Communicating economics to a general audience isn’t just about accuracy. It’s also about keeping people interested. In Useful Economics, AIER Founder Colonel EC Harwood aimed to engage “both student beginners and general readers” by grounding economics in “an area of the field where they at least have some familiarity with the principal matters discussed.”  

Making economics accessible often means finding relatable situations. Colonel Harwood used the example of making decisions in a supermarket. One such moment caught me by surprise while reading to my children. In the pages of Richard Scarry’s What Do People Do All Day? I found an illustration of Say’s Law of Markets. 

Scarry’s story offers a case that can help general readers — especially children — grasp the basic intuitions of economics.

The Busy World of Markets 

What Do People Do All Day? Is a collection of illustrated short stories set in fictional Busytown, a community populated by animal characters who go about their daily jobs, aiming to teach children about different occupations and how they contribute to the wider community. 

The story “Everyone is a worker” follows Farmer Alfalfa and his interactions with five other workers in Busytown. He grows food, keeps some for his family, and then sells the rest to Grocer Cat in exchange for money. With the money, Farmer Alfalfa buys a new suit from Stitches the tailor, a new tractor to boost his productivity, and presents for his wife and son from Blacksmith Fox. He then puts the remainder of his earnings into the bank. 

The story doesn’t end there. Grocer Cat sells the food to other people in Busytown, using the proceeds to buy a dress for his wife and a present for his son. Stitches and Blacksmith Fox first use the money to buy food, then new clothes, and then other goods. Stitches buys an eggbeater to make fudge while Blacksmith Fox buys more iron for his shop, reinvesting in his business. Any money left over, Scarry notes, is saved in the bank. 

Those familiar with Say’s Law may already see the connection. While Scarry does not include equations or a specific discussion of economic terms, he includes the core aspects of Say’s Law: exchange, money, and a division of labor. 

What Is Say’s Law? 

Say’s Law (named after nineteenth-century French political economist Jean-Baptiste Say) is often reduced to the phrase “supply creates its own demand.” Taken literally, that would mean any good or service automatically generates buyers. If that were true, I could get rich selling surfboards at the Continental Point of Inaccessibility in South Dakota (the farthest spot from any ocean in the continental US).  

Say himself wrote in A Treatise on Political Economy: “[I]t is production which opens a demand for products…Thus the mere circumstance of the creation of one product immediately opens a vent for other products.” Essentially, one’s ability to produce is the source of demand.  

Say’s Law means that one’s ability to do his or her job enables that person to demand all the goods and services he or she cannot personally produce (also known as “noncompeting” goods and services). Recall Farmer Alfalfa. Because he can grow his own food, he does not demand additional food. Instead, he trades his output for money and then uses the money to purchase goods that do not compete with his own labor. 

A more influential criticism comes from John Maynard Keynes. He argued that Say’s Law implies market economies cannot experience economy-wide gluts or shortages, because income from production should always be sufficient to purchase what is produced — in other words, that aggregate supply must equal aggregate demand. Critics then point to recessions and depressions as evidence that Say’s Law fails.

Economist Steven Horwitz explained why this critique misses the point. Say’s Law, he noted, “has nothing to do with an equilibrium between aggregate supply and aggregate demand.” Instead, it describes how production generates income, which then becomes demand. As each worker becomes employed, Horwitz explained, he or she can purchase goods and services from other noncompeting producers, creating opportunities for their employment as well.

Farmer Alfalfa’s ability to grow and sell food allows him to demand the goods produced by others. Those workers, in turn, can demand food and other noncompeting goods and services. Production, not consumption, drives the process. 

Horwitz also noted that larger, wealthier communities support greater product variety, specialization, and competition, while smaller, poorer areas face fewer choices because they produce less. As Busytown becomes more productive — shown by workers reinvesting in their businesses — residents can offer one another a wider range of goods and services.

Money also plays a crucial role in connecting production and demand. The Busytown workers receive money in exchange for their productive actions, and the money serves as an intermediary good facilitating exchange. In a barter economy, if Stitches does not want Farmer Alfalfa’s vegetables, no trade can be made. Money makes exchange possible even when preferences do not align. 

Savings matter too. When Busytown’s workers deposit money in the bank, those funds become available for loans. When people delay consumption, spending power shifts to borrowers, whose purchases replace what savers set aside. So long as savings flow through the banking system, overall spending need not fall.

