Artificial intelligence has become the latest excuse for reviving one of the oldest bad ideas in economic policy: a universal basic income. Recent pieces in Newsweek, the LSE Business Review, and Fortune have all helped push the idea that AI may soon wipe out so many jobs that Washington will need to send everyone a check.

That makes for a catchy headline. It also makes for terrible economics.

The right question is not whether AI will disrupt work. Of course it will. The right question is this: after more than 100 local guaranteed-income experiments, what have we actually learned?

The answer is much less flattering to UBI than its promoters would like.

What 122 UBI-Style Pilots Show

A new AEI working paper by Kevin Corinth and Hannah Mayhew gives the best recent overview of the evidence. Per their study, there were 122 guaranteed basic income pilots across 33 states and the District of Columbia between 2017 and 2025. Those pilots allocated about $481.4 million in transfers to 40,921 recipients, with 61,664 total participants including control groups. The average recipient got about $11,765, the average pilot lasted 18.4 months, and the average monthly payment was $616.

That sounds like a mountain of evidence. It is not.

Of those 122 pilots, only 52 had published outcomes. Only 35 used randomized designs. Only 30 reported employment outcomes. So the case for UBI is not being built on some giant pile of clear, clean evidence. It is being built on a much smaller stack of studies, many of them weak, limited, or badly timed.

And here is the kicker. Among the 30 randomized pilots with published employment results, the average effect was a 0.8 percentage-point increase in employment. UBI fans will rush to wave that around. They should slow down.

AEI shows that the bigger and more credible studies tell a very different story. Among the four pilots with treatment groups of at least 500 participants, which together account for 55 percent of all treatment-group participants, the mean effect on employment was minus 3.2 percentage points. AEI also estimates a mean income elasticity of -0.18, which is consistent with standard labor-supply economics. 

In plain English, when people receive more unearned income, work tends to fall at the margin. Shocking, I know. Economics still works.

Why the Evidence Is Weaker Than the Hype

The AEI paper is useful not just for what it finds, but for how bluntly it describes the weaknesses in the evidence.

The average treatment group among those 30 studies was just 359 people, and the median was only 151. That is not exactly ironclad evidence for redesigning the American welfare state. Among the 26 pilots for which attrition could be measured, the average attrition rate was 37 percent. That is a giant warning sign. If enough people drop out, the reported results can become badly distorted.

The studies also varied widely in payment size, duration, sample composition, and even how outcomes were measured. The mean annualized payment was $7,177, equal to an average income boost of about 39.5 percent relative to baseline household income in the studies. Some pilots relied heavily on self-reported survey data. Some were conducted during or right after the COVID period — when labor markets, safety-net programs, and personal decisions were anything but normal.

AEI’s conclusion is appropriately cautious: these findings may not generalize to a permanent, universal, nationwide UBI under current or future conditions. That alone should cool off a lot of the AI-fueled policy hysteria.

AI Will Displace Jobs. It Will Also Create Them

None of this means AI will be painless. Some jobs will shrink. Some tasks will disappear. Some workers will need to retrain, relocate, or rethink their careers. That is what happens when productivity rises and technology changes how goods and services are produced. It happened with mechanization, with computers, and with the internet. It will happen with AI.

But displacement is not the same thing as permanent mass unemployment. That leap is where the UBI argument falls apart. Economies are not fixed piles of jobs. They are dynamic systems of discovery, adaptation, and exchange. When costs fall and productivity rises, resources move. Businesses reorganize. Consumer demand changes. New occupations emerge. Old ones evolve. Some disappear. That churn is real, but so is the adaptation.

The answer to technological change is not to pay people for economic resignation. The answer is to make adaptation easier.

UBI Fails the Economics Test

There is a reason Ryan Bourne at Cato has argued that UBI is not the answer if AI comes for your job. It confuses a transition problem with a permanent income problem. Worse, it assumes that writing checks can substitute for the incentives, signals, and institutional conditions that actually create opportunity.

UBI also crashes into the budget constraint. As Max Gulker at The Daily Economy has noted, UBI is often sold through small pilots and vague moral language, but the national arithmetic is ugly. And as Robert Wright in another AIER piece points out, “universal” quickly means sending money to many people who are not poor while piling enormous costs onto taxpayers. (Bear in mind, the national debt is already rapidly approaching $40 trillion.) 

That is before getting to the public-choice problem. In theory, UBI supporters sometimes imagine replacing the welfare state with one simple cash transfer. In reality, government programs rarely disappear. Bureaucracies defend themselves. Interest groups protect carveouts. Politicians promise more, not less. So a UBI would likely be stacked on top of much of the current welfare state, not substituted for it. That is not reform. That is fiscal delusion with better branding.

A Better Answer: Remove Barriers to Work

If AI means more labor-market churn, then policy should focus on mobility, flexibility, and self-sufficiency. That means less occupational licensing, lower taxes, lighter regulation, fewer benefit cliffs, less wasteful spending, and more room for entrepreneurship and job creation. The government should stop making it harder for people to pivot.

