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.

What is President Javier Milei, really: a savior, or a bankruptcy trustee? An anarchist, a populist, or a classical-liberal reformer? Is he dismantling the casta — the entrenched political establishment — or is the casta undermining his reform agenda? In the end, will freedom prevail, or will the corrupt system reassert itself and absorb the would-be reformer?

I recently formed my own impressions in Buenos Aires. What I saw is a fascinating country that, after decades of decline, is regaining its footing, pushing back widespread poverty, and rediscovering confidence. Some key indicators have already attracted international attention: sharply falling inflation, a visibly declining poverty rate, unemployment that is easing despite massive and long-overdue layoffs in the public sector, the first balanced federal budget in years, and a recovery in economic growth.

Other developments receive less attention. On the newly liberalized housing market, the supply of apartments has increased almost overnight. Mobile coverage is expanding rapidly thanks to Starlink. Following deregulation of air transport, investment in aircraft is picking up again. And even without subsidized credit rates, Argentines are once again purchasing durable consumer goods — washing machines rather than just a block of cheese here or a drinking glass there. Until recently, even such small items were often bought on installment plans, a symptom of distorted incentives under chronic inflation and massive subsidies.

Market activity is also increasing as import barriers and protective tariffs are dismantled. Yet branded foreign goods remain unaffordable for many Argentines. In an upscale shopping mall, a simple Samsung USB adapter can cost around $75, while an equivalent product from a small neighborhood shop sells for about one dollar.

Some reforms that Milei managed to push through quickly — despite initially weak congressional backing — are only now beginning to take effect. Through a more open trade stance toward the United States and the European Union, a pragmatic approach toward China, and a new investment framework (the “RIGI regime”), Argentina is opening itself to foreign direct investment in energy, natural resources, and data-intensive industries. Greater investment, planning, and legal certainty for large-scale projects are beginning to bear fruit.

Equally striking is the work of Federico Sturzenegger. The classical liberal economist and minister for deregulation and state transformation, together with his team, is dismantling or simplifying regulations, price controls, taxes, and administrative burdens at a remarkable pace. Still, supply chains must first adjust to new incentives, and investors need time to rebuild trust in Argentina’s institutional foundations.

Whether this succeeds will matter far more for Argentina’s future than debates about Milei’s personal eccentricities or his use of provocative political symbolism. Those elements appear to matter little to most Argentines. In conversations with Uber drivers, economics students, and service workers, I encounter predominantly positive — often enthusiastic — assessments of the president; only a determined minority remains clearly opposed.

Classical-liberal economists in Buenos Aires tend to be more cautious. They are skeptical of any cult of personality and acutely aware of the scale of the task facing Milei — and any future government. The catastrophic situation he inherited was the result of a state that had grown bloated and overstretched over decades, dominated by organized interests — the casta — and embedded in a political culture where personal connections and forceful rhetoric mattered more than expertise and adherence to general rules.

Previous presidents also promised to confront corruption and clientelism — most notably Carlos Menem in the 1990s, often described as a “neoliberal populist.” His mixed legacy reflects the fact that he was primarily a populist and Peronist who employed (neo-)liberal instruments selectively. With Milei, the order appears reversed. He is, first and foremost and by conviction, a libertarian who pragmatically uses populist rhetoric and style to advance a reform agenda.

This increases the likelihood that Milei’s reforms could have lasting effects. Yet the reform path remains narrow, risky, and long before reaching the institutional core. Above that core lies a dense thicket of cronyism and mismanagement. Provinces such as Tierra del Fuego cling to special privileges, while the federal system creates weak incentives for provinces to govern efficiently and spend public funds responsibly. Well-organized labor unions can be expected to resist long-overdue reforms. The judiciary remains only formally independent. Despite improvements, the tax system still discourages investment. Rigid pre-reform labor regulations leave roughly four in ten workers outside formal employment. And the casta — which successfully advanced its interests under successive governments — has not simply disappeared under Milei. On the contrary, Milei relies on experienced political operators, many of whom already served under former President Macri and are now tightly coordinated and disciplined by his sister, Karina Milei.

Most Argentines, however, appear willing to overlook questionable connections as well as Milei’s personal idiosyncrasies. Nearly everyone who knows him personally — even critics who disagree with him substantively — agrees that Milei is genuinely committed to libertarian reform and to improving the country’s prospects. There is still much to do in this regard. Major reforms of social security, labor markets, the monetary regime, taxation, the rule of law, and federal relations remain pending. Without them, recent successes will remain fragile.