Economics in Ordinary Life

From the little I was able to read about Richard Scarry, he did not appear to have any economic training or particular interest in economics. Yet, intentional or not, Say’s Law shines through the ordinary interactions of Busytown residents.  

That’s the beauty of economics. Its core principles reveal themselves in everyday life. While young children may not grasp the great debates in economics, they can still see through a simple picture book that honest work, currency, and exchange help make communities prosper.

In a recent Wall Street Journal piece, I argued that erratic tariff policy has alienated our allies and that the world is increasingly building trade relationships that don’t require American participation. Days later, a Letter to the Editor was published responding to it. 

I’ll confess that finding so much common ground with someone of Meizlish’s caliber is both flattering and, given the state of trade policy discourse, genuinely refreshing. We agree on the core argument, we agree on the facts, and we want the same thing: a more secure and prosperous United States. That said, there are differences worth spelling out. I’ll go through the letter paragraph by paragraph, which I recognize can look combative, but isn’t meant to be.

David Hebert writes that the world is growing tired of the US and “reglobalizing around partners who commit to rules rather than those who wield tariffs like a club” (“Everyone Else Is Trading Without Us,” op-ed, Feb. 27). It’s a fair observation, but his piece avoids addressing the threat from China.

“Avoid” is a strong word. I didn’t “avoid” addressing China because “addressing China” wasn’t relevant to the thesis of my piece: that inconsistent, erratic tariff policy and the sudden reneging on past agreements have alienated our friends. 

Meizlish continued, noting the collapse in imports from China — with a crucial caveat.

Recent Commerce Department data adds crucial context. American imports from China collapsed by nearly 30 percent in 2025 while European flows into the US grew. Notwithstanding the real potential of Chinese goods making their way into the US by way of Europe, that looks less like American isolation than the beginnings of a reorientation Washington has been trying to engineer.

It’s on the issue of transshipment where I part ways with Meizlish. He acknowledges that transshipment — for example, China routing goods to the United States through Europe — is a real possibility, then quickly moves past it. But this is a serious and well-documented problem, serious enough that the Department of Justice has created a Trade Fraud Task Force.

Transshipment is incredibly hard to protect against and enforce. It will almost certainly be fraught with minutiae and judgment calls. If China creates the steel that goes into engine components machined in Germany before ultimately finding their way into a Ford F-150, are those parts subject to Chinese tariff rates or German tariff rates? The answer, like beauty, “lies in the eye of the beholder.”

And therein lies the problem: in a world where tariff rates are determined by rules and long-standing relationships, the answer to this question is basically inconsequential for business-minded people. When tariffs are imposed whenever “the White House finds a new grievance,” they matter.

My suspicion is that Meizlish agrees with me on the transshipment front and that, if he had a larger word count, he could have elaborated on this. But the printed words give the impression that this is possible but not that big of a deal. But insofar as transshipment is happening, that’s an argument against the efficacy of tariffs to accomplish their stated goals and it should be counted as such.

Moving on, Meizlish points out some of the effects of the tariffs that have actually been implemented. On this, we are in total agreement. But when it comes to what to do moving forward, we differ.

Broad tariffs moved imports away from China without meaningfully closing the overall trade deficit or generating the export growth the administration needs. Finishing the job will require smarter tools — targeted tariffs, trade agreements and investment incentives — not a retreat from economic pressure.

The call for “smart policy” is a classic and technocratic move. The problem is that this argument is completely unfalsifiable. No matter what happens, proponents will always be able to say, “it would have worked if only we had used smart policy, instead.”

Targeted tariffs and other smart policies, however, aren’t some newfangled policy. They’ve been tried. President Obama did it in 2009 on Chinese tires, and President George W. Bush did it in 2002 on Chinese steel. The results weren’t great. Prices rose for American consumers and producers, retaliatory measures from countries around the world followed, and China didn’t meaningfully alter their behavior. But you don’t have to take my word for it: here’s a copy of the 2019 Economic Report of the President, signed by President Trump. From the report itself, “Rather than changing its practices, China announced retaliatory tariffs on US goods.” Targeted tariffs, on their own evidence, haven’t moved Beijing. If they had, we wouldn’t be having this conversation.

“Trade agreements and investment incentives” are genuinely good tools. But for them to be a viable strategy, the US must be seen as a reliable, predictable partner. And unfortunately, the US just is not as trustworthy as we once were, so our ability to make those trade deals or to provide investment incentives has been diminished and other countries are increasingly looking elsewhere.