It also means reforming welfare the right way. My proposal for empowerment accounts is not a UBI. It would be targeted to people already eligible for welfare, not universal. It would include a work requirement for work-capable adults, not detach income from effort. And it would consolidate fragmented programs into a more flexible account that families control directly, reducing bureaucracy and lowering spending over time as more recipients move toward self-sufficiency.

That puts it much closer to the classical liberal insight behind replacing bureaucratic control with direct support, while avoiding the fatal error of turning the entire country into a permanent transfer state. As Art Carden reminds us at The Daily Economy, there is a long intellectual history behind cash-based assistance. But today’s UBI politics are not really about shrinking the state. They are mostly about expanding it because elites fear AI.

Don’t Make Bad Policy Out of Fear

The UBI revival tells us less about AI than it does about politics. New technology arrives, uncertainty rises, and too many policymakers reach for the federal checkbook as if it were a magic wand. It is not.

After 122 local experiments, the case for UBI is still weak. The best evidence does not show a jobs renaissance. The larger studies show employment declines. The broader evidence base is riddled with small sample sizes, high attrition, and limited generalizability. That is a flimsy foundation for a permanent national entitlement.

AI will change work. It will not repeal economics. The best response is not fear-driven universal dependency. It is a freer economy with stronger incentives to work, save, invest, adapt, and prosper.

President Trump’s conflicts with Chairman Powell and with Governor Cook have obscured real shortcomings at the Federal Reserve and brought little useful change. These conflicts tend to focus on whether the Fed’s target interest rate is too high or too low. Meanwhile, institutional problems at the Fed have been largely overlooked.

But there is an opportunity here with Trump’s nominee for Fed chair, Kevin Warsh. His first task will be navigating a hostile Senate. But should he be confirmed, Warsh’s time would be best spent cleaning up the Federal Reserve system: its personnel, spending, and data.

The Federal Reserve System employs 24,000 people. The Board of Governors has about 3,000 employees, while the 12 district banks employ the remaining 21,000. That figure includes 800–1,000 professional economists. While the Fed has recently announced plans to reduce its workforce by 10 percent, that would still leave it with over 21,000 employees. But why shouldn’t the Fed cut headcount by 20–30 percent, or even more?

Does the Fed really need that many employees? After all, this isn’t the 1960s or 1970s when many things had to be done by hand. Not only have there been significant technological improvements and greater automation over the past fifty years, the development of AI will also accelerate this trend. As such, the new Fed chair should reevaluate whether the Fed needs so many employees.

Besides being wasteful, the high number of economists employed by the Fed has likely influenced the profession to unduly favor the status quo. Those who criticize the Fed or question whether it should even exist find themselves in the wilderness of monetary economics. Employing fewer economists will reduce the Federal Reserve’s gravitational pull on the economics profession.

Along with reducing headcount through reorganization and consolidation, the Federal Reserve is ripe for an audit of its spending. Ron Paul popularized the idea of auditing the Fed in 2008. The Federal Reserve is unique in that it can literally create money and in that it sets its budget independent of Congress. What would you expect the budget trend to be for a fully self-funding organization that can print money? If you said up and to the right, collect your prize.

The budget of the Board of Governors of the Fed has grown more consistently than the Federal budget for decades. In fact, why would any office or department at the Fed ever voluntarily reduce its spending? As such, we don’t see examples of significant retrenchment or budget cuts across the Board of Governors. District banks, on the other hand, operate with private-sector participation through their member-bank stockholders, yet they still suffer from bureaucratic bloat due to limited market competition.

By restructuring staff, streamlining operations, and auditing its spending, the new Fed chair can couch all of this change in terms of modernizing the institution. The Fed has largely failed to keep abreast of technological change when it comes to data, metrics, and execution. It still relies heavily on surveys and anecdotal conversations when it has access to millions of data points, nearly in real-time.

Consider the following key indicators that the Fed officials rely on:

They measure their key inflation target using the Personal Consumption Expenditures (PCE) price index, as well as the Consumer Price Index (CPI) and the Producer Price Index (PPI). Yet these numbers only come out once a month. Rather than calling on business leaders to get a read on economic conditions, they could use real-time measures from sources like the Adobe Digital Price Index or Truflation that use millions of transactions to assess economic activity.

Similarly, most of the key indicators the Fed uses for assessing the strength of the labor market (the unemployment rate, nonfarm payrolls, labor force participation rate, and various measures of underemployment) tend to be released monthly as well.

The important measure of economic growth, the Gross Domestic Product (GDP), only comes out quarterly—though there are frequent estimates. Furthermore, the measures of GDP tend to be revised often, too. The Atlanta Fed produces a “GDPNow” number—but it also relies primarily on estimates rather than real-time data. Indicators like industrial production, retail sales, and business investment are not much better.

One area the Fed does make use of real-time data is in financial market conditions. Interest rates (e.g., federal funds rate, Treasury yields), credit spreads, and asset prices change in real-time and can be used to assess financial stability and the effectiveness of monetary policy.

