Oscar Wilde famously said there are two tragedies in life: not getting what you want, and getting it.

Wilde, who was famous for his clever use of paradox, possessed a knack for revealing truth (or kernels of truth) in absurd contradiction. The quip above, which comes from his 1892 play Lady Windermere’s Fan, is a good example.

While the line might sound nonsensical to some, it contains a truth related to one of the most important ideas in economics: opportunity cost.

Wilde’s quote sprang to mind while I was thinking about a friend, a very successful person who until recently led a Fortune 500 company. His story is a familiar one, though one achieved by relatively few. 

The American Dream

In the 1990s, after graduating college, my friend joined a shipping company. Year after year he rose higher, and the company grew rapidly. Eventually he became an executive, then he became CEO. He earned millions of dollars every year, traveled around the world, and gave talks to rooms packed full of business leaders. He had achieved the American Dream.

During this time, my friend would have described himself as fulfilled and happy. Yet the work was also taxing. He was away from home a lot, which meant being away from his wife and two children. He had a cabin in the north woods, but rarely had time to use it. He missed family events, including birthday parties and weddings. He never seemed to have time to exercise, to volunteer, or go to the movies with his children.

Then something happened: COVID arrived. Not long afterwards my friend and the company at which he had spent his entire career decided to part ways. (The reasons for this are unknown to me and don’t really matter.)

Losing a dream job would be devastating for many people, and perhaps it was for my friend. But if it was, you never would have known it. 

He threw himself into a new life of routine and responsibility. He volunteered on boards of youth organizations. He coached his son’s football team. He attended his daughter’s dance recitals and drove carloads of high schoolers to prom. Twice a week he’d drive a carload of grapplers to practice.

To say these things made my friend happier and more fulfilled is not the point, though I think he did become happier and more fulfilled. The real point is that those around him blossomed in ways that are difficult to overstate.

The organizations on which he served he vastly improved, and his family thrived in ways anyone could see. In particular, I watched his son grow — as a leader, athlete, and person.

None of these changes would have happened, I suspect, had my friend still been working 75 hours a week.

‘Everything Has a Cost’

I bring my friend’s story up not to say we shouldn’t pursue our dream jobs, but to demonstrate that even the dreams we achieve come with costs. 

As Richard Lorence recently pointed out, economics, above all else, teaches one fundamental fact: everything has a cost. “Every decision you make, as an individual, business leader, policy maker, or government official, sets you on a path that opens some opportunities and closes others.”

This idea is known in economics as opportunity cost, and it describes the loss of potential gain from other alternatives when a different one is chosen.

We often think about opportunity costs in terms of money. If I spend $5,000 on a Super Bowl ticket, I can’t spend that $5,000 to pay down my house. If I spend $10 on an IPA at a bar and grill, I can’t spend that same $10 on the cheese curds. 

Opportunity costs, of course, go far beyond money. Every choice we make comes with a cost. Even now, as I write this article, I’m aware that I’m not preparing for a meeting I have this afternoon. That I’m not yet reviewing the articles queuing up in the submissions pipeline. 

This shouldn’t be alarming, however. It’s basic economics. 

“There are no solutions,” Thomas Sowell famously observed, “only trade-offs.”

To go back to Wilde’s quip, one could argue there is a certain tragedy in this. We cannot have it all. As soon as we achieve our dream, we’re losing something else. 

Yet I don’t see this as a tragedy. It’s simply reality. And by better understanding opportunity cost and trade offs, we can hopefully make better choices — though only individuals can determine if one thing is better than another. 

This brings me back to my friend. I sometimes wonder if he would choose to have his dream job back if he could, knowing today what it would cost him. 

I don’t know the answer, but I think he’d say, “Not in a million years.”

Conservative/libertarian political activist Ned Ryun (son of former Kansas congressman and Olympian runner Jim Ryun) authored a well-researched and insightful book, American Leviathan, published September last year on the origins and growth of America’s unconstitutional and progressive administrative state. This is an excellent read on the historical devolution of the United States from a constitutional republic to a progressive authoritarian state. It provides an historical account not likely to be found in any mainstream high school or college American history books. 

Ryun’s book explains that the progressive political movement in the United States began in the 1880s, a movement completely antithetical to the fundamental principles of personal liberty framed in the US Constitution. Ryun labels this movement as “progressive statism,” which, in practical terms, is another name for socialism. The movement had its intellectual origins emanating from Europe, particularly German philosopher Georg Hegel (1770-1831). American progressives studying in Germany in the latter part of the 19th century embraced Hegel’s ideas and imported them to America. 

Ryun writes that Hegel is best known for creating the philosophy of “historicism,” which is the belief that all philosophy is a product of the spirit of the time, that there is no transcendental truth, that truth is relative to a particular time in history, and that the whole of human history is a continual march from irrational to rational thought, leading to continual human progress. But such human progress can only be derived from the state, not from free individuals.

Ryun references a book by Karl Popper, The Open Society and Its Enemies, 1966, in his discussion on Hegel, in which Popper quotes Hegel’s writing:

‘The freedom of thought, and science, can originate only in the state’ and, if faced with subversive opinions, ‘The state must protect objective truth… the state has, in general… to make up its own mind what is to be considered objective truth.’”’ In the same book, Popper refers to Hegel as the ‘father of modern historicism and totalitarianism.’

Hegel’s philosophical views were in direct conflict with those of America’s Founding Fathers and the original intent of the US Constitution to protect individual liberty.