Hebert also notes that so-called middle powers are expanding trade among themselves. That may be true, but whether it represents a problem depends entirely on if those relations are pulling countries toward Beijing or away from it.

First: it’s absolutely true (see here, here, here, here, here, here, and here for examples). And Meizlish is correct that the key question is whether these relationships pull countries toward or away from Beijing. The answer depends crucially on what kind of trading partner the rest of the world can expect out of Beijing (as compared to the United States). On this, we don’t need to speculate. China ended 2025 with a record $1.2 trillion trade surplus precisely because, as Canadian Prime Minister Mark Carney pointed out, China is “more predictable” than the US.

Now consider the broader pattern. The Greenland episode, where the US openly discussed annexing the territory of a NATO ally and threatened tariffs against anyone who stood in our way, drew global condemnation. Then, consider what happened with Switzerland just a few weeks ago: in his own words, President Trump “didn’t really like the way [Swiss Finance Minister Karin Keller-Sutter] talked to us and so instead of giving her a reduction, I raised [Swiss tariffs] to 39 percent.” Finally, remember all the humiliations that Trump launched toward Canada in early 2025. None of this bodes well for the US in terms of generating the stability and predictability that other countries are looking for when signing new trade deals.

The Supreme Court may have struck down the ability of the President to use IEEPA, which is a meaningful check on the President’s power going forward. However, it does nothing to erase what the world now knows the US is willing to attempt. Businesses deciding where to locate and who to work with aren’t just assessing today’s legal situation but its broader views on trade and property. Checks and balances are important, but there are limits to how much comfort they offer to a business underwriting a decades-long capital investment.

Finally, Meizlish argues something must be done about China.

A trading world organized around rules rather than coercion has an obvious antagonist — one whose industrial subsidies and currency manipulation destabilized the system Mr. Hebert wants to restore. Getting the rules-based order right requires naming who the rules are designed to constrain. That shouldn’t be too hard.

He’s right, it isn’t hard: China is a bad actor on the world stage. On this, we are in total agreement.

But the solution to China’s nefarious ways does not lie in tariffing Canada, the European Union, Japan, Mexico, and South Korea. Those countries have been our friends and allies for generations at this point. And they could have easily been the coalition partners we needed to build an effective multilateral response to Beijing. Instead, what we’ve done over the past year is pick trade fights with every potential ally simultaneously. 

The simple fact is that, relative to Beijing, the US looks unpredictable and chaotic. That’s a very big problem. The US cannot go it alone against China and get them to change their tune. This isn’t because we’re “too weak” or anything of the sort, it’s because that’s not how Chinese diplomacy works. It will take a coalition of willing and enthusiastic partners to accomplish the goals vis-à-vis Chinese trade policy that Meizlish and I recognize and share.

It isn’t too late to start rebuilding the relationships that have been damaged by the past year of US trade policy, but time is running out. Tariffs have been a rotten deal for the American people. If we don’t reverse course now, they’ll only make it more difficult for us to accomplish other, important goals.

2026 commemorates the 250th anniversary of Adam Smith’s great work An Inquiry into the Nature and Causes of the Wealth of Nations. This book has probably been read more than any other economics book. It has been foundational for the discipline of political economy, and then later the evolving field of economics. Adam Smith was one of the most profound modern thinkers not only because of his contribution to economics, but also because of his contributions in moral theory.

I’ll be taking a deep dive into the Wealth of Nations (WN) this year with twelve monthly essays overviewing the book. I’ll supplement that with twelve review essays of papers written about Smith by Nobel Prize-winning economists. This month that will include Smith’s three-step plan for prosperity and a review of Ronald Coase’s “Adam Smith’s View of Man.” 

In this essay, I want to explain why the Wealth of Nations was so important, why it matters today, and what we can glean both from it and from Smith’s legacy as moral philosopher, political economist, and one of the more important thinkers in the last 300 years. 

Although many consider Adam Smith the “father of economics,” there are some detractors. Joseph Schumpeter, for example, once said that “The fact is that the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776.” And “His very limitations made for success. Had he been more brilliant, he would not have been taken so seriously. Had he dug more deeply… he would not have been understood.” 

Not particularly charitable words. 

Rothbard had an even more scathing assessment: “The problem is that [Smith] originated nothing that was true, and that whatever he originated was wrong.” That’s just a less clever way of saying: “Your book is both good and original; but the part that is good is not original and the part that is original is not good.” 