In addition to the delays, most of these core metrics, particularly GDP and the unemployment rate, are lagging indicators. They reflect past economic performance rather than providing real-time insights into current or future trends. In a rapidly evolving global economy, relying heavily on backward-looking data can lead to policy decisions that address emerging challenges too slowly or exacerbate existing ones.

The FOMC’s framework often emphasizes aggregate demand management, assuming that inflation is primarily a demand-side phenomenon. But recent economic shocks (supply chain disruptions, energy price spikes) highlight the critical role of supply-side factors. Over-reliance on demand-side metrics can lead to inappropriate policy responses. 

In fact, many economists argue that the Fed should be less reactive in general. Friedman noted that there were “long and variable lags” between the implementation of monetary policy and its effects. Following predictable monetary rules will likely generate more stability and more growth in the long run.

Monetary policy (in terms of target interest rates) matters, but so does operational efficiency, utilization of technology, and access to good information. Institutional reform may also help the Fed rebuild public trust by reassuring people that its decisions reflect reality today rather than reality months ago – or not at all. Cleaning up the Federal Reserve will be a monumental task, but it will also be a legacy. Let’s hope Mr. Warsh is up for the challenge.

At a recent Senate hearing on the fiscal outlook, legislators and budget experts said the quiet part out loud: the United States is running historically large deficits in non-crisis times, and we need to stop pretending that we can grow our way out of it.

Washington’s problem isn’t ignorance. It’s that the only politically safe position is to acknowledge the debt crisis — and then do nothing to fix it. Congress lacks an effective mechanism to make politically difficult decisions possible.

The message from the hearing was stark: this is not a crisis caused by recession or war. It is the result of policy choices lawmakers refuse to confront.

The federal budget is increasingly tilted toward unsustainable promises made to older Americans, financed by borrowing that imposes the costs on younger Americans. Earlier CBO projections show that by 2029, the federal government will spend roughly 50 cents of every budget dollar on benefits for Americans 65 and older.

The long-term picture is even worse. According to the government’s Financial Report, more than 100 percent of long-term unfunded obligations stem from just two programs: Medicare and Social Security (their combined shortfalls reflect the difference between their dedicated taxes and projected spending, which exceed the total because the rest of the budget shows a small projected surplus over the same period).

Hosted by the Senate Subcommittee on Fiscal Responsibility and Economic Growth, the hearing featured Congressional Budget Office (CBO) Director Phillip Swagel, Committee for a Responsible Federal Budget (CRFB) President Maya MacGuineas, and Yale Budget Lab founder Martha Gimbel.

Sen. Ron Johnson (R-WI) offered a blunt assessment of the political stalemate during opening remarks. Democrats “insist the solution is simply making the rich pay their fair share,” he said, but then don’t follow through on meaningful tax increases. Republicans argue there’s a spending problem, yet “when they had the power to return spending to a reasonable pre-pandemic level, the One Big Beautiful Bill simply did not meet the moment.”

In other words, Washington’s fiscal debate is a performance: each side criticizes the other for choices it is unwilling to reverse when it has the opportunity.

The day of reckoning is no longer far off. Social Security faces financing constraints in just six years, triggering automatic benefit cuts of roughly 25 percent. Medicare’s hospital trust fund is not far behind. Whether Congress chooses slower benefit growth, means-testing, eligibility changes, higher taxes, or some blend, delay only increases the eventual scale of the adjustment.

One illusion common to both sides of the political aisle is the idea that tough choices can be avoided with faster economic growth. As CBO Director Phillip Swagel noted, stronger growth raises revenues but also increases interest costs on a truly massive debt. Interest costs are already higher than defense spending and rising quickly.

As debt rises to excessive levels, even good economic news can come with a fiscal price tag.

The hearing also highlighted a generational injustice that Washington tiptoes around: the budget increasingly redistributes from younger, poorer Americans to older, wealthier ones. Swagel (CBO) noted that children ultimately bear the cost of borrowing that today’s voters authorize. MacGuineas (CRFB) and Gimbel (Yale) underscored how the federal government spends far more on seniors than on children. What’s more, today’s elderly, as a cohort, are not the economically precarious group they once were: senior poverty has declined below that of the general population.

That’s because the budget doesn’t redistribute based on need. Spending favors the most politically organized constituency, while deficit financing shifts costs to those with the least political power.

And acting to fix the fiscal imbalance requires something that Congress would rather avoid: imposing concentrated political pain today to prevent much larger, but more dispersed economic pain tomorrow.

Every fix to the US debt path has identifiable losers — industries that benefit from tax preferences, higher-income retirees facing slower benefit growth, and special interests whose gravy train of federal taxpayers’ money might get cut off. Those groups show up, mobilize, and threaten to punish politicians at the ballot box. Beneficiaries of reform, however, including younger taxpayers, busy working families, and even future Congresses, rarely advocate on their own behalf.

As economist James Buchanan observed in Democracy in Deficit, fiscal restraint rarely produces political rewards. Voters immediately feel spending cuts or tax increases, but they never see the crises that responsible policy prevents — the inflation that never erupts, the interest rates that never spike, the austerity that never becomes necessary.