An important propagator of progressive statism (i.e. socialism) in the late 1800s and early 1900s was John Burgess, a law professor at Columbia Law School from 1876 to 1912. Burgess was a strong advocate of Hegel’s ideas and was considered by many as the founder of American political science. Ryun writes that Burgess influenced thousands upon thousands of law and political science students.

Ryun identifies the “Four Horsemen of the Progressive Apocalypse” who heavily influenced American politics at the turn of the 20th century as proponents of progressive statism: (1) Robert La Follette, a Republican politician from Wisconsin; (2) Herbert Croly, an influential progressive political writer; (3) Teddy Roosevelt, 26th president of the United States (1901-1909); and (4) Woodrow Wilson, 28th president of the United States (1913-1921).

Theodore Roosevelt has been lauded by many historians over the years as a great American president, in large part due to his leadership in orchestrating the construction of the Panama Canal (started in 1904, completed in 1914) as well as his reputation as the “trust buster” of breaking up corporate monopolies. However, Roosevelt was an outspoken advocate for a stronger executive branch with new oversight authorities and the redistribution of wealth. In 1903, he signed into law the creation of the Department of Commerce and Labor (later split into the Department of Commerce and the Department of Labor in 1913), which included a new regulatory agency, the Bureau of Corporations (later renamed the Federal Trade Commission in 1915). In 1908, Roosevelt created a new federal law enforcement agency, the Federal Bureau of Investigation (FBI) by executive order.

Ryun writes that after Roosevelt left the presidency in 1909, he elevated his support of progressive statism (i.e. socialism), including his advocacy of a graduated income tax and an estate tax – both of which came to fruition during the Woodrow Wilson presidency. 

In August 1910, Roosevelt gave his “New Nationalism” speech in Osawatomie, Kansas, that left no doubt he sought to be the national leader of the progressive statist movement. In his speech, he dismissed the Founding Fathers’ ideas on individual rights, especially property rights. Ryun quotes Roosevelt as saying, “…every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it… We should permit it (property) to be gained only so long as the gaining represents benefit to the community.” This quote is in alignment with any of today’s prominent American advocates of socialism.

Ryun explains that progressive statism had arrived as the predominant, mainstream political force in the United States during the presidential election year of 1912. It was this year that every political party and presidential candidate accepted, at least at some level, the administrative state as the governing framework of the nation. The presidential election featured four candidates: Democrat Party candidate Woodrow Wilson, incumbent Republican president William Howard Taft, Progressive Party candidate Theodore Roosevelt, and Socialist Party candidate Eugene Debs. Wilson, Roosevelt, and Debs all fully embraced a progressive statist agenda.

Roosevelt’s departure from the Republican Party and launching of the new Progressive Party in the summer of 1912 badly split a potential Republican vote, a fatal blow to Taft’s reelection campaign, resulting in an easy election victory for Democrat Wilson. The progressive statists were in strong control of the American political agenda for the following eight years during Wilson’s two-term presidency.

Wilson, also influenced by the ideas of Hegel, was a proponent of a powerful administrative state many years before he was elected president. He studied and wrote extensively on the workings of the federal government at Johns Hopkins University where he earned a PhD in history and government. He subsequently served as a professor of political economy at Princeton University and eventually became its president, from 1900 to 1910. Wilson’s writings and speeches revealed his belief in establishing a bureaucracy of educated experts, detached from politics, to run the government. This is contrary to the principles of a representative government.  

Two of the most consequential legislative acts in US history were signed into law during Wilson’s first year in office: (1) The Revenue Act of 1913, which established a graduated income tax that Wilson, Roosevelt, and other progressive statists had been advocating for years; and (2) the Federal Reserve Act of 1913, establishing the Federal Reserve System. Both acts have contributed greatly to the growth of the administrative state, the American Leviathan, since then.

Ryun summarizes the growth of the progressive administrative state at the expense of America’s constitutional representative government as follows:

1895-1920: The first wave of progressive statism that developed and established an unelected federal bureaucracy within the executive branch.

1932-1945: The second wave of progressive statism during FDR’s “New Deal” presidency.

1963-1969: The third wave of progressive statism during LBJ’s “Great Society” presidency.

Over the above time periods, governing power was slowly but surely transferred from elected representatives in Congress to unelected and unaccountable federal bureaucrats. 

Ryun states that our elected members of Congress have gradually abdicated their roles as the stewards and guardians of the American people’s money and interests to being nothing more than middlemen allocating taxpayer money from the American people to fund the state to advance the state.

Ryun references a book by John Marini, Unmasking the Administrative State, 2019, in which Marini writes that “Congress lost the will to legislate and became facilitators of the administrative state” after LBJ’s Great Society legislation was enacted. Marini derives this conclusion based on Congress passing more regulatory legislation from 1968 to 1978 than it had done in the entire previous history of the nation.  

The American Leviathan now comprises approximately 440 federal government bodies with over 2.3 million federal civilian employees, 1.3 million active-duty military personnel, over 500,000 US postal service workers, and over 4 million federal government contractors.

One obvious result of America’s march to an ever larger and more powerful progressive administrative state over the past century is a current national debt of almost $37 trillion and projected to reach $57 trillion by the year 2034. Relative to America’s Gross National Product (GDP), the national debt is now 123 percent of GDP – a record high. And the national debt does not even include the long-term unfunded payment obligations of the federal government comprising Social Security, Medicare, Medicaid, and federal pensions – an amount that ranges from $80 trillion to over $150 trillion depending on timeline and other assumptions.