I happen to think Schumpeter and Rothbard stretch credulity in their criticisms of Smith. Sure, he had some mistaken views about the labor theory of value, among other things. Smith drew on a legacy of existing ideas and material for the Wealth of Nations. He read many different thinkers. In his day, there was plenty of conversation about just-price theory, specialization of labor, trade and markets, tax policy, and the like. 

Smith collated and organized all of this information in a coherent system of political economy. While that might sound like a simple clerical job, there was a great deal of intellectual work and imagination required to bring all these different elements together. And Smith did have original contributions of his own – most especially the idea of spontaneous order or what he described as an “invisible hand.” 

The Wealth of Nations explains how economies form organically to serve people’s needs. They consist of a huge network of decentralized contributors pursuing their self-interest, yet serving others. This whole system is, to use Adam Ferguson’s phrase, “the result of human action but not of human design.” Smith points out that: “In civilized society [man] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.” And that “without the assistance and cooperation of many thousands, even the very meanest person in a civilized country could not be provided” for.

What’s more, the “division of labour…is not originally the effect of any human wisdom….It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility.”

Smith’s political economy created a powerful and novel framework. His work has similarities to the periodic table. Many elements had been discovered over the centuries, but it wasn’t until Dmitri Mendeleev noticed similarities and patterns among these elements, and then organized them in the periodic table, that modern chemistry took off. 

The power of the periodic table, and what I think is similarly powerful about WN, is that it related already known elements in a new way; in a way that both countered some existing beliefs about the world while also predicting or suggesting future discoveries. 

Mendeleev’s original periodic table was very incomplete. Yet it allowed him to predict where new elements would fit; elements that hadn’t been discovered. He also suggested that some of the current beliefs about existing elements in terms of their atomic weight were actually wrong based on his table. Subsequent research validated the periodic table on both counts – revealing the power of Mendeleev’s theory. 

Scientists discovered new elements that fit into his table where he said they would. And there were adjustments to the elements that he said were incorrect in their weights. Later measurements and experiments showed that he was largely right. This meant that the periodic table, as a theoretical organization of reality, had incredible power to describe and explain the world and to relate all of its different elements (pun intended). 

Smith does something similar in the Wealth of Nations. He relates the division of labor, the size of the market, tax policy, trade policy, competition, how the capital stock grows over time, the way labor is compensated, and the different kinds of incentives and innovations that come about in a commercial society. He talks about the role of money and banking in promoting trade and commerce, as well as what the effects of increasing commerce will be for the average person. 

While not exactly creating a grand unifying theory, Smith remains one of the most important economists of all time for his work. Smith had profound insight into where the world was going. His theoretical framing of the economy predicted how the modern world would develop, how industrial economies would grow, and which kinds of countries would be successful, as well as the kinds of policies that would make them successful. 

All of this is there in the Wealth of Nations. I would be remiss, however, if I didn’t mention that not everything Smith talked about was correct. Mendeleev, too, had a few errors in his work. Smith famously subscribed to the labor theory of value, though not exactly in the way Marx would later describe the labor theory of value. Smith describes labor as a measure of value rather than as the sole source of value. 

Yet the labor theory of value turns out to be quite incorrect. The marginal revolution in the 1870s demonstrated that utility was subjective and that economic phenomena should be assessed on the margin. One does not simply “value” pizza or water or diamonds. We value an additional piece of pizza, an additional cup of water, and an additional diamond relative to what we already have. Prices are determined on the margin through the forces of supply and demand. 

An important part of Smith’s legacy has been contested recently. Smith famously criticized the mercantilist systems of his time. Mercantilists thought wealth consisted of large stocks of precious metals gained through running a trade surplus with other countries. That mercantilist thinking has been resurgent in the United States in recent years. Advocates of American protectionism argue that Smith, and later David Ricardo, and economists in general, have gotten the issue of trade completely wrong. 

Part of the significance of this 250th anniversary of the Wealth of Nations will be thinking through whether Smith’s theory — his periodic table of political economy, if you will — was wrong or right. Will we see the implications of his theory continue to describe or predict what we see manifest in the economy? Will we find that the advocates of protectionism turn out to be wrong because they contradict the organizing principles of the Wealth of Nations? 

I think the answers are “yes,” but subsequent work and analysis at AIER and elsewhere will show this to be the case (or not) over the coming months and years.