That is why the most valuable conclusion one can draw from this hearing is that the United States needs a process that can make economically necessary (but politically difficult) tradeoffs possible.

I have argued for exactly that: an independent fiscal commission, modeled on the Base Realignment and Closure process. BRAC allowed Congress to close military bases it knew were unnecessary but couldn’t politically touch, and succeeded because it created political cover for difficult decisions Congress knew needed to be made.

A fiscal BRAC would apply the same logic to the budget’s third rails and sacred cows. Congress would establish the commission, set specific guidelines and targets for what commissioners must accomplish, and reverse the status quo’s default of inaction. The commission’s recommendations could take effect automatically, with presidential approval, unless Congress voted to reject them. That shift — from requiring affirmative action to requiring affirmative obstruction — changes the political calculus.

Critics object that commissions are a way to dodge accountability. This commission would do the opposite: return spending accountability to a system built to evade it. Congress abdicated control when it put the largest entitlement programs on autopilot. An effective commission is our best shot at correcting these programs’ unsustainable and unaccountable growth.

Washington knows it has a spending problem. This Senate hearing made that clear. What it lacks is the will, and an effective mechanism, to do something about it. A BRAC-like fiscal commission won’t make tough choices easy. But it could finally make them possible.

Discipline will come eventually. The question is whether Congress chooses it or waits for a crisis to impose it.

Compare this argument from President Trump on Truth Social, in January 2026, to another (perhaps the same?) made by Pierre Joseph Proudhon in 1849.

I protest against your credit at five per cent, because society is able and ought to give it to me at zero per cent; and, if it refuses to do so, I accuse it, as well as you, of robbery…
– Pierre Joseph Proudhon, Bastiat-Proudhon Letter #5, 1849.

Some arguments, we think, have been won decisively. Logic has forever buried their adversaries. And yet, friends of freedom find themselves defending free speech and the Enlightenment itself (in an age of old socialism and new post-liberalism). I never thought I would have to rediscover the nineteenth-century arguments of Frédéric Bastiat in favor of free trade. But here we are, in an age of tariff wars.

I thought Bastiat would remain a wise portrait looking down on interns and scholars in AIER’s library, or perhaps a gem to be shared with my undergraduates as a witty illustration of basic economics. But the politicians are back to their economic sophistry, so I find myself re-reading Bastiat.

On January 10 of this year, President Trump posted a call for credit card interest rate caps of 10 percent, effective January 20. His announcement was not followed by an executive order, so the cap hasn’t been implemented (it would have been interesting to see what presidential authority he claimed, but that’s a different story). 

Last year, Representative Ocasio-Cortez and Senator Bernie Sanders introduced bills proposing 10-percent caps on credit card interest rates. The bills are stalled in their respective chambers, but President Trump’s announcement has revived lobbyist interest in moving the bills forward.

This year, there’s another twist. Instead of a national 10 percent interest rate cap, the Empowering States’ Rights to Protect Consumers Act would allow each state to cap interest rates within its borders. 

Interest rate caps are a bad idea (as are any price controls). My purpose here is not to explain why (John Phelan does so nicely in his recent column in these pages). Nor is it to explain the difficulties, economic and constitutional, with a hodgepodge of conflicting state-level regulations. Nor is my intention to worry about the effects of such short-sighted interventionism on the most vulnerable Americans. 

Instead, I propose to take a walk down memory lane, by returning to the Bastiat-Proudhon debate on interest of 1849-1850. 

The Bastiat-Proudhon Debate on Interest

The debate took place in the pages of La Voix du Peuple (“The People’s Voice”) between October 1849 and March 1850. It comprises a total of 14 letters.

Pierre Joseph Proudhon (1809-1865) was a French journalist, philosopher, and socialist. Proudhon favored peaceful social revolution, and called for a national bank to extend “free” credit. He is most remembered for coining the phrase “property is theft”.

Frédéric Bastiat (1801-1850) was a French lawyer, journalist, and economist. He is most remembered for his series of essays on “what is seen and what is not seen,” and his defense of free trade and limited government. A clever writer, Bastiat often used humor, as well as reductio ad absurdum, such as when he proposed banning sunlight (through mandatory curtains) to protect the candlemakers, and reducing the trade deficit by sinking ships returning with gold from export sales. He is most remembered for the broken window fallacy. Along with John Locke and FA Hayek, he presides over the learning in AIER’s library.

Bastiat argues that interest is compensation – both just and economically sound – for the forgone use of capital, but also for the service rendered by the loan of capital. Proudhon disagrees: capital is returned after the loan period, so any interest is mere exploitation. What is more, interest might once have been necessary to attract capital, but the economy is now sufficiently advanced that it can pool funds in a national bank and provide interest-free loans.

The Argument

Bastiat explains that a loan involves two parts (Letter 2): “1. the restoration, intact, at the expiration of the loan, of the object lent; 2. a service to be rendered the lender by the borrower as compensation for the service which the latter has received.”