The chances of success vary across policy areas. For a radical monetary shift such as dollarization, Milei likely still lacks sufficient political and financial capital. Political capital is also required for reforms of the justice system, where the path toward a truly independent judiciary appears even steeper than the path toward monetary stability. Yet judicial independence is essential for further reforms — such as credible fiscal rules that could anchor balanced budgets over time or a restructuring of Argentina’s federal system.

The most concrete hopes rest on the recently adopted labor-market reform and a more investment-friendly tax code, areas where the government can capitalize on having more seats after mid-term elections. The new legislature convened in December with an ambitious reform agenda framed by Milei in an optimistic “Make Argentina Great Again” message.

For this agenda to succeed durably, however, it will take more than Milei alone. A broad share of Argentines must support the transformation — and many appear ready to do so. After repeated crises, Argentines possess remarkable economic literacy. Especially younger Argentines understand inflation, financial markets, and the relative stability of different assets all too well — knowledge that has long been essential for everyday survival.

Less developed, however, is a shared understanding of how robust rules and institutional checks and balances can constrain political discretion and limit abuses of power. Too often in the past, rules were ignored and safeguards circumvented.

Argentina’s current reform experiment takes this reality into account. It does not follow classical-liberal textbook advice, but rather reflects the political constraints of a deeply cronyist state — constraints that Milei seeks to navigate in order to pursue a libertarian reform agenda. In this sense, he attempts to use the logic of the existing system against itself. It is a genuine experiment, one whose results are likely to matter well beyond Argentina.

Every time conflict erupts in the Middle East and oil prices jump, the same anxiety follows: will central banks respond with tighter money?

It’s an understandable fear. Households dislike inflation, and policymakers are tasked with maintaining price stability. But when inflation is driven by geopolitical crises — such as war in Iran or disruptions to global shipping lanes — the source is not excessive demand. It is a supply shock. And monetary policy is impotent before such disruptions.

When oil supply tightens or transport costs surge, the economy becomes poorer. Energy becomes more expensive to extract and move. No interest rate decision in Washington, Frankfurt, or London can produce more oil from the Persian Gulf or reopen a blocked trade route.

In these moments, central banks face a difficult but crucial choice. They can tighten monetary policy in an attempt to suppress inflation by weakening demand, slowing hiring, curbing investment, and cooling total dollar spending. Or they can allow a temporary period of elevated prices to absorb part of the shock while keeping the broader economy intact.

The instinct to “do something” about supply-side price hikes is powerful. But tightening monetary conditions to combat a supply shock risks compounding the damage. Slower money growth and higher rate targets do not solve the underlying scarcity. They merely redistribute the burden — often toward workers.

If energy prices spike because of war, households will pay more at the pump and businesses will face higher costs. That pain is unavoidable. But if central banks respond aggressively by tightening policy, they risk turning an external supply shock into a domestic demand slump. Unemployment rises, investment stalls, and wage growth falters. For the vast majority of workers, having a job amidst 4 percent price growth is preferable to unemployment amidst 2 percent price growth.

There is a long tradition in macroeconomics of distinguishing between demand-driven and supply-driven inflation. When inflation stems from overheated demand (too much spending chasing too few goods), central banks are right to step in. Tightening policy can ease the frenzy without causing long-term economic damage.

But war-induced oil shocks are different. They make the economy less productive. Attempting to fully offset that reality with tighter monetary policy can produce a worse outcome: lower output and higher unemployment layered on top of higher prices.

The least harmful strategy in such circumstances is often to “look through” the initial inflation impulse — provided inflation expectations remain anchored. That means tolerating temporarily higher headline inflation while emphasizing the external and temporary nature of the shock.

Communication is essential. Central bankers should say plainly that surging prices are the result of geopolitical events beyond their control. The Fed cannot drill for oil or end wars. What it can do is ensure that the financial system remains stable and that panic does not spill over into credit markets.

That role — safeguarding the demand side — is where monetary authorities are most effective during geopolitical crises. They can provide liquidity to prevent financial stress from amplifying the shock, if financial stress indicators suggest it is necessary. They can also reassure markets that banks and capital markets will function smoothly by guaranteeing adequate liquidity. And they can prevent a broader collapse in investment and hiring with standard open-market purchases.

In other words, central banks should focus on preventing second-order effects on the demand side. The danger is not the first jump in energy prices; it is the risk that frightened investors, tightening credit conditions, or collapsing confidence trigger a self-reinforcing downturn.