Over the past 40 years, the administrative state was further strengthened by a 1984 Supreme Court, Chevron USA, Inc v. Natural Resources Defense Council, Inc. In this case, the Supreme Court ruled that any ambiguity in laws passed by Congress should be deferred to federal agencies for interpretation. Thus, in any legal challenges to laws, courts deferred to the relevant federal agencies for a determination on how the law should be interpreted and applied. This became known as the Chevron Doctrine and gave federal agencies even more administrative power in applying regulations.

Fortunately, the Supreme Court overturned the Chevron Doctrine last year with two related cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce. It remains to be seen how the Supreme Court’s ruling on these two cases will affect the regulatory decisions of federal agencies, but they could prove to be watershed rulings in lessening the regulatory power of federal agencies and returning that power to Congress.  

In order to reverse course and dismantle America’s administrative state, i.e. “Drain the Swamp,” Ryun outlines several recommended actions that are now be possible under the new reform-minded Trump administration with the help of its new private sector Department of Government Efficiency, aka DOGE, led by Elon Musk and Vivek Ramaswamy:

Reductions in Force: A presidential executive order could direct all cabinet secretaries and agency heads to engage in a reorganization of their agencies, identify which positions are essential and which should be abolished, and then legally abolish thousands of positions in each federal agency. Other means to reduce the bloated federal government workforce include voluntary separation incentive payments, voluntary early retirement packages, and job reassignments from Washington, DC to remote locations.

Reimpose “Schedule F” Positions: On October 21, 2020, President Trump signed executive order 13957 to create a new federal government employment category, Schedule F. The purpose was to reclassify all federal civilian employees working in confidential, policy-determining, policy-making, or policy-advocating positions into a new “at will” employment category to give federal agency heads to ability to hire and fire such employees at will. President Biden revoked President Trump’s executive order just two days after taking office on January 22, 2021, but President Trump will likely issue a new executive order after he takes office again to reissue an executive order to reimpose Schedule F.

The above suggestions are only a small sampling of many other actions that should be taken to reverse the long trend of America’s progressive statist movement, and return it to the constitutional republic of liberty as envisioned by the Founding Fathers.

As with all political campaigns that reignite discussions on reducing government spending and eliminating bureaucratic inefficiency, the US Postal Service (USPS) — which reported a net loss of $9.5 billion in the fiscal year ending September 30, 2024 — is now likely to find itself under renewed scrutiny. The establishment of the Department of Government Efficiency (DOGE), led by Elon Musk and Vivek Ramaswamy, has intensified speculation about the fate of whole swaths of sclerotic government agencies and departments, which should put the USPS directly in its crosshairs.

Privatizing the US Postal Service (USPS) would be a significant step toward improving efficiency, encouraging innovation, and ensuring financial sustainability for an institution less exhibiting than wholly characterized by decades upon decades of ossification and financial losses. As a government-backed monopoly, the USPS controls first-class mail delivery and mailboxes while benefiting from advantages like tax exemptions and low-interest Treasury loans. However, its ability to operate effectively is constrained by political interference, including strict limits on pricing and service adjustments. A market-driven alternative — long discussed, but now feasible — would involve eliminating government control, introducing competition, and allowing market forces to create a streamlined, customer-focused postal system.

The USPS has grappled with severe financial challenges, amassing $69 billion in losses since 2007. Labor costs remain a significant factor, with average compensation at $85,800 per employee in 2017 — far exceeding private-sector counterparts like FedEx ($53,900) and UPS ($76,200). Labor expenses account for more than three-quarters of its budget, and union agreements limit flexibility in workforce management and cost control. Compounding these issues, first-class mail volumes — historically the USPS’s most lucrative product — declined by 45 percent between 2001 and 2019, largely due to the rise of email and online bill payments. Efforts to adapt have been stymied by Congress, which has resisted essential cost-cutting measures like closing low-traffic post office locations or reducing delivery frequency, leaving the USPS in an increasingly unsustainable position.

Private ownership drives cost savings and improved performance by encouraging competition and fostering innovation. Examples from abroad show the potential success of this approach: Germany’s Deutsche Post, privatized in 2000, transformed into a global logistics leader under the DHL brand, while the UK’s Royal Mail, privatized in 2013, modernized its operations and enhanced service delivery. And since 2007, Japan has been privatizing its postal service in stages, beginning with the transformation of Japan Post into a state-owned corporation and its subsequent reorganization into separate entities for mail delivery, banking, and insurance services.

UPS’s third-quarter 2024 profit growth, fueled by recovering volumes and effective cost-cutting strategies, highlights the strengths of private ownership in the delivery sector. Unlike government-run organizations, private firms such as UPS, FedEx, DHL, PitneyBowes, and others can quickly respond to market dynamics, adjusting both their operation and business strategy on the fly to boost both profitability and service excellence.

A privatized USPS could eliminate redundancies, shut down unprofitable locations, and renegotiate labor agreements. Access to private capital markets would allow investments in infrastructure and technology, reducing reliance on taxpayers. Ending the USPS’s monopoly on mail delivery and mailbox access would also open the market to competition, encouraging private companies to deliver services not on a default basis, but instead tailored to consumer needs and desires.

Some critics worry that privatizing the USPS could leave rural communities without adequate service or raise costs for consumers. Evidence from European countries suggests otherwise. Private operators like Sweden’s CityMail have successfully maintained cost-effective rural delivery by using innovations such as cluster mailboxes and reduced delivery frequencies. Additionally, introducing competition would likely drive prices down over time, as companies compete to win customers by improving services and cutting costs.

Here in the United States just last summer, Amazon expanded its one- to two-day delivery services into rural areas in an effort to boost sales in less-populated regions and reduce reliance on the USPS for deliveries. The key: data-driven warehouse placement decisions, flexibly contracted drivers, and local businesses, all of which contribute to enhancing its logistics network. The rural delivery infrastructure of monopoly government postal service simply cannot compete with it.