Capital increases productivity, thus benefiting both the borrower and the economy as a whole. Bastiat argues that tools and capital can’t exploit workers, because by the borrowing of tools, the worker can produce much more than he could alone. So even if the lender of the tools claims some share of the greatly increased production, the worker is left better off than he would’ve been working only with his hands. “And because he surrenders to me, freely and voluntarily, one-twentieth of this surplus, you represent me as a tyrant and a robber,” Bastiat asks. “The workingman shall see his labor increase in productivity, humanity shall see the sphere of its opportunities enlarge, and I alone, the producer of these results, must be prohibited from participating in them, even by universal consent!” 

Capital, writes Bastiat, “in the form of wheel, gear, rail, waterfall, weight, sail, oar, plough, performs so large a part of the work,” that it should be considered “the friend and benefactor of all, and especially of the suffering classes.” Laborers should celebrate capital, “desire its accumulation, its multiplication, its unlimited diffusion,” because it multiplies the efforts of “nerves and muscles” and increases the value of workers’ productive contributions. 

Proudhon disagrees. He starts by claiming that the owner of capital wouldn’t lend it if he were using it, “does not deprive himself,” but “he lends it because he has no use for it himself.” Capital, by this argument, requires labor, and otherwise “this capital, sterile by nature, would remain sterile, whereas, by its loan and the resulting interest, it yields a profit which enables the Capitalist to live without working… a contradictory proposition.”

Bastiat counters that there is, in fact, an opportunity cost to lending, so the lender can command “a compensation for delay,” where the lender has forgone consumption. Interest on capital lent is, he says, “the price of time.” Real-world lending must also be priced to account for the risk of lost principal. 

Proudhon then calls for a national bank, which could lend at zero interest. He proposes to finance this bank through a wealth tax. He continues: 

a single tax should be established, not on production, circulation, consumption, habitation, etc., but, in accordance with the demands of Justice and the dictates of Economic Science, on the net capital falling to each individual. The Capitalist, losing by taxation as much as or more than he gains by Rent and Interest, would be obliged either to use his property himself or to sell it; economic equilibrium again would be established by this simple and moreover inevitable intervention of the treasury department.

To Proudhon, any interest is usury, because society owes him access to capital: “I protest against your credit at five percent, because society is able and ought to give it to me at zero percent; and, if it refuses to do so, I accuse it, as well as you, of robbery; I say that it is an accomplice, an abettor, an organizer of robbery.”

Bastiat counters with simple economic logic. Incentives matter. Without interest, there will be no capital to be lent: “in order that it may exist, it must have an incentive to birth in the prospect of reward offered to the virtues which create it.” Unless, he writes, “the time has come when houses, tools, and provisions spring into existence spontaneously,” then the capitalist is indeed laboring, and to continue to lend, will have to be compensated. If no one lends capital, productivity goes down, and prices go up. Indeed, by forgoing interest, we risk a “return to barbarism, to the time when a thousand days’ labor would not have procured a pair of stockings.” 

Pretending that lending isn’t a necessary and productive activity is “to say that capital ought to vanish from the face of the earth, is to say that Peter, John, and James ought to procure their transportation, their wheat, and their books by the performance of as much labor as would be necessary to produce these things directly, and with no other resource than their hands.” Our escape from subsistence living owes much to what we might today call the Austrian structure of production: “All Capital… is the result of prior Labor, and increases the power of subsequent Labor. Inasmuch as it is the result of prior Labor, he who lends it receives a reward. Inasmuch as it increases the power of subsequent Labor, he who borrows it owes a reward.” 

Interest Rate Caps Fail Every Time

Proudhon, in his debate with Bastiat, committed all the sins shared by socialists, from Marx to Zucman. His “economic theory” relies on wishful thinking, attempting to replace laws of economics with lofty sentiments and shoddy logic that falls apart under the simplest scrutiny.

Proudhon hoped his national bank would erase class conflict, despite its being funded by a tax on capital. Markets create spontaneous connections — economic harmonies — while nationalized capital lending would replace those natural balances of capital and labor with political agendas backed by force. 

Bastiat’s theoretical foreshadowing is astonishing, but we also have concrete examples of his prescience. The Durbin Amendment to the Dodd-Frank Act of 2010 capped debit card fees. Banks responded by ending free checking account programs and raising account minimums and maintenance fees. The effect, far from increasing affordability, was to push a whopping one million Americans out of the banking system.

Almost two centuries after Bastiat made his case, the principle (and the principal!) remain the same. Interest rate caps were a bad idea then, and they’re a bad idea now, because they ignore the value that lenders contribute economically and make it less attractive to lend. That punishes those who need to borrow, and whose labor would be made wildly more valuable through alliance with capital.

On the morning of March 12 in Grand Rapids, Michigan, the campus scene was simultaneously typical and surreal. Students and faculty were fatigued by midterm preparations, and many were starting to feel the ill effects of too many gloomy days under our fair city’s infamously cloudy skies — it’s overcast here for 82 of 90 days in a typical winter. Inadequate sunlight weakens the immune system, so when colleagues or students fall ill in February or March, nobody is surprised. Yet this gray March morning was unlike any other, and the macabre nature of what was about to unfold was beyond anyone’s imagination.