Critics will argue that tolerating higher inflation, even temporarily, risks unanchoring expectations. That risk is real. But credibility is not built by mechanically reacting to every price increase. It is built by responding appropriately to the source of inflation. If the public understands that central bankers are distinguishing between supply shocks and demand shocks, credibility can be preserved.

The worst outcome would be a policy mistake born of impatience: tightening aggressively in response to war-driven inflation, deepening the economic slowdown, and discovering months later that the original price pressures were fading on their own.

Wars make societies poorer. There’s no getting around the fact that destruction and turmoil are bad for business. Monetary policy will its best work if it avoids making the adjustment more costly than necessary. When public events exceed the scope of monetary policy, restraint is the least bad option.

Daily headlines formulate new variations on the theme: artificial intelligence is too powerful to be left unregulated. Lawmakers, guardedly seconded by big tech CEOs, warn of catastrophe. Agencies draft frameworks. Editorial boards demand ethical guardrails. We are told that only government can ensure that AI is “safe,” “aligned,” and deployed responsibly. Yet, in the same week, the Pentagon reportedly moved to blacklist one of the country’s most prominent AI firms for refusing to remove certain ethical constraints from its flagship system. The contradiction is not subtle. It is fundamental. 

Anthropic, the San Francisco–based AI company founded by Dario and Daniela Amodei, has built its reputation on what it calls “AI safety” and “constitutional AI.” Its Claude line of large language models competes at the frontier of capability with systems from OpenAI and Google DeepMind. But Anthropic has distinguished itself by emphasizing that its models are not merely powerful; their architecture incorporates embedded guardrails. The company has publicly stated that it has declined to grant the Department of Defense unrestricted use of its models for certain applications, specifically mass domestic surveillance and fully autonomous weapons. In response, Secretary of Defense Pete Hegseth declared the company a “supply chain risk” and signaled that it could be excluded from defense procurement ecosystems unless it complied with the government’s terms. 

The Pentagon’s position, as reported, is that it must have access to AI tools for “any lawful use.” From the government’s perspective, the stakes are obvious. AI is now integral to logistics, intelligence analysis, battlefield planning… and potentially autonomous systems. The United States faces strategic competition with China and other adversaries investing heavily in military AI. Should a private vendor’s internal ethical policies veto what defense officials consider lawful and necessary uses of a technology purchased with public funds? 

Legal scholars in this field like Tess Bridgeman immediately pointed out contradictions, dubious legal assumptions, and barriers to implementing the position Hegseth seemed to take — and even questioned his intention to carry out his threat.

Alongside domestic surveillance, major powers are also racing to integrate AI into military systems, including autonomous weapons and autonomous operational capabilities. China, for example, has been reported to develop AI-enhanced unmanned vehicles and AI-powered “swarm” technologies capable of cooperative action among large numbers of drones or robotic units without continuous human control.⁷ That trend reflects a broader global pattern in which artificial intelligence is moving out of analytics and into direct force application, raising deep questions about how ethical limits are set and enforced — questions that are precisely the ones at stake in the dispute over who controls AI ethics in the first place. 

That argument has force. The Constitution charges the federal government with providing for the common defense. National defense is not a hobby; it is one of the state’s core responsibilities. In wartime and even in tense peacetime, the government must be able to procure the tools it deems essential. Historically, America’s economic strength has been decisive in war precisely because private industry could be mobilized to produce ships, planes, steel, and munitions at scale. The phrase “arsenal of democracy” was not rhetorical flourish. It described a system in which private enterprise — operating for profit — supplied the matériel that preserved political freedom. 

But what is happening in this dispute is not merely procurement. It is not a disagreement over price, performance, or delivery schedules. It is a dispute over who controls the ethical architecture of a technology. Anthropic is not refusing to sell computers. It is refusing to strip out guardrails that it believes are integral to the responsible design of its product. The Pentagon is not demanding a faster processor. It is demanding that the company relinquish the authority to restrict how its system is used. 

The contradiction becomes acute. For the past several years, government officials have insisted that AI companies must internalize ethical responsibility. They must prevent misuse. They must anticipate harms. They must build systems that refuse dangerous or unlawful requests. Regulators argue that without such constraints, AI systems could be used for surveillance abuses, disinformation campaigns, or autonomous violence. Ethics, we are told, cannot be left to the market alone. 