Another concern is the impact on USPS employees. While privatization would involve workforce adjustments and restructuring, these changes are necessary to align labor costs with market realities. Flexible labor practices and performance-based pay in the private sector would replace rigid, union-dominated agreements, ensuring compensation reflects productivity and helping the organization operate more efficiently. 

The National Association of Letter Carriers (NALC) and the American Postal Workers Union (APWU), representing USPS letter carriers and clerks respectively, have strongly opposed privatization and service reductions by arguing that such measures would lead to job losses, among other outcomes. Setting aside the audacity of proposing that taxpayer dollars should be squandered to sustain jobs in a poorly-managed, money-hemorrhaging government unit, savings generated by eliminating the most egregiously wasteful parts of the postal service could be applied toward funding a temporary USPS outplacement service. 

Incremental reforms could ease the transition. Congress could begin by:

• Requiring the USPS to Close Unprofitable Locations: Over 4,500 post offices average fewer than five customer visits per day. While facts of this sort are often used to connote readiness or ubiquity, shuttering those locations would immediately generate savings.
• Prohibiting Cross-Subsidies: The USPS often uses profits from its monopoly products to subsidize package delivery, distorting the competitive landscape.
• Reducing the Universal Service Obligation (USO): Narrowing requirements for six-day delivery and uniform pricing would reduce operational burdens, allowing greater flexibility.

The experience of European postal privatization highlights potential benefits for the US. Germany’s Deutsche Post restructured its wage systems, outsourced non-essential tasks, and leveraged technology to become a globally respected postal and logistics leader. In Sweden, postal retail services were relocated to grocery stores, eliminating the need for standalone post offices while still providing convenient access for customers. These examples demonstrate how privatized systems can adjust to evolving market demands, improve efficiency, and lower costs.

Privatizing the USPS would free it from political constraints, allowing it to respond effectively in fast-changing markets. Entrepreneurs could introduce new technologies and innovative business models to the delivery industry, offering consumers better services at lower costs. Turning the inefficient and overburdened US Postal Service into a competitive operation would not only save taxpayers money and improve services, but showcase the transformative potential of applying market principles to stagnant government institutions. (Amtrak, too, might make for a good starting point.)

The current government-supported monopoly is outdated and profligate. By shifting to a privatized model, the USPS could evolve into a self-reliant enterprise that no longer depends on government support. Let the free market, rather than bilked citizens, shape the future of mail and package delivery. The successful experiences of other nations strongly suggests that we can transform our postal service into a thrifty, nimble, and respectable enterprise.

One of the more-common social science cliches in recent decades has been “demographics is destiny.”

The thesis, as Oxford University gerontologist Sarah Harper has written, is that “population change plays a key role in our political systems, economies, and societies at the local, national, regional, and global level.”

There’s no reason to argue with Professor Harper’s premise. But let me offer a different version of futurism: economics is destiny.

Economics teaches a single fundamental fact: everything has a cost. Every decision you make, as an individual, business leader, policy maker, or government official, sets you on a path that opens some opportunities and closes others.

Over time these choices compound, just like interest. Some may attribute successful compounding choices to “luck,” but choices, good and bad, are the result of intentional decisions made over time – decisions that preclude choosing other things.

What you choose is the result of your evaluation of the choices you see as available to you. Only you, the individual, can make the most informed decision for yourself – although it may be wrong. Although you may, in the end, exercise either wise or poor judgement, you are the only person capable of knowing what is best or more valuable for you.

Consider this: total household debt in the United States, excluding mortgages, topped $4.96 trillion at the end of the third quarter of 2024, the Federal Reserve Bank of New York recently reported. “Credit card balances increased by $24 billion to hit $1.17 trillion,” the New York Fed reported, “and auto loan balances saw an $18 billion increase and stood at $1.64 trillion.” Student loan balances also increased: by $21 billion, ticking up to $1.61 trillion.

These are all outcomes of many choices.

And that’s just household debt. The federal government, from which some debt-strapped Americans seek financial help, also is drowning in debt — more than $36 trillion and counting, according to US Treasury Department figures.

US and global policymakers speak of such amounts with a casualness that sounds like they could be discussing their weekly shopping lists.

I bring this up not to engage in an argument about whether debt, per se, is good or bad. Virtually everybody has some debt. Debt financing is commonplace and often necessary in business and industry. But the huge numbers we hear around the topic are almost unfathomable to most people.

In fact, many of the economic issues mentioned during the recent election campaign were foreign to many voters. Sure, they’d been stung (ravaged in some cases) by inflation. But do they understand what causes inflation? Do they realize that when politicians brag about inflation “coming down,” it doesn’t mean prices are coming down? Do they know what tariffs are or the role of the Federal Reserve?

Regrettably, one of the academic subjects that has been downgraded in recent years as US schools have leaned into the STEM disciplines (science, technology, engineering, math), has been economics. Just 27 states and the District of Columbia require some form of economics or personal finance coursework, often included in the social studies curriculum, for students to graduate from high school, according to the Education Commission of the States.

The National Assessment of Educational Progress (NAEP), an arm of the US Department of Education, periodically tests fourth, eight, and twelfth-grade students in a variety of subjects. The last time NAEP evaluated the economic literacy of twelfth-graders was in 2012, when 58 percent of the approximately 11,000 students tested failed to qualify as “proficient” in the subject.

Yet, the twelfth-grade tests are key, because they evaluate what America’s young adults know as they prepare to enter the job market or college. In fact, many of the students tested in 2012 just voted in their third presidential election.