Like collegians everywhere, mine are often glued to their social media apps, and at the conclusion of my international economics course (at about 9:45 a.m.), a group of students was huddled together with their phones, making a guffaw-filled mockery of an anonymous Instagram post. A fellow student expressed horror about the virus. They were calling on student life and the president to send everyone home — now! The anxiety-ridden demand was met with derision and laughter. Those dismissive jeers turned to shock and disbelief about fifteen minutes later, when all students, faculty, and staff joined together for our weekly community chapel.

In that 10 a.m. service, we started to hear the now loathsome words, “unprecedented,” “pivot,” “abundance of caution,” and “be sure to download Zoom.” A mere 60 minutes later, and after university leaders from across the Great Lakes state had a conference call with Governor Gretchen Whitmer, the decision was made: shut it all down. 

From there, the drone-like phrases started to cascade through political pronouncements, and emails too numerous to recall. Platitudes like “we’re all in this together,” “keep your social distance,” “let’s mask up,” and “two weeks to flatten the curve” were as suspicious then as they are eye-roll-inducing now. These bromides are now seared into the minds and hearts of everyone who lived through their local, state, and federal governments’ responses to the spread of the COVID-19 virus. 

As those late winter Michigan days slowly but surely gave way to spring, it became obvious that teaching and learning were not going to produce the same kinds of results that undergraduates had come to expect. 

Despite the academic learning that was lost, one thing was learned by a new generation of young people: Top-down, one-size-fits-all approaches from the central planners in Lansing and D.C. couldn’t deliver the goods they promised. 

“Two weeks to flatten the curve” turned into months of prolonged confinement, blank stares on Zoom calls, and false hope from political officials and celebrities, many of whom were apparently personal admirers of those issuing “recommendations” from the Coronavirus Task Force.

It came as no surprise that learning outcomes suffered. Further, it was to be expected that if students were from poorly resourced backgrounds — whether in elementary, secondary, or postsecondary schools — that they would fare worse than their peers. Indeed, they did.

Early studies on the impacts of the lockdown were published by the National Institutes of Health (NIH) just months after schools shut down. Students from low-income households suffered the greatest learning losses, similar to those seen after “shutdowns owing to hurricanes and other natural disasters.”

Two years after the lockdowns took effect, further data collected by the National Center for Education Statistics (NCES) reported in an understated way, “the pandemic has potentially impacted achievement and opportunities to learn.”

As was expected, access to the appropriate tools was one of the key drivers for worsening academic outcomes for poor children. The “digital divide” became common parlance among educators who recognized the importance of the issue. This was a critical issue, since at the outset of the lockdowns, 77 percent of public elementary and secondary schools moved online, and 84 percent of college students reported that “some or all classes moved to online-only instruction.” 

Low-income households either lacked internet access at home or the hardware necessary for younger students to join class meetings or effectively participate in online learning. In fact, among households below the poverty line, nearly two-thirds lacked either a computer or adequate broadband speed for children to participate in class or finish homework.

Studies conducted by the Brookings Institution provided some of the most stark statistics in terms of poorer students falling farther behind their wealthier peers. For example, elementary schools with higher rates of poverty saw test score gaps compared to wealthier districts increase by 20 percent in math and 15 percent in reading in the 2020-21 academic year. In other words, performance fell further behind and persisted for at least 18 months. 

In the broader statistics, elementary scores on standardized tests saw their worst outcomes in 2023, and except for 4th-grade math scores, only 2022 was worse. 

These results suggest prolonged learning loss impacts that showed up well after COVID-based school closures.

Source: Aspen Economic Strategy Group

High school upperclassmen who were gearing up for college entrance exams became ill-prepared. In a tremendous irony, test scores moved in the opposite direction of their high school GPAs. For educators on the ground, the explanation was obvious. With many districts mandating that teachers pass their students on through “no fail” policies that were either explicit or implied, regardless of their actual performance, their grades were naturally higher than would have otherwise been the case. Couple that with weaker learning, and the College Board’s report makes complete sense. Grade inflation in the classroom and a dropoff in actual learning was the predictable result.

Source: The College Board

It wasn’t only academic progress that was stunted across all schooling levels. Mental health was severely damaged by school closures. A study released in 2023 showed that alongside significant educational losses, there was a rapid increase in anxiety and depression, especially among middle and high school students.  

Thankfully, the COVID era wasn’t entirely bereft of bright spots. In October of 2020, the Great Barrington Declaration (GBD) recognized that “keeping students out of school is a grave injustice” and that “the underprivileged [are] disproportionately harmed.” Furthermore, its approach to the virus, described as “Focused Protection,” exhorted public officials, stating, “Schools and universities should be open for in-person teaching.” 

Though the political class dismissed these common-sense measures as the work of “three fringe epidemiologists,” they nonetheless supported the young while advocating practical protections for the truly vulnerable.