I’m not the first or the best to comment on Adam Smith’s ideas and his legacy. Here is a list of famous economists and articles they wrote about Adam Smith:

• Ronald Coase – “Adam Smith’s View of Man” (1976)
• Friedrich Hayek: “Adam Smith’s Message in Today’s Language” (1976)
• James M. Buchanan – “The Justice of Natural Liberty” (1976)
• Jacob Viner – “Adam Smith and Laissez Faire” (1927)
• Milton Friedman – “Adam Smith’s Relevance for 1976” (1976)
• George Stigler – “The Successes and Failures of Professor Smith” (1976)
• George Stigler – “Smith’s Travels on the Ship of State” (1971)
• Ronald Coase – “The Wealth of Nations” (1977)
• Paul Samuelson – “A Modern Theorist’s Vindication of Adam Smith” (1977)
• Joseph Stiglitz – “The Invisible Hand and Modern Welfare Economics” (1991)
• Vernon L. Smith – “The Two Faces of Adam Smith” (1998)
• Amartya Sen – “Adam Smith and the Contemporary World” (2010)
• Angus Deaton – “Insights from Adam Smith” (2023)
• Daron Acemoglu – “The Wealth and Poverty of Nations” (2024 Nobel Lecture)

If you would like to read more of my work on Adam Smith, you can check out a set of columns I wrote or some of my academic articles.

Columns:

• Was Adam Smith a Libertarian?
• The Orthodox Classical Liberal Interpretation of Smith
• Adam Smith’s Presumption of Liberty
• Exceptions to Liberty in Adam Smith’s Works
• Adam Smith’s Criticism of Government: Knowledge
• Adam Smith’s Criticism of Government: Faction
• Adam Smith’s Criticism of Government: Hubris
• Adam Smith’s Ethics: The Ethics of a Free Society
• Adam Smith’s Ethics: Sympathy
• Adam Smith’s Ethics: Propriety and Social Censure
• Adam Smith’s Ethics: Justice vs. Virtue
• Adam Smith’s Ethics: Happiness
• Adam Smith on Public Policy: Education
• Adam Smith on Public Policy: Teacher Compensation
• Adam Smith on Public Policy: Occupational Licensing
• Adam Smith on Public Policy: Four Maxims of Taxation

Academic Articles

• Adam Smith’s Impartial Spectator, Econ Journal Watch, 2016, 13(2): 312-318
• Adam Smith’s Views on Consumption and Happiness, Adam Smith Review, 2014, Volume 8, 277-289
• Adam Smith, Politics, and Natural Liberty, Journal of Private Enterprise, 2014, 29(3), 119-134

Adam Smith on moral judgment: Why people tend to make better judgments within liberal institutions, Journal of Economic Behavior & Organization, 2021

I’ve taught Principles of Microeconomics (“ECON 101”) regularly now for nearly a half-century. The first such course I taught was in the Fall Quarter of 1982 at Auburn University, my first year of graduate school there (after having received an M.A. in economics earlier that year from NYU). And except for a few years in the 1990s, I’ve taught ECON 101 every semester since, including in many summers. The total number of “micro principles” students whom I’ve taught over these years is likely in the neighborhood of 12,000. Mostly, I teach this course in auditoriums that hold between 200 and 350 students.

I never tire – and I’m sure that I never will tire – of walking into a classroom to introduce mostly 18-year-olds to the economic way of thinking. It’s still great fun and immensely rewarding, for I do regularly see the proverbial light bulbs being lit over many students’ heads.

My ECON 101 course is taught as if it’s the only economic course my students will ever take. Unlike many professors, I do not teach Principles of Microeconomics to prepare my students for Intermediate Microeconomics, which is the next course up in the curriculum. Some such preparation occurs, I’m pleased to report, but that’s all incidental. My chief goal is to inject my students with the rudiments of the economic way of thinking in order to inoculate them against the most virulent fallacies that are likely to try to infect their minds as they go through life.

What does that inoculation look like in practice? It begins with lessons such as these:

• Those of us alive in the modern, industrial world are among the materially richest human beings who ever lived, by far.
• There’s no such thing as a free lunch.
• In economic matters, there are no solutions, only trade-offs.
• Prices and wages set on markets are not arbitrary; market prices and wages reflect underlying economic realities as they also guide buyers, sellers, employers, and workers to better coordinate their plans and actions with each other.
• Profits in markets are not ‘extracted’ from workers or consumers; profits are the rewards for creatively using resources in ways to better satisfy consumer desires.
• Trade across political borders differs in no relevant economic respects from trade that occurs within political borders.
• Collective or political decision-making is done by the same imperfect and self-interested human beings who decide and act in private markets.