Economics should be considered a core high school subject, alongside US history and government. Failure to teach it robs American students of knowledge they need for responsible adult citizenship–and life in general.

Economics is destiny. We shortchange America’s children, and our future, if we don’t teach students the most valuable lesson of all: everything has a cost.

President-elect Donald Trump has floated the idea of creating an External Revenue Service, which he claims will be used to “collect our Tariffs, Duties, and all Revenue that come from Foreign sources” (sic). While we might applaud his rhetorical flair, his choice of words belies a fundamental misunderstanding of how tariffs actually work.

Before we begin, we should address the elephant in the room: we already have an agency that does this: US Customs and Border Protection. Created as the US Customs Service in 1789 and breathed into existence by none other than George Washington himself, the agency was transferred and rebranded to its current form in 2003 with the creation of the Department of Homeland Security. Changing the branding of an already-existing entity — or even worse, duplicating the work of another agency — does nothing to facilitate government efficiency.

But more to the point, the verbiage used in his post on Truth Social reveals that Mr. Trump is confused on the concept of the incidence of taxes. Simply put, when economists refer to the incidence of a tax, we are referring to the share of a tax that is paid by consumers and the share paid by producers.

An Example

Suppose we have a simple candy bar, sold for $2 at a gas station. Fortunately, this gas station is in Montana, where there is no state sales tax. You go to the attendant with a candy bar that has a sticker price of $2, hand them two crisp one-dollar bills, and you can be on your way. But now, let’s pretend that Montana enacts a state sales tax of $1 per unit. How much will the $2 candy bar cost now?

One might be inclined to believe that the price will be $3 because, after all, the candy bar originally cost $2, we’re adding a $1 tax, and, as my five-year-old son reminds me, 2+1=3. But as we learn in Econ 101, while my son is correct in math, he is (as of yet) untrained in economics (I’m working on it).

Since demand curves slope down and supply curves slope up, both the consumer and the producer will end up paying some portion of this $1 tax. It could be the case that the price the consumer ends up paying after this tax only rises to $2.50. The seller, however, would only get to keep $1.50 for the sale of the candy bar. And since $2.50 – $1.50 = $1.00, we’ve found our $1 per unit tax. In this example, the consumer pays half of the tax in the form of higher price paid and the seller pays the other half of the tax in the form of lower revenue kept. The incidence of the tax felt by consumer and seller is 50 cents each. It could also be the case that the incidence of the tax is only 25 cents for consumers and 75 cents for seller, in which case the consumer would pay $2.25 and the seller would keep $1.25 per candy bar sold. Again, the difference between the price paid by consumers and the price received by sellers is always going to be the amount of the tax: one dollar.

Determining the exact share of the tax burden is, to me, a fun exercise and is actually what first intrigued me about economics when I was in college. I fully understand, of course, that on this dimension (and clearly only this dimension), I am strange.

The above represents the economic incidence of a tax. But there is also what we call the legal incidence of a tax. The legal incidence of a tax refers to whom must actually send the tax money to the government. With candy bars, we typically assign the legal incidence to the gas station, i.e. the seller. This is primarily done for accounting reasons: stores keep detailed records of every sale they make. Auditing them to see how many dollars’ worth of sales they had each year is a relatively simple exercise, because they already have those records. By contrast, auditing each and every consumer for each and every purchase they’ve made would be onerous to say the least. So even though the gas station, legally, “pays” the tax in the sense that they are the ones who actually send the government the full dollar of tax money, the reality is that both consumers and sellers pay a portion of the tax. Whether the legal incidence is placed on the consumers or the producers makes no difference for the economic incidence whatsoever.

Applying This to Tariffs

Despite what some have claimed, tariffs are taxes and as such they operate in the exact same manner. The only difference between a tariff and a traditional sales tax is the location of the seller. A sales tax is imposed on a seller within the US, and a tariff imposed on a seller located outside the US.

Other than the location of the seller, the two taxes work exactly the same. If a company in China is currently selling, for example, tires to consumers in the US, what will happen if the US decides to impose a tariff on these Chinese-made? The price of tires will continue to rise as long as the tariff remains in place. Importantly, the consumer price of the tires will likely not rise by the full amount of the tariff reflecting the idea that the Chinese tire manufacturers will “pay” some of the tariff in the form of lower retained revenue from each sale.

More likely, the Chinese tire manufacturers will announce the number of dollars that they will get to keep as the “price” of the tires and then will add the tariff “at the register.” This is exactly the same behavior that we see at stores throughout the US in localities with a sales tax: the sticker price says one number but we all understand that, at the register, the store will add the tax to that number.

A Funny Thing Called Evidence

The above might seem too simplistic. There’s no way that this actually happened, right? Funnily enough, this is exactly what happened. In 2009, the Obama Administration imposed a tariff on “new pneumatic tires, of rubber, from China, of a kind used on motor cars (except racing cars) and on-the-highway light trucks, vans, and sport utility vehicles.” This tariff would be “imposed for a period of 3 years” and would start at 35 percent in the first year, drop to 30 percent in the second, and drop again to 25 percent in the third before being phased out or “sunset.”

What happened to the price of tires in the US, you ask?

They rose from 2009 — 2012 before starting to fall back down in 2013, after the tariff ended. More to the point, the price of tires never rose the full 35 percent, 30 percent, or even 25 percent. In fact, from 2009 to 2012, the price of tires “only” rose 21.7 percent. Where did the remaining tariff revenue come from? From the Chinese manufacturing companies accepting lower prices per unit than they previously had.