Across the globe, governments are already pushing the boundaries of what AI can do in practice. Most starkly, China’s government has built what may be the largest AI-supported surveillance apparatus in human history, deploying hundreds of millions of public-facing cameras linked to facial-recognition and data-fusion systems that can identify and track individuals in real time. As of recent years, analysts estimate that China operates well over half of the world’s surveillance cameras — many of them capable of identifying people and tracing movements across cities, social venues, and even everyday public spaces — creating an infrastructure that can monitor citizens at an unprecedented scale.⁶ 

Yet when a company attempts to operationally implement those very ethical constraints in its design, and applies them even to its most powerful potential customer, it is threatened with economic exclusion. The message is unmistakable: ethics are mandatory — except when the sovereign decides otherwise. 

The mechanism of pressure is also revealing. By designating Anthropic a “supply chain risk,” the Defense Department reportedly signaled not only that it would decline to contract with the company but that other firms in the defense industrial base might be discouraged — or effectively barred — from doing business with it. In modern administrative practice, such a designation can function as a form of industrial excommunication — the Pope excommunicating the stubborn Jewish heretic Baruch Spinoza. The company is not nationalized; it is isolated. The pressure is not a knock at the factory gate; it is a warning to partners and customers that continued association carries risk. 

There are historical precedents for government commandeering or directing private industry in times of emergency. The Defense Production Act of 1950 grants broad authority to prioritize contracts and allocate materials deemed necessary for national defense. Presidents of both parties have invoked it in wartime and in domestic emergencies. Yet even at the height of the Korean War, the Supreme Court in Youngstown Sheet & Tube Co. v. Sawyer rejected President Truman’s attempt to seize steel mills absent explicit congressional authorization. The Court’s decision stands as a reminder that “necessity” does not erase constitutional structure. Emergency powers have limits. 

What is novel here is that the object of contention is not physical production but moral design. AI systems like Claude are unique tools; they are decision-support systems that can be configured to refuse certain tasks. Anthropic has said that it drew two bright lines: no mass domestic surveillance of Americans and no fully autonomous weapons. Whether one agrees with those lines is not the immediate question. Can a private company in a constitutional republic adopt such lines and adhere to them — even when the government disapproves? 

As I argue in my forthcoming book, A Serious Chat with Artificial Intelligence, the defining feature of contemporary AI is not merely its intelligence but its embedded moral design, the guardrails that translate power into socially tolerable use. What is at stake in the present controversy is not a contract term but control of that moral design. 

Critics of capitalism often describe corporations as purely profit-driven entities, indifferent to moral considerations so long as consumers are served and shareholder returns are maximized. Some defenders of capitalism have encouraged that caricature, arguing that business should concern itself solely with serving consumers within the bounds of law. But the real world is more complicated. Companies are run by individuals — owners, directors, executives — who have moral convictions, reputational concerns, religious beliefs, and political commitments. These shape corporate policies in ways that go beyond immediate profit calculation. 

In a free society, the liberty and diversity of judgment is foundational, even metaphysical. If there is an implicit “social contract” — a rational incentive for instituting government — it is to gain the benefits of its defense of our rights without relinquishing our fundamental means of survival — the freedom to act on our judgment. Firms choose to avoid certain markets, to refuse certain clients, or to embed certain principles in their products. A newspaper may decline to publish particular advertisements. A technology company may refuse to build backdoors into its encryption. A pharmaceutical company may set conditions on distribution. The principle underlying these choices is freedom of conscience exercised through private property and voluntary exchange. 

The government’s legitimate role is to protect the rights of individuals against force and fraud, including aggression by foreign powers. That role necessarily includes maintaining an adequate defense. It may purchase weapons, hire troops, build infrastructure, and contract with private suppliers. But the claim implicit in the Pentagon’s reported demand is more expansive: that when national security is invoked, the state’s judgment supersedes the moral constraints of the supplier. The company may sell — but only on terms that dissolve its own ethical boundaries. 

Is that claim unique to this administration? Hardly. Governments of all stripes tend to assert broad discretion in matters of defense and intelligence. The difference here is that the technology in question is widely used in civilian contexts and subject to intense debate about ethical design. If AI companies are to be treated as quasi-public utilities whose internal policies must conform to federal guidance, then the principle should be stated plainly. If, instead, they are private actors responsible for their own moral choices within the law, then those choices cannot be overridden by administrative pressure alone. 