The above list is only a sample; it doesn’t exhaust the topics that I cover in the course. But were I to make an exhaustive list of those topics, some of what most other ECON 101 teachers teach would not be found on my list. I long ago stopped drawing cost curves and teaching the theories of so-called “perfect competition” and “monopolistic competition.” Whatever insights into the real-world economy and market processes are offered by these theories, if they exist at all, are too meager to justify the time required to ‘teach’ them. I instead spend far more time than is conventional teaching both basic public-choice economics and international trade.

No student passes my course without learning that real-world market processes must be compared to real-world political processes rather than to ideal political processes. Likewise, every student who passes my ECON 101 course learns that protectionism neither increases nor decreases domestic employment, and that trade deficits are balanced out by capital inflows.

I’m pleased to report that I have almost never encountered a student who expressed hostility to the economic way of thinking. I’m even more pleased to report that from time to time, students tell me that, because of my course, they’ve switched their major to economics. A handful of these students even went on to earn PhDs in economics.

Perhaps the single most noticeable change in students since I began teaching is that increasing numbers of them are confused about how to take notes. My teaching style, I gather, is old-fashioned. I lecture. I write on the (now white) board, while occasionally showing PowerPoint presentations. As I lecture, I tell what the late, great economics professor Paul Heyne called “plausible stories” about how the economy works. I do my very best to avoid jargon.

More and more, students come up to me after class saying that they “don’t know how to take notes” in my class. Frankly, I’m befuddled. I remind them that they are free to tape my lectures. Beyond that, I suggest that they pay close attention to what I say and write on the board during lectures. The students should determine for themselves what the essential points are, and then record those points in their notebooks. Students, of course, are also invited to visit me during office hours. Some students do; most do not.

Good students who attend class regularly have no problem earning an A in my course. My course is intentionally not difficult, not least because the material in ECON 101 isn’t naturally difficult. While some parts of the course are a bit more challenging than others – mastering comparative advantage requires somewhat more brain application than mastering the law of demand – none of ECON 101 is, or should be made to be, difficult. I want my students to enjoy economics because, well, economics is inherently interesting.

I’m dismayed by the number of people whom I’ve met over the years who, upon learning what I do for a living, volunteer to me just how much they disliked the “boring” or “dull” or “pointless” economics course or courses they took in college. Those individuals suffered the misfortune of having had bad economics teachers. I pity them.

The most disturbing change that I’ve encountered in teaching is one that arose only in the past ten or twelve years. It’s the number of students who are granted by the university the special privilege of being able to take exams away from their classmates and with extra time. Up to a dozen students each semester now give me documents that prove that I’m required by the university to let them take exams while alone in a room and with more time than most students are allotted to take exams.

I accommodate these students as required. I like my job too much to risk losing it by refusing to go along with this trend. But I confess that I feel sorry for each and every one of these students who assert their need for “special accommodations.” When they graduate and go out into the job market, the accommodations that they enjoyed in college will generally not be available from their employers. These students will have a more difficult time than the typical new college graduate adjusting to life in the real world.

I do not think poorly of these students nor hold their ‘need’ for special accommodation against them. The ones who earn high grades are assigned the high grades that they earn. But I nevertheless worry about their life prospects.

Now that I’m in my mid-60s, I’m often asked when I will retire. “Retire?” I always reply. “From what? I love teaching today no less than I did 40 years ago. I will teach, if I’m physically able, for as long as I remain in love with, and excited by, the principles of economics – which will be until my dying day.”

Last month, Congress sparred with the president over a partial budget, but with few real cuts, America’s slow march toward an epic debt crisis went on undeterred. With over $38 trillion in debt and interest payments exceeding defense or Medicare spending, one would expect lawmakers to confront reality and do the difficult work needed to restore fiscal sanity. But why would they? Cutting entitlements and increasing middle-class taxes rarely make for winning campaign slogans.

It’s no surprise, then, that some prefer to pin their hopes on AI as America’s fiscal savior. Vanguard’s chief economist Joe Davis argued there’s as high as a 50 percent chance AI will prevent a debt-driven economic malaise. Elon Musk voiced a similar conclusion late last year, claiming AI and robotics are “the only thing that’s going to solve the US debt crisis.”