Importantly, though, all of the money used to pay these tariffs came from the American consumers, not China. Yes, Chinese tire manufacturers received fewer dollars per tire than they did previously and, in that sense, “paid” some of the tariff in the form of lower price per tire. But the American consumer paid a higher price for tires, whether they were Chinese- or American-made, and in that sense paid some of the tariff in the form of higher prices.

The Powerless ‘External Revenue Service’

With this new agency being floated, President-Elect Trump would have us believe that he is going to force foreign companies to “[pay], FINALLY, their fair share” (sic). The challenge here will be one of jurisdiction. The United States does not have jurisdiction in other countries (though US leaders sometimes forget this). We cannot legally force companies in other countries to do anything.

Even if the US could, however, the only difference would be the price announced by, in this case, Chinese tire manufacturers. If the US could force Chinese tire manufacturers to pay the tariff themselves, they would simply raise the price of their tires on their websites. The new list price would be identical to the price American consumers paid under the current system, where Chinese manufacturers announced a lower price and then left the calculating and taxing to the US Customs and Border Protection agency. In the end, there would be no difference whatsoever to the American consumer.

The idea of External Revenue Service deserves credit for rhetorical flair. It is indeed a very clever turn of phrase. However, it remains a solution in search of a problem.

Justin Trudeau’s resignation has sparked teasing by Americans to Canadians for the country’s current political mess. One particular tease is tied to a recurring graph on social media showing that GDP per capita stopped increasing at the same pace as the United States in 2015 – a year that coincides with the election of the outgoing prime minister. This decoupling of growth rates implies that Canada has seen its income gap with America grow.

As a Canadian who moved to America in 2021, I often found myself sighing in annoyance at the economic policies of the Trudeau government, such as introducing numerous regulations, increasing spending on questionable social programs, and raising taxes on capital investments. These clearly slowed down Canada’s economic growth to the third lowest in the OECD.

To be sure, Canada has always been poorer than the United States. However, there were episodes in which the gap closed – periods usually marked by pro-market policies and fiscal discipline. The policies of the Trudeau government were all the opposite of that which is why we see that Canada’s gap with American living standards widened.

While damaging enough, this is not the worst legacy of Justin Trudeau. His worst legacy is the carbon tax that was meant to place a price on carbon emissions.

The tax has been so unpopular that a large share of the conservative party’s (i.e., the official opposition) 25 points lead in the polls (nearing its historical score of more than 50% in the landslide election of 1984) can be explained by its promise to “axe the tax”.

As an economist, I appreciate the case for a carbon tax that prices in the externality of greenhouse gases which, in turn, can cause damages to human wellbeing elsewhere in the world (and in Canada). But the textbook application of a tax of this kind is one that is accompanied by two necessary simultaneous policy moves.

The first is that every dollar (if not more) of revenues raised by a carbon tax should be used to reduce other taxes in the economy. This would include corporate income taxes and capital taxes which are known to be important depressants to economic growth. This means that there is the potential for what some call “the double dividend” (i.e., faster growth from better tax policy and reduction of the size of the environmental problem caused by climate change)

The second is that the carbon tax should always replace command-and-control policies such as regulations that cap emissions, mandate certain fuel use, subsidize greener production processes at taxpayer expense, etc. This is because the carbon tax lets the market decide the least costly ways to adapt to the new “price” (via the tax) of carbon. Because of this highly effective feature of a carbon tax, all other policies should be removed.

The Trudeau government has done neither of these things. It raised taxes notably on capital gains. It kept the existing command-and-control regulations and added new ones such as a carbon cap specific to the oil and gas sector emissions. Economist Ross McKitrick listed the “massive pile” of command-and-control policies that were added or kept: clean fuel regulations, emissions cap for certain sectors (oil, gas, aviation, railways), coal phase-outs, new energy efficiency rules for building (old and new), performance mandates for natural gas plants, regulatory hurdles to liquified natural gas exports, new and tighter vehicle fuel economy standards, subsidies to ethanol productions, electric vehicle mandates, subsidies to electric vehicles, subsidies to battery makers, carbon sequestration mandates, government purchases of electric vehicles at exorbitant prices and others.

By deviating from the standard “textbook” approach to implementing a carbon tax, Prime Minister Justin Trudeau ensured the policy’s unpopularity among Canadian voters. The tax introduced economic burdens, including modest increases in food prices and significant sectoral shifts. The other tax increases have made the consequences of the carbon tax harder to bear and further slowed down economic activity. 

Moreover, the public perception has conflated the high costs of command-and-control regulations, such as the phaseout of combustion engine vehicles — which are ten times costlier per ton of carbon emissions reduced — with the carbon tax. This confusion has obscured the fact that these are distinct policies with separate impacts, compounding resistance to the carbon tax itself.

Of all the measures that can mitigate climate change, the carbon tax is almost certainly the cheapest and most effective. Yet, the refusal of Justin Trudeau to follow the “textbook” case has led to the idea being tainted and spoiled. It is the cherry on top of his litany of policy failures that have put Canada on a path of slower economic growth. Even what could have been his “best” ended up being a flop.

Prices still pinch: The Bureau of Labor Statistics announced the Consumer Price Index (CPI) rose 0.4 percent in December and 2.9 percent over the past year. The major cause was energy prices, which rose 2.6 percent last month and accounted for “over forty percent of the monthly all items increase.”

Core inflation, which excludes volatile food and energy prices, looks better. It rose 0.2 percent in December, down from 0.3 percent in the previous four months. This may be small consolation to struggling households, but it does portend continued disinflation. Variability in food and energy prices will likely smooth out. The underlying price pressures look favorable.