Alas, despite the courage of its signatories, the GBD could not undo the damage already done. Academic learning was lost, leaving higher-education instructors to retrain students in meaningful in-person engagement. Yet this educator sees in the young a healthy skepticism of social engineers and central planners. May they — and we, their elders — remain vigilant against violations of liberty and common sense. That, perhaps, is the most valuable lesson to emerge from the COVID hysteria.

On February 11, the Congressional Budget Office (CBO) released its latest Budget and Economic Outlook. It made for grim reading. Deficits are historically high, totaling $1.9 trillion in 2026 and projected to grow to $3.1 trillion by 2036. 

“Relative to the size of the economy, the deficit is 5.8 percent of gross domestic product (GDP) in 2026 and increases to 6.7 percent in 2036,” the report found. “Deficits averaged 3.8 percent of GDP over the last 50 years.” 

As a result, “Debt held by the public rises from 101 percent of GDP in 2026 to 120 percent in 2036, well above the previous record of 106 percent just after World War II.”  

The issue is not a lack of revenue. The CBO notes that federal revenues in 2026 will total 17.5 percent of GDP, slightly above the 50-year average of 17.3 percent. Revenues are projected to remain at or above that level through 2036, reaching 17.8 percent of GDP. Over this period, individual income tax receipts and remittances from the Federal Reserve are expected to rise as a share of the economy.

The problem is runaway spending. 

“Outlays are large by historical standards — and growing,” the CBO reported. “They total 23.3 percent of GDP in 2026, exceeding their 50-year average of 21.2 percent” and “remain at about that level through 2028 but then grow steadily, boosted by rising spending on mandatory programs and increasing net interest costs. Outlays in 2036 are 24.4 percent of GDP.” 

These mandatory expenditures are rising largely because the population age 65 and older is growing and health care costs continue to increase, driving higher spending on Social Security and Medicare.

Is Immigration a Solution? It Depends…

Immigration is often suggested as a solution for such fiscal problems in the United States and across the West generally. As these problems are driven by the growth of the share of the population aged over 65 — who, on average, receive more in government spending via programs like Social Security and Medicare than they pay in tax — an infusion of younger people from other countries is proposed to offset this.   

In a recent report titled “Immigrants’ Recent Effects on Government Budgets: 1994–2023,”  David J. Bier, Michael Howard, and Julián Salazar of the Cato Institute argue that “for each year from 1994 to 2023, the US immigrant population generated more in taxes than they received in benefits from all levels of government,” the scholars wrote. “Without immigrants, US government public debt at all levels would be at least 205 percent of gross domestic product (GDP) — nearly twice its 2023 level.”   

This stimulated a lively debate. . Immigrants, if they work, both pay taxes and use government programs. Milton Friedman famously said that “It’s just obvious you can’t have free immigration and a welfare state,” but he did support illegal immigration on the grounds that it brought all the economic benefits without the fiscal costs. Of course, this argument collapses when states like Minnesota and cities like New York are looking to extend governments programs to illegal immigrants, too.

The Manhattan Institute’s Daniel Di Martino pushed back, arguing “No, More Immigration Won’t Fix the Federal Budget,” and Bier, in turn, has replied to that (“Manhattan Institute’s Criticisms Vindicate Cato’s Report on Fiscal Effect of Immigrants: Part 1”). 

Much of this debate is, as Paul Krugman would say, “Wonkish.” Still, when Di Martino says that “there is little reason to assume that low-income immigrants are generating thousands of dollars per person for government enterprises,” he is surely correct. 

The great failing of the Cato study, as with most others on this subject, is to lump all immigrants — legal and illegal, high-skilled and low-skilled — together. This obscures at least as much as it illuminates because the correct answer to the question of whether immigration will improve the public finances is this: “It depends.”   

High Skills/Wages and Low Skills/Wages 

An immigrant with high skills can, on average, expect a high wage. They will, generally speaking, pay more in tax than they receive in taxpayer-funded goods and services. For a low-skilled immigrant, on average, the opposite will be true.

In September 2024, Britain’s Office of Budget Responsibility investigated “the cumulative fiscal impact” of immigrants of different skill levels. It found, as Figure 1 shows, that the “Representative UK resident” is a cumulative net drain on the exchequer up to their mid-40s, after which they become a net contributor until they turn 80, when they become a net drain again.

By contrast, both the “Average-wage migrant worker” and “High-wage migrant worker” are net contributors over the entirety of their lives. But, when we look at the “Low-wage migrant worker,” we see that they are a net drain on the government’s fiscal resources at every stage of their lives.     

Figure 1: Cumulative fiscal impact of representative migrants  

None of this should be surprising, and the picture appears to be the same in the United States. In 2017, the National Academy of Sciences published a detailed report on the economic and fiscal consequences of immigration in the United States and for most of the fiscal scenarios that the report considered, low-skilled immigrants had negative effects on public finances. Indeed, so uncontroversial are — or were — such findings that in 2006 Paul Krugman wrote that: “the fiscal burden of low-wage immigrants is also pretty clear…I think that you’d be hard-pressed to find any set of assumptions under which Mexican immigrants are a net fiscal plus.”  

