskey has noted, the field of economics suffers from Smithian specialization without Smithian trade: narrow expertise unaccompanied by broad intellectual exchange. In a 1976 bicentennial assessment, Terence W. Hutchison criticized the profession for narrowing its scope, assuming a stable social and political backdrop so as not to disrupt isolated economic analysis. This approach excels at precision on narrow questions but neglects the wider terrain of political economy, driving a wedge between academic research and policy relevance. Smith’s “system of natural liberty” demanded the comprehensive foundations he provided — not fragmented silos.

This internal refinement has come at the expense of teaching basic principles effectively. Smith contrasted the lively instruction at Glasgow, where professors’ pay depended partly on student fees, with the uninspired, often absent lectures at Oxford, where compensation was fixed regardless of enrollment. Incentives shape behavior, even among economists. Modern academia rewards narrow research over conveying fundamentals in the classroom or engaging the public, leading to a widening gap between specialized technical research and actual debates that shape policy. Novelty, not timeless wisdom, drives top-journal publications. Delivering a mundane walkthrough of textbooks or PowerPoint decks passes for “teaching” in far too many classrooms.

Graduate programs tend to emphasize exceptions to Smith’s core ideas, however tenuous, over the principles themselves. As Bryan Caplan has noted, graduate students start their programs already steeped in market-failure arguments, and two additional years of mathematical theory presenting “dozens of esoteric ways for markets to fail” will only reinforce this worldview. The approach neglects the principle that when individuals are free to pursue their own betterment, beneficial social coordination and order emerge spontaneously. The system of liberty — called common sense at our nation’s founding — reflects how order arises without central design if government is limited to “peace, low taxes, and a tolerable administration of justice.” Market failures are the exception, not the rule.

Focusing economists’ training primarily on market failure is like training physicists only to probe exceptions to natural laws while ignoring the universe’s consistent regularities. It encourages siloed experts to recommend “minor” interventions, as if executed by a host of benevolent bureaucrats, which aggregate into a system of control entrusted to fallible politicians, not angels. 

Hutchison closed his 1976 remarks with hope that by 2026 economists might reclaim Smith’s broad foundations. Fifty years on, the drift has only deepened, underscoring the urgent need for introspection. If not economists themselves, who else will uphold and popularize genuine economic principles and make the case for laissez-faire in the spirit of Adam Smith?

In this shared 250th anniversary of 1776, economists should reclaim their Smithian inheritance: teach the timeless truths of a system of natural liberty, echoing the Enlightenment ideals that birthed both our nation and modern economics.