Does the new data affect the Fed’s plans for monetary policy? The current target range for the federal funds rate is 4.25 to 4.50 percent. Adjusting for inflation using the headline CPI figure yields a real target range of 1.35 to 1.60 percent. We need to compare this to the natural rate of interest to tell whether monetary policy is tight or loose. Estimates from the New York Fed put this somewhere between 0.77 and 1.26 percent in Q3:2024. The real rate range is above the natural rate range, indicating tight money.

However, this isn’t the only estimate of the natural rate of interest—not even the only one used by the Fed. The Richmond regional Reserve Bank cites another figure, putting it somewhere between 1.60 and 3.79 percent. The median estimate is 2.53 percent as of Q3:2024. If these numbers are more accurate, monetary policy is loose.

We should also consult money supply data. The M2 measure of the money supply has grown 3.66 percent over the last year. Liquidity-weighted Divisia aggregates have risen between 3.19 and 3.49 percent. But money supply data isn’t sufficient either. We need to know money demand as well. 

We can approximate money demand by summing real economic growth and population growth. This approximation is reasonable so long as we don’t expect the public wants to hold a markedly different share of their portfolio in cash balances. The US economy grew 2.7 percent annually in Q4:2023, and the population grew at roughly 0.5 percent. Hence money demand is up approximately 3.2 percent. It’s growing about as fast as the money supply, suggesting monetary policy is close to neutral.

The next FOMC meeting is January 28-29. It previously told markets to expect fewer target rate cuts in 2025. The new CPI data reinforces this caution. Judging by interest rates is hard at this point in the Fed’s (potentially long) path back to neutral because estimates of the natural rate of interest vary widely. Judging by monetary conditions, however, policy is about where we want it. The Fed should pause its cuts, keeping monetary policy steady until we see confirmation that the spike in energy prices was an aberration, and that broader price pressures continue to moderate.

Lawmakers across the country are plotting to hand out millions of dollars to favored corporations. This is not how states succeed in attracting businesses. Taxpayers aren’t supposed to write big checks to big companies to locate a factory or office in the state. This isn’t how America was meant to function.

American policy is to set the rules and let everyone live under them. Equality under law, after all. The law shouldn’t take money from everyone to give it to select companies.

Yet lawmakers write a lot of subsidy checks, partly because they believe that corporate welfare is popular with voters. Lawmakers feel that they are doing something about jobs, and jobs tend to be the issue people care about most.

But abandoning principles to get a short-term gain is like cheating on a test. You score points with voters, but you fail to live up to basic standards of conduct. Like cheating on a test, subsidy checks are a pretense of accomplishment. They don’t actually improve the economy. They are ineffective at creating jobs.

How ineffective? In my home state of Michigan, corporate subsidy deals produced just nine percent of the jobs that were promised, according to a study of all subsidy announcements that made the front page of the Detroit Free Press from 2000 to 2020.

And that’s just counting jobs at subsidized plants. Most job gains and losses don’t involve state lawmakers. And Michigan is still not back to the number of jobs it had in 2000.

Voters should understand that special favors to select companies are all show, creating few and often no jobs. Lawmakers who cite subsidy deals as evidence that the state is doing something about the economy are in the same boat as the cheater who points to his test results to show that he knows something.

But there is a deeper problem with corporate welfare. America’s principles matter and are practical. They work. States don’t succeed when their lawmakers write the biggest checks. They succeed when they provide the most economic liberty to their residents.

This is how American government is supposed to work. We don’t want our lawmakers to favor some people at the expense of others. We want everyone to live under the same set of rules. Laws are made to benefit the public, not to benefit a few at the expense of the rest.

Governments throughout history and around the world tend to be run by the powerful for the powerful. The levers of power are used to benefit the elite, not to promote widespread prosperity. Policies are made to entrench leaders, not to ensure that everyone gets a fair shake.

American ideals, by comparison, say that everyone has an equal share of dignity, that the power of government comes from its people, and that government is supposed to work on their behalf. The mechanisms of government, its popular elections and constitutional institutions are meant to help elected officials discern the public interest and be held accountable to voters if they mess it up.

We want our lawmakers to debate what benefits the public, broadly understood. Too often, lawmakers these days lose sight of that. They promote their efforts to give benefits to politically favored groups and to punish unpopular groups.

When politically powerful groups come to the Capitol to ask for a handout, they’ve got an excuse — that they will create jobs. But the thing they sell is snake oil. It does not do the thing that lawmakers say it will do. Companies get subsidies anyway because of the politics; it’s tough to say no to the powerful when they say they are going to do something about jobs.

The American response ought to be to say no. Pay your taxes like everyone else and don’t ask for special treatment. It’s the American way.

I learned stock analysis and financial accounting from an online nym called “Lundaluppen.” It was the early 2010s, blogging was all the rage, interest rates were crashing toward zero, and the central bank-fueled stock market was turning into the only game in town.

Lundaluppen publicly displayed his portfolio, with money figures and average purchase prices, and he wrote in-depth articles — sometimes thousands of words — on portfolio management and individual stocks that he owned or considered purchasing. He had transparent criteria, a set of objective financial metrics that he would assess companies against, and he would discuss his reasoning about investments (or current holdings) all in the open. The comment section was filled with thoughtful critiques and contributions, and readers like me could learn a ton about financial markets in many afternoons of delightful reading.

Only over time did I learn that his approach was called “fundamental analysis” and that it stemmed, via Warren Buffett, from an early-to-mid-20th century investor by the name of Benjamin Graham. Graham’s book, The Intelligent Investor, first written in 1949 and published in updated editions, contained everything a securities analyst would want, from how to read an annual report and assess the value of a business to create (and follow!) disciplined investment steps for oneself.

