The United States recently emerged from the longest government shutdown in its history, one that halted operations, froze budgets, and led to 1.4 million federal employees being either furloughed or working without pay for forty-three days. The most noticeable economic damage this time around, though, was not in closed museums or perhaps even the saga surrounding SNAP benefits. This time, it was in the sky. 

By the end of October, the Federal Aviation Administration (FAA) reported that over twenty major air-traffic control facilities were operating below minimum staffing levels. This staffing shortage increased as unpaid controllers reached their limits. In an attempt to ameliorate the crisis, the FAA ordered up to ten percent of scheduled flights to be cut at more than forty major airports. Expectedly, this led to cascading delays, supply-chain disruptions, cargo backlogs, and stranded travelers. 

This shutdown, then, was not just some political stalemate, as purported enemies in DC fought over the direction of the federal government. It was a live demonstration of how fragile the institutional infrastructure of our modern interventionist economy is — and why economics remains indispensable for understanding these moments of systemic stress. 

Ostensibly, there is no mystery to air travel. Planes take off; planes land. Of course, any minor reflection upon the matter reveals that it must be — and in fact is — much more complicated. Our air travel network comprises one of the most elaborate coordination systems in human civilization, with millions of moving parts (both literally and figuratively) synchronized across time and space. This should not surprise us, for every economic system contains a coordination system. 

The shutdown, however, revealed how fragile that coordination is, especially when the government is responsible for such a system. When the FAA ordered airlines to reduce flights, other areas of the economy were also affected. You cannot turn one dial and expect nothing else to change. Not only were passengers affected, but cargo schedules were disrupted, supply chains were backed up, manufacturers had to halt production, and perishables risked spoiling — just to name a few. 

This is because the structure of production is temporal. Economic goods are not immediately made available once entrepreneurs decide to create them. No, goods must be concocted, produced, shipped, and delivered in order to reach customers. All of this, of course, takes time. The production structure spans a multitude of stages, and it relies on stable expectations. When the FAA’s operations broke down, so did these time-sensitive production processes. Entrepreneurs could not coordinate their plans because the institutional framework they relied on — in this case, flight schedules, shipping availability, and travel routes — suddenly became unreliable. Markets cannot function when the institutional infrastructure required to coordinate production collapses. 

One of the challenges of economic life, as F.A. Hayek pointed out, is the coordination of knowledge that is dispersed among millions of people, not just the allocation of resources. To even begin considering allocation, consumer preferences must be ascertained. Prices do this beautifully — when institutions let them, that is. Even ignoring the fact that government control of the entire apparatus means that much of the network operates without price signals (thus rendering it incapable of accurately reflecting consumer preferences), the price signals that are in place were weakened during the shutdown. Prices become unstable when air-traffic capacity changes by the hour. Which cargo firm can coordinate deliveries efficiently when ground stops are issued with little warning? Imagine manufacturers trying to use air freight to receive their inputs while major airports are throttled. 

Even where the market is allowed to operate regarding the use of air travel, government actions rendered those mechanisms less effective. The knowledge problem reared its ugly head, as institutional breakdown prevented information from flowing through the market, meaning prices could not accurately coordinate plans. The shutdown did not just create idle government employees — it degraded our economy’s ability to accumulate and process key economic data. The result was not just uncertainty regarding travel, but uncertainty about production itself. 

Entrepreneurs must commit capital today for goods that will only be finished months or years later. To make this type of temporal commitment, stable expectations are imperative, especially in sectors that depend on complex logistical coordination. Any hiccup can be massive — a hiccup like the shutdown. Without guaranteed staffing, air travel became too unpredictable, which in turn made the production structure unpredictable. This is no small matter. Yes, a cancelled flight is massively inconvenient. A missed input delivery can also be quite costly. A missed production window, however, can destroy a business operating on tight profit margins. 