There is also the matter of competition. Reporting indicates that Claude has been used, via partnerships with firms such as Palantir, in significant U.S. operations abroad. Whether one applauds or criticizes those operations, they demonstrate how quickly frontier AI has become operationally consequential. If Anthropic steps back from certain uses, other firms — OpenAI, Google DeepMind, or new entrants — may be willing to step forward. The economic incentives are enormous. Defense contracts are lucrative. Refusal by one vendor creates opportunity for another. 

That dynamic helps explain the relative silence of other major AI firms. A united industry front insisting on the legitimacy of private ethical limits would force the government into negotiation. A fragmented industry competing for favor shifts leverage to the state. In the absence of solidarity, “AI ethics” risks becoming whatever the most powerful customer demands. 

None of this is to deny the seriousness of national security. If adversaries develop and deploy autonomous weapons or pervasive AI-driven surveillance, American officials cannot simply abstain on moral grounds. The world is not a seminar room. But the constitutional design of the United States presumes that power is divided and limited precisely because the concentration of unchecked authority is dangerous — even when exercised with good intentions. 

The deeper issue raised by the Anthropic–Pentagon dispute is not whether a particular application of Claude should be permitted. It is whether the state may simultaneously demand that private innovators internalize ethical responsibility and then exempt itself from those same constraints. If ethics are indispensable to safe AI, they are most indispensable where power is greatest and secrecy deepest. If, on the other hand, ethical guardrails must yield whenever national security is invoked, then regulators should be candid that “ethical AI” is conditional, not foundational.

In early December 2025, a cascading series of flight cancellations at IndiGo, India’s largest airline, brought one of the world’s fastest-growing aviation markets to a grinding halt, stranding tens of thousands of passengers during the peak of winter travel season. On December 5 alone, over 1,000 flights were canceled nationwide, including all departures from the national capital, New Delhi’s Indira Gandhi International Airport, as the airline struggled to comply with new pilot fatigue regulations it had been given months to prepare for. By mid-December, upwards of 4,500 flights had been axed or delayed, prompting government interventions, regulatory examinations, and frontline outrage. 

For US and international readers unfamiliar with Indian skies, the scale of this disruption was unprecedented: a carrier that handles nearly two-thirds of India’s domestic traffic saw its network unravel in a matter of days, leaving packed terminals, long queues, lost luggage, and frustrated travelers in its wake. Such chaos is rare even in the world’s largest aviation markets, where diversified competition and regulatory frameworks tend to contain operational breakdowns before they become systemic — a contrast that highlights deeper tensions between regulation, competition, and resilience in India’s aviation sector. 

At the root of the crisis were updated Flight Duty Time Limitation (FDTL) rules issued by India’s aviation regulator, the Directorate General of Civil Aviation (DGCA), to strengthen pilot fatigue safeguards. Among other changes, the new rules increased mandatory weekly rest from 36 to 48 hours, sharply limited night landings per pilot, and tightened duty-hour caps — measures intended to reduce cumulative fatigue and align India with global safety practices.

Research and regulatory studies indicate that fatigue impairs alertness, attention, and decision-making ability, increasing the risk of errors in aviation operations — which is why agencies such as EASA and others require flight time limitations and rest requirements to mitigate fatigue risks for pilots. However, the timing and implementation of these rules collided disastrously with IndiGo’s tightly optimized, lean operational model. The rules took full effect on November 1, 2025, immediately before the winter schedule ramp-up, and the airline’s rosters, crew hiring, and scheduling buffers proved insufficient to absorb the added constraints. 

“Given the size, scale and complexity of our operation, it will take some time to return to a full, normal situation,” said IndiGo’s Chief Executive Pieter Elbers in a video message during the crisis, acknowledging both the disruption and the airline’s planning shortfalls. He said the carrier expected cancelations to fall below 1,000 and hoped operations would stabilize between December 10 and 15 before returning to full normalcy by mid-February 2026. 

The airline’s reputation for punctuality and efficiency, a hallmark of its rapid ascent as India’s dominant carrier, was severely dented. Over several days, airports nationwide saw terminals overflow with passengers scrambling for information, staff overwhelmed by inquiries, and strike-like levels of cancelations and delays that are more common after major weather events than in well-regulated commercial environments. 

Adding to the industry upheaval, the Competition Commission of India (CCI) and the DGCA moved to investigate whether IndiGo’s market dominance had been exploited during the chaos. Regulators sought fare data from leading carriers after reports emerged that ticket prices on alternative airlines surged significantly once IndiGo’s capacity shrank, sparking concerns about exploitative pricing and potential antitrust violations. 