In 2024, the book celebrated 75 years in print and Jason Zweig, the Wall Street Journal journalist who has perhaps done most to bring Graham’s ideas to a wider audience — bar probably Buffett himself — has now published a new edition, with Graham’s original chapters printed alongside his own commentary and tidbits.

It’s a wonderful read, combining Graham’s age-old wisdom with Zweig’s blunt pen and modern anecdotes. His purpose, in addition to celebrating his intellectual hero, was also to “integrate Graham’s classic insights with today’s market realities.”

The entire approach stands in stark contrast to the tech-only, Magnificent 7, meme-stock, AI-noisy, and altogether gamified financial world we find ourselves in today; it’s a fresh, almost rose-tinted, reminder of what investment analysis would, could, and perhaps should be all about. On a personal note, it’s a wonderful throwback to my blissful early twenties when spending hours poring over various companies’ financial reporting and projecting their future earnings seemed like a good use of my time.

Graham’s original chapters are flowy, full of high prose and market commentary from a bygone age, with the least interesting portions being various corporate events or M&As for businesses that no longer exist. Zweig’s more balanced, modern, and easy chapters are a nice break, reading almost like his WSJ columns, and his repeated commentary in footnotes and stand-alone chapter commentary, offer additional insights into what Graham was getting at.

But I keep getting the sense that none of this really matters anymore. We’re in a new world now, dominated not by company performance or earnings projections, but macro news and liquidity flows. An ever-faster rising money tide raises all boats, with assets’ monetary premium running the show much more than which company is cash flow positive or whose stock trades at below working capital. (Screening for such criteria today, notes Zweig, produces a string of biotech and hopeful pharma companies, neither recommend themselves for investment to his average reader.)

There are indications scattered throughout the book that Graham, too, doubted his own framework. Looking at the mid-1960s stock market highs, Graham wrote that “old standards (of valuation) appear inapplicable, new standards have not yet been tested by time.” Graham frequently contrasted stock market valuations with available bond yields, implying at least that if interest rates across the board dropped to nothing, much higher multiples for an investor’s stockholders were permissible. 

Putting them in practice hasn’t worked too well, either, Zweig informs us; James Rea, a research partner to Graham, made a fund in 1976 strictly following Grahamite criteria. Zweig sullenly notes that “the Rea-Graham fund earned robust gains for several years, then faded into obscurity. It seems to have faltered because it sold its winners too soon.”

The kicker comes at the very end of this hefty 600-page tome, when Graham confesses where he made most of his fortune: an investment that blew his rules and criteria to smithereens. In 1949, already a wealthy man from a long and successful career on Wall Street, he and his business partner were offered to buy 50 percent of the business that eventually became the insurance giant GEICO for a sum amounting to a fifth of their fund: “almost from the start the quotation appeared much too high in terms of the partners’ own investment standards,” Graham writes:

Ironically enough, the aggregate of profits accruing from this single investment decision far exceeded the sum of all the others realized through 20 years of wide-ranging operations in the partners’ specialized fields, involving much investigation, endless pondering, and countless individual decisions.

Thus, one lucky/shrewd investment “may count for more than a lifetime of journeyman efforts.”

When the time comes, no matter how reasonable your criteria or disciplined your investing approach, a legendary investor is made when he sets those aside to take advantage of a special something, often a private deal or a bargain insider price achieved during great financial distress — buying when there’s blood in the streets, as Baron Rothschild allegedly said.

Zweig is quick to include Buffett in this, knowing full well that most of the Oracle of Omaha’s fortune stems not from being a disciplined Grahamite investor (conservatively buying below intrinsic value and selling once shares got too frothy) but having the guts to sidestep the framework and letting one’s holdings run; or as is the case for Bank of America, acquiring a failing business in the height of the financial crises; or Apple stocks, his single best investment, which at one point accounted for almost half of Berkshire Hathaway’s publicly traded holdings.

A similar story concluded Lundaluppen’s saga. He even stopped blogging for a few years, since there was no point: Every asset was priced well outside any Grahamite criteria, even adjusting for zero interest rates. Month after month, his readers saw him pile on to his cash position — I recall that he was 30-40 percent liquid at times — echoing what’s going on with Buffett’s Berkshire Hathaway right now (which holds some $325 billion in cash out of a trillion-dollar balance sheet). The rest, Lundaluppen held in securities with roughly index-fund exposure which didn’t exactly impress anyone for their fundamental analysis.

Eventually, Lundaluppen took his funds and invested them in a family business that his platform and reputation had given him access to but which his readers could neither follow nor inspect or verify. Thus, Lundaluppen’s public blogging and investment story ended, beautifully and poetically, by walking the very same route as the father of fundamental analysis himself had once done.

Put differently, for all the talk about the importance of strict investment analysis over the years, it’s setting them aside for those generational investments (and letting those run) that truly made these individual investors rich.

Then again, like Graham does, you can argue that these select individuals earned their status and thus deserve their great fortune — pun very much intended. It still required that initial effort to have the means as well as the reputation to, at some point in the future, be approached:

“Behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplined capacity. One needs to be sufficiently established and recognized so that these opportunities will knock at his particular door. One must have the means, the judgment, and the courage to take advantage of them.”

We can learn a lot from Graham’s timeless work, augmented by Zweig’s fitting commentary — most of it summed up by “do as I do, not as I say.” However much celebrated and cherished the investment approach that is fundamental analysis, we learn about some of its great limitations.