What the shutdown did was depreciate institutional capital, what we might call the rules of the game. More than just reducing government “services”, the shutdown increased entrepreneurial uncertainty. The marginal entrepreneur is now more likely to find it unprofitable — at least in his expectations — to begin a business venture. The marginal business owner may have just missed the shipment of materials or goods that would have kept him afloat. Even the super-marginal business owner who will remain in business has to recalculate his entire model. This depreciation will continue to impact coordination long after the shutdown ends. Every missed market exchange is a missed opportunity for our society to be made better off. We are, quite literally, poorer because of this shutdown, and it has increased the possibility of being made poorer still in the future. Institutional capital, and capital in general, cannot be turned on and off like a light switch. 

Shutdowns are often discussed along political lines — which party “won” and which party “lost.” The economic impact is often only discussed in terms of its immediate consequences. The long run, though, is seldom considered. The 2025 shutdown did more than just inconvenience travelers. It exposed the fragility of our institutions due to their close connection to the government. A private, decentralized air travel network would be far less prone to the type of shock we saw recently. Our current system creates a single point of failure, both in funding and technology. When the FAA’s NOTAM system crashed in 2023, the entire country’s airspace went offline. Meanwhile, decentralized private systems — like Canada’s Nav Canada — show that decentralized distribution of control is better capable of containing disruptions instead of allowing them to cascade throughout the country. This is because polycentric governance increases resilience, as entities have stronger incentives to upgrade technology, and more importantly, introduces redundancy that can keep the system running if one touch point fails. 

A shutdown is a corrosive solvent for planning, coordination, and trust. Knowledge flows are disrupted or destroyed. Time horizons are shortened. The conditions necessary for a properly functioning economy should not be played with. We are made poorer by every missed opportunity to trade. The solution here is not more politics, but to notice how fragile our economy has become. 

Objections to income inequality are commonplace. We hear these today from across the ideological spectrum, including, for example, from the far-left data-gatherer Thomas Piketty, the far-right provocateur Tucker Carlson, and Pope Leo XIV. 

Nothing is easier – and, apparently, few things are as emotionally gratifying – as railing against “the rich.” The principal qualification for issuing, and exulting in, denouncements of income inequality is first-grade arithmetic: One billion dollars is a larger sum of money than is ten thousand dollars, and so subtracting some dollars from the former sum and adding these funds to the latter sum will make incomes more equal. And because income is what people spend to achieve their standard of living, such ‘redistribution’ would also result in people being made more equal. What could be more obvious?

Countless careful researchers have convincingly shown that popular accounts of the magnitude of differences in monetary incomes are vastly overstated. But let’s here grant, for the sake of argument, that differences in monetary incomes within the United States are indeed vast. And then let’s pose some probing questions to proponents of using the state to tax and ‘redistribute’ high incomes.

• Do you teach your children to envy what other children have? Do you encourage your children to form gangs with their playmates to ‘redistribute’ toys away from richer kids on the schoolyard toward kids less rich? If not, why do you suppose that envy and ‘redistribution’ become acceptable when carried out on a large scale by the government?

• Suppose that Jones chooses a career as a poet. Jones treasures the time he spends walking in the woods and strolling city streets in leisurely reflection. His reflections lead him to compose poems critical of capitalist materialism. Working as a poet, Jones earns $40,000 annually. Smith chooses a career as an emergency-room physician. She works an average of 60 hours weekly and seldom takes a vacation. Her annual salary is $400,000. Is this “distribution” of income unfair? Is Smith responsible for Jones’s relatively low salary? Does Smith owe Jones money? If so, how much? And what formula would you use to determine Smith’s debt to Jones? What, in short, is the “fair” amount by which Smith’s income should be lowered in order to raise Jones’s income?

• While Dr. Smith earns more money than poet Jones, poet Jones earns more leisure than Dr. Smith. Do you believe that leisure has value to those who possess it? If so, are you disturbed by the inequality of leisure that separates leisure-rich Jones from leisure-poor Smith? Do you advocate policies to ‘redistribute’ leisure from Jones to Smith – say, by forcing Jones to wash Smith’s dinner dishes or to chauffeur Smith to and from work? If not, why not?