The argument goes like this: an AI boom drives explosive economic growth and tax revenue, while, at the same time, productivity gains impressively offset any upward pressure on interest rates. The deficit becomes a surplus and the overall debt shrinks, possibly disappearing entirely.

If that sounds less like a policy plan and more like a retirement strategy built around winning the lottery, you’re not wrong. The entire scenario hinges on a massive if: that AI generates extraordinary revenue and does it quickly enough to outrun rising interest costs.

But even if the government hits the tax revenue jackpot before Congress drives us off a fiscal cliff, it would be naïve to assume lawmakers would pay down the debt. 

The More the Government Gets, the More the Government Spends

For the sake of argument, suppose the tech optimists are right, and the federal government enjoys a massive AI-driven revenue windfall. Understanding what happens next requires understanding the incentives of politicians and their voters.

This is where public choice shines. Rather than assuming politicians and voters act in everyone’s best interest, this branch of economics recognizes that people don’t become angels once they interface with the government. Incentives matter, especially for politicians.

Incentives are why we have a deficit in the first place. The public isn’t particularly interested in financial restraint because high spending and low taxes benefit them now, and the resulting debt is some future generation’s problem. Politicians surely see the crisis brewing, but solving it is a sure way to get voted out of office. And so the incentive is to run constant deficits and grow the debt year after year, decade after decade.

Without changing incentives, it will be hard to avoid spending new revenue. Ballooning coffers mean voters will demand that the government dole out more goodies (especially if AI displaces workers along the way). Washington already excels at entertaining expensive ideas: healthcare subsidies for well-off families, a universal basic income, generous tax cuts, a fifty-percent increase in military spending, all despite the pushback the current deficit’s able to muster. Imagine the wish list after it drops even a little.

Expecting Congress to use a jolt of revenue to pay down debt is like expecting a compulsive gambler to save his winnings for retirement. There’s a reason nearly a third of lottery winners file for bankruptcy within five years of getting their windfall. Winners tend to be the ones who bought a lot of tickets, and people who buy a lot of tickets tend to be reckless with their money.

Not all lottery winners are reckless, and not all lawmakers are more interested in buying votes than paying off debts. The question is whether Congress is more likely to emulate the prudent winner or the reckless one.

This Has All Happened Before…

Public choice theory suggests we already know the answer, but maybe there’s some crucial detail we’re missing. Or maybe American politics is just different in some way. The good (or, depending on your position, bad) news is that we have a ready example from the last time a tech revolution balanced the government budget: the internet boom of the late 1990s.

Right before investors realized you couldn’t slap a ‘dot-com’ onto any English word and make a billion dollars selling pet food over what we laughingly called the information superhighway, a surge of investment handed the Treasury Department the biggest budget surplus since World War II demilitarization. It also arrived in time for a presidential election.

The 2000 election pitted Vice President Al Gore against Texas Governor George W. Bush, and the question of what to do with the surplus was a major campaign issue. Gore proposed using some of it to pay down the debt. Bush preferred spending it on tax cuts, Social Security, and “important projects.” Yes, the Democrat was more of a fiscal conservative than the Republican. Those were wild times.

Bush would go on to win that election.

It was incredibly close, and Gore could’ve easily won. And if not for something called a butterfly ballot, he would’ve won.

But he didn’t win, and all we knew at the time was that it was very, very close. It was so close that if Gore had promised some “important projects” in Florida instead of paying down a bill that wouldn’t have come due until some distant decade, the White House would’ve been his.

Losing by a hair’s breadth is every campaign’s nightmare. Mere oversights become colossal blunders, and every ill-fated gamble becomes a decisive mistake. The 2000 election made something crystal clear to anyone who hadn’t already gotten the memo: prudence is for losers.

The surplus proved to be transient anyway, vaporized in the aftermath of 9/11 and the bursting of the dot-com bubble. The US returned to familiar deficit territory two years later, and we never looked back.

…And It Will Happen Again.

The optimists might say that this time will be different. The looming deficit crisis is so bad that politicians will use any AI windfall to pay down the debt rather than spend it. This time they’ll do the responsible thing.

Be serious.

It’s of course possible that the political stars align and lawmakers will pay down the deficit instead of playing another round of “someone else’s problem.” It’s possible that the prudent thing will be done without a financial crisis to jar the public out of their “the future is never” fantasy.