It was not only market watchers who were alarmed. An international pilots’ advocacy group, the International Federation of Air Line Pilots’ Associations (IFALPA), publicly warned that India’s temporary exemption of some night-duty rules for IndiGo was concerning because “fatigue clearly affects safety” and said the move was not grounded in scientific evidence. IFALPA’s president, Captain Ron Hay, stressed that regulatory exemptions to core fatigue protections risk undercutting broader safety goals and could exacerbate pilot attrition if working conditions worsen. 

The crisis raises an obvious question: How does a safety-driven rule lead to system-wide operational collapse? The answer lies in the interlocking dynamics of regulation and market structure. In many major aviation markets, safety regulation and commercial competition are designed to operate in a complementary, not contradictory, fashion. For example, in the United States, the Airline Deregulation Act of 1978 removed federal control over fares, routes, and market entry yet preserved robust safety oversight. The result has been decades of competitive pressure that encourages airlines to maintain operational buffers and redundancy — not just for profit, but to avoid losing market share to rivals.

In Europe, liberalization in the 1990s enabled the rise of low-cost carriers that expanded capacity and required others to evolve service models. Singapore and the United Arab Emirates, too, have developed highly competitive hubs with minimal micro-management of airline operations beyond safety compliance.

India’s system has been more hybrid: rapid growth and liberal market entry coexisted with a regulator that, in practice, has exercised broad operational influence. The DGCA oversees not only safety certification but also staffing approvals, scheduling compliance, and enforcement of duty rules that directly shape airline operations — a role that can blur lines between safety oversight and commercial intervention.

While the intent behind the FDTL updates was to improve safety, critics argue that too little attention was paid to transition planning, industry capacity, and incentives for airlines to build redundancy. IndiGo had years to prepare for the new norms, yet recruitment lagged and roster reforms were implemented too late and too thinly to meet the demands of India’s busiest travel season. Other carriers, with smaller networks and different staffing strategies, weathered the changes with fewer cancelations. This suggested that operational choices, not just regulation, mattered in how airlines adapted.

The DGCA’s response illustrated this tension. In the face of chaos, authorities temporarily suspended the most restrictive duty limits for IndiGo — including night landing caps — and directed the carrier to adjust its schedules and submit revised planning roadmaps. The civil aviation ministry also instituted a fare cap on competing airlines to prevent opportunistic pricing spikes while IndiGo’s network recovered. An inquiry panel was ordered to examine what went wrong and recommend changes to prevent similar future breakdowns. 

To an American or European audience, where regulatory functions are generally more clearly delineated and competition is vigorous across multiple carriers, the Indian episode highlights a set of broader governance challenges: the difficulty of balancing safety regulation with market incentives, the risks of high market concentration, and the need for effective transitional planning when policy changes affect deeply interdependent systems.

First, regulatory changes in safety-critical industries should be introduced with robust transitional frameworks that align industry capacities with compliance timelines. In the United States and the EU, fatigue management standards are phased in over long periods with consultations, transitional staffing analysis, and often incremental enforcement, minimizing sudden shocks to networks.

Second, market structure matters for systemic resilience. Markets dominated by a single carrier — particularly one with more than 60% market share — lack the redundancy that competition naturally creates. When that carrier falters, competitors cannot easily absorb displaced passengers or capacity, and prices can spike, reducing consumer welfare.

Third, coordination between regulators and industry is essential. Safety mandates that lack clear pathways for adaptation can backfire, not because the goal is misguided, but because execution does not account for operational realities. Planning frameworks that integrate regulatory foresight with industry hiring, training, and technology investments reduce the risk of rule implementation triggering wider system breakdowns.

IndiGo’s winter meltdown was not just a corporate planning failure or an administrative misstep; it was a public demonstration of how tightly coupled operational, regulatory, and competitive dynamics can lead to cascading failure when incentives are misaligned and buffers are thin. For Indian travelers, the immediate fallout was stranded families, disrupted plans, and a deep erosion in trust. For policymakers and global aviation observers, it is a case study in the complex trade-offs between safety regulation and system resilience.

Ultimately, resilient aviation markets embrace clear safety oversight and vigorous competition without allowing either to overwhelm the other. The US model of deregulated commercial competition and focused safety supervision, for all its imperfections, offers an example of how incentives and regulatory clarity can coexist. India’s aviation system, and others with similar structural traits, may yet find pathways to balance these dynamics — but the December 2025 upheaval will remain a stark reminder that turbulence often comes not from the skies, but from the regulatory and market architecture beneath them.