• Nobel-laureate economist William Nordhaus found that entrepreneurial innovators in the US from 1948 through 2001 captured, on average, only 2.2 percent of the total social value of their technological innovations. As Nordhaus put it, nearly 98 percent “of the benefits of technological change are passed on to consumers rather than captured by producers.” Does the fact that market competition obliges entrepreneurs to share the vast bulk of their wealth creation with consumers give you pause in your demands for ‘redistributing’ the wealth that these entrepreneurs manage to retain for themselves?

• Surveys show that Americans in general are not as bothered by income inequality as are academics and media pundits. Are the many Americans who don’t suffer searing envy of others’ monetary incomes stupid, naïve, or uninformed? Do the professors and pundits who agonize incessantly over income inequality know something that most Americans don’t? If so, what?

• You allege that great differences in incomes are psychologically harmful to relatively poor people even if these poor people are, by historical standards, quite wealthy. How, then, do you explain the great demand of very poor immigrants to come to America, where these immigrants are relatively much poorer than they are in their native lands?

• Do you believe that someone to whom government gives, say, $100,000 annually, year in and year out, simply because that person is a citizen of the country, feels as much psychological satisfaction as that person would feel if he learned a trade or a profession at which he earns an annual salary of, say, $80,000?

• Would you prefer to live in a society in which everyone’s annual income is $50,000 or in a society with an average annual income of $75,000 but in which annual incomes range from $30,000 to $3 million, and in which no occupation is obstructed by government-erected barriers to entry? And regardless of the choice you would make, do you believe that others who choose differently from you are in error?

• You often speak of income inequality as being a market failure. Can you identify an economic theory that predicts that every well-functioning market economy generates incomes that are equal or close to equal? I’m an economist and have never encountered such a theory, so I’d be delighted if you expand my intellectual horizons.

• You also warn that large differences in incomes make society unstable – or, as Paul Krugman insists, jeopardizes “the whole nature of our society.” Can you point to historical evidence in support of this claim? But remember: To be valid, the evidence must be from market economies in which the great majority of people – rich and not rich – earn their incomes through voluntary market activities and where the size of the economic pie isn’t fixed.

Evidence of social unrest in pre-industrial and nonmarket societies doesn’t count. Economic arrangements in such societies are fundamentally different than in our own. And unlike in our market economy, the amount of wealth in nonmarket economies is largely fixed. Therefore, in nonmarket economies, more wealth for some people does indeed mean less wealth for other people. Our economy differs categorically: Because the amount of wealth in market economies isn’t fixed, people get rich by creating more wealth rather than by seizing the wealth of others. In market economies, more wealth for rich people means, not less, but more wealth for other people.

• When you describe growing income inequality in the United States, you typically look only at the incomes of the rich before they pay taxes and at the incomes of the poor before they receive noncash transfers from the government such as food stamps, Medicare and Medicaid. You also ignore noncash transfers that the poor receive from private charities. Why? If you’re trying to determine whether or not more income ‘redistribution’ is warranted, doesn’t it make more sense to look at income differences after the rich have paid their taxes and after the poor have received all of their benefits from government and private sources?

• Have you considered that greater income inequality might result from demographic changes that reflect neither weakness nor injustice in the economy, nor any increasing differences in economic well-being? For example, do you account for the fact that retirees rely heavily on consuming their capital – for instance, by selling their expensive large homes, moving into less-expensive smaller homes, and using the differences in sales proceeds to fund some of their living expenses? People’s annual incomes are typically lower when they are retired than when they were working, but their wealth – their ability to maintain their standard of living – isn’t necessarily lower.

• Do you not worry that creating government power today to take from Smith and give to Jones – simply because Smith has more material wealth than Jones – might eventually be abused so that tomorrow the government takes from Jones and gives to Smith simply because Smith has more political influence than Jones?

• Do you disagree with Thomas Sowell when he writes that “when politicians say ‘spread the wealth,’ translate that as ‘concentrate the power,’ because that is the only way they can spread the wealth. And once they get the power concentrated, they can do anything else they want to, as people have discovered – often to their horror – in countries around the world.” Asked differently, if you worry that abuses of power are encouraged by concentrations of income, shouldn’t you worry even more that abuses of power are encouraged by concentrations of power?