But let’s get real. Though public concern about the debt is high, there’s so much disagreement about how to address the problem that politicians can safely ignore it. When President Trump threw his own eye-watering increase onto the debt last year, his approval rating didn’t budge. Voters say they care about the debt but they clearly care more about the things that have created it. The political incentives are the same as they ever were: if the government wins the AI lottery, lawmakers will behave as they always have. This time won’t be different.

The industrial age reshaped production and reorganized work, elevating coordination to a central concern for firms. In response, early approaches to management emphasized structure and control, with performance judged primarily by output levels. Productivity was treated as a technical problem — something to be engineered through better systems, clearer procedures, and tighter oversight — while the role of people as active contributors to performance was largely overlooked. 

Business owners, influenced by scientific management in the early twentieth century, assumed workers were primarily motivated by pay and the need for efficiency. Productivity was therefore framed as an engineering problem. If outputs were low, the solution lay in better procedures, better incentives, clearer rules, or tighter supervision. Such a perspective failed to recognize the power of human relations and the role of individual aspirations for sustaining productivity and securing business success. Organizations are not merely processes layered on top of processes; they are social spaces populated by people who interpret, respond, resist, and cooperate in deeply interpersonal ways. And fortunately, the prevailing viewpoints of task-oriented managers were challenged when the Hawthorne Studies, conducted at Western Electric’s Hawthorne Works, emerged in the 1920s and 1930s. 

The Hawthorne Studies, closely associated with Elton Mayo, were initially designed to examine how physical conditions — such as lighting and break schedules — affected worker productivity. What researchers found, however, was surprising: productivity often increased regardless of whether conditions improved or worsened.

The explanation was not mechanical. It was social. Workers responded to being observed, consulted, and treated as participants in a process rather than as cogs in a machine. They cared about group norms and social approval, and they valued recognition and the feeling that their work mattered. The insight derived from these studies was simple yet profound: people want to belong and to contribute to something of value. 

Task alignment and structure matter, but so too do incentives and relationships. Business performance is shaped not only by strategy, but also by human relations. This insight connects with a broader tradition in economic thought that emphasizes human action rather than abstract systems. Ludwig von Mises famously argued that economics must begin with praxeology — the study of purposeful human action. For Mises, markets, firms, and institutions do not act; only individuals do. Organizations are not entities with minds of their own, but frameworks within which individuals pursue goals, interpret constraints, and adjust to uncertainty.

This perspective is particularly salient for business owners and policymakers amid a steady stream of headlines highlighting large-scale disruptions happening across the globe. Globalization has produced a complex web of interdependent supply chains, integrated capital flows, dynamic ecosystems, and interfering government systems that continuously shape or shift business behavior. Even small domestic firms that aspire to profit from simply serving the local populations around them can be impacted by forces that extend far beyond their control or community. To be sure, macro-level disruptions can easily ripple down to the micro level. 

A poor coffee harvest abroad or changes in trade policy that alter import costs can make or break the ability of a café owner to stock up on inventory. A startup founder hoping to bring in top-tier talent may be hampered by the rising costs or restrictions of H-1B visas. A grad student studying in the US and hoping to put their education to use, may discover it is best to leverage their knowledge and know-how elsewhere. Stipulations for regulatory compliance, too burdensome to pursue, may make a budding entrepreneur think twice about establishing a small business venture. And shifting political priorities and subsidy regimes seem to now pose a greater challenge for today’s farmers as compared to trying to predict the weather. 

Policy shifts, supply-chain shocks, and institutional barriers are often discussed in aggregate terms, yet they are ultimately borne by specific people making difficult adjustments in real time. Treating such disruptions as mere data points risks overlooking the human cost involved — and it also shields those who are involved in designing, managing, and influencing these systems. The division of labor and an ever evolving marketplace will always mean that systems matter, but we must remember that people empower or impede the efficacy of systems. 

Ayn Rand rightly insisted that society does not exist apart from individuals. There is no collective mind that thinks or chooses. Progress begins with the individual’s capacity to reason, create, and act with purpose. And since individual action rarely occurs in a vacuum, individuals are both independent in judgment and deeply interdependent in practice.

The enduring value of the Hawthorne Studies is that it reminds us that even within complex global systems, the social nature of human beings remains central. Any serious understanding of markets, organizations, or societies must begin there — with purposeful individuals embedded in social relationships. Social order is not centrally designed but emerges spontaneously as individuals respond to dispersed knowledge, incentives, and expectations. Accounts of markets and organizations must therefore examine not only how systems function, but how their breakdowns reshape the aspirations and opportunities — not merely the output — of individuals.