To repeat, the correct answer to the question of whether immigration will improve the public finances or not is, “It depends.” On average, high-skilled workers will help government finances and low-skilled workers will hurt them. If immigration is to be used to alleviate the looming federal budget crisis, policymakers should focus on attracting skilled workers, and policies which would reduce this flow, such as the Trump administration’s war on H-1B visas, will make this crisis worse, or, at least, worse than it would be otherwise.      

Public finances shouldn’t be the only metric considered when framing immigration policy, of course, but if that is the argument that is being made, then it is crucial that the distinction be drawn between the different impacts of different immigrants. 

Lumping us all together — I am an immigrant myself — hides as much as it reveals.

Inflation ticked down in January, the latest data released Friday from the Bureau of Economic Analysis shows. But it still remains well above the Federal Reserve’s target. The Personal Consumption Expenditures Price Index (PCEPI), which is the Fed’s preferred measure of inflation, grew at an annualized rate of 3.4 percent in January 2026, down from 4.4 percent in the last month of 2025. The PCEPI grew at an annualized rate of 3.5 percent over the prior three months and 2.8 percent over the prior year.

Core inflation, which excludes volatile food and energy prices, remained elevated. Core PCEPI grew at an annualized rate of 4.5 percent in January 2026. It grew at an annualized rate of 3.7 percent over the prior three months and 3.1 percent over the prior year.

Breaking It Down

The conventional view is that tariffs have pushed up prices over the last year. If that were the case, we would expect goods prices to grow much faster than services prices. It is easier to import a hat than a haircut, and tariffs will generally cause both foreign and domestic hat producers to raise their prices. Foreign hat producers raise their prices to cover some portion of the tariff. Domestic hat producers raise their prices because they know foreign hat producers will not be able to underbid them given the tariff.

Goods prices grew at an annualized rate of 0.5 percent in January, and were up 1.3 percent year-over-year. For comparison, goods prices grew at an average annualized rate of -0.1 percent per year. That suggests goods prices have grown about 1.4 percentage points faster than usual over the last year.

Services prices grew at an annualized rate of 4.6 percent in January, and have grown 3.5 percent over the last year. Over the five-year period just prior to the pandemic, services prices grew at an average annualized rate of 2.3 percent per year. Hence, services prices have grown about 1.2 percentage points faster than usual over the last year. Moreover, the excess growth of services prices can no longer be explained by the housing component, which tends to lag broader price movements. Housing prices grew 3.2 percent over the last year, which is around 10 basis points slower than observed over the five-year period just prior to the pandemic.

Although goods prices have grown a bit faster than services prices, the difference — just 20 basis points — is relatively small. Recall that headline PCEPI inflation is around 80 basis points above the Fed’s two-percent goal. The available evidence suggests that inflation is relatively widespread. It is not primarily due to the tariffs.

Competing Objectives

Elevated inflation is just one of the concerns Fed officials will be discussing at this week’s Federal Open Market Committee meeting. They are also concerned about the relatively slow job growth observed over the last year. 

“There is no dismissing the weakness of job creation in 2025,” Fed Governor Christopher Waller said last month. Data released since then would seem to confirm his fears that the strong January “report may contain more noise than signal.” The economy lost 92,000 jobs in February, nearly wiping out the outsized gains in January.

Congress has tasked the Fed with delivering price stability and maximum employment. But it has largely left it to the Fed to determine what those terms mean and how to balance the two goals when they are in conflict.

The Fed explains how it will deal with diverging goals in its 2025 Statement on Longer-Run Goals and Monetary Policy Strategy:

The Committee’s employment and inflation objectives are generally complementary. However, if the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the extent of departures from its goals and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. The Committee recognizes that employment may at times run above real-time assessments of maximum employment without necessarily creating risks to price stability.

The so-called “balanced approach” would seem to suggest it will place equal weight on the two goals. But the “extent of departures” and “different time horizons” affords a lot of flexibility. And the special attention given to employment in the last line suggests the Fed might put more weight on employment in practice.

What Should Be Done?

My own view is that the economy is at or near full employment at the moment, with low job growth reflecting demographic changes and increased immigration enforcement. If I am correct, the Fed should not worry about the labor market. Instead, it should focus on getting inflation back down to target. The Iran conflict may complicate the Fed’s job, by adding temporary supply-driven inflation (which it should ignore) to the permanent demand-driven inflation seen in the January release (which it should address). If supply-driven inflation emerges, and I suspect it will, the Fed will need to parse the data carefully in order to determine the extent of the inflation problem and, correspondingly, the extent to which it should respond to above-target inflation.

It is highly unlikely that Fed officials will adjust their policy rate on Wednesday. The CME Group currently puts the odds at just 0.9 percent. But one should pay close attention to what Fed officials signal in their post-meeting statement and what Chair Powell tells the press. That may give us a better sense of how Fed officials are interpreting the incoming data — and what they intend to do about it.