For decades, economists have warned about the risk of fiscal dominance. Over the past year, the topic has graduated to news headlines. At first glance, the US’s deteriorating fiscal situation appears to be the culprit.

Kevin Warsh sees it differently: fiscal dominance is an outgrowth of Federal Reserve actions that enabled profligate federal spending, led the Fed to stray from its monetary mission, and ultimately undermined Fed independence.

In other words: the problem of fiscal dominance is actually one of monetary policy run amok. 

The usual fiscal dominance story goes something like this. In normal times, a central bank should adjust its interest rate target as needed to deliver low and stable inflation. Under fiscal dominance, however, a profligate government forces the central bank’s hand. Rather than adjusting its interest rate target to maintain low and stable inflation, the central bank must accommodate government borrowing. Inflation inevitably rises because the central bank is effectively committed to monetizing government debt.

Economists have proposed a host of institutional constraints to guard against fiscal dominance, including central bank independence, conservative central bankers, optimal contracts, and monetary rules. These institutional constraints all function to insulate monetary policy decisions from the influence of short-term politics — that is, to preserve monetary dominance.

That, at least, is the conventional view. But Kevin Warsh, President Trump’s nominee to chair the Federal Reserve, has flipped the script. 

In a talk delivered at the International Monetary Fund last year, Warsh said, “monetary dominance — where the central bank becomes the ultimate arbiter of fiscal policy — is the clearer and more present danger.” Rather than restraining fiscal excess, he argues, the modern Fed has enabled it. And, in doing so, it has undermined its own legitimacy.

Warsh on Monetary Dominance

Warsh traced the roots of today’s predicament to the 2008 financial crisis, when the Fed cut rates to zero, engaged in emergency lending, and pioneered large-scale asset purchases. He accepted that the Fed might use these tools to stabilize markets and prevent collapse in exigent circumstances. “But when panics subside,” Warsh said, “the Fed is duty-bound to retrace its steps.”

The problem, in his telling, is that the Fed never fully retreated. “Since the panic of 2008, central bank dominance has become a new feature of American governance,” Warsh observed. Crisis management hardened into a permanent practice, with the Fed maintaining a nearly $7 trillion balance sheet today. Warsh noted it was “nearly an order of magnitude larger” than when he joined the Fed Board back in 2006, and has made the Fed “the most important buyer of US Treasury debt — and other liabilities backed by the US government — since 2008.”

By suppressing borrowing costs, Warsh argued, monetary policy quietly subsidized fiscal expansion. “Fiscal policymakers…found it considerably easier appropriating money knowing that the government’s financing costs would be subsidized by the central bank,” he said. 

The predictable result was more debt.

Independence as Shield and Sword

Warsh also offered an important corrective on central bank independence, which is usually cast as a safeguard against fiscal dominance. “Independence is not a policy goal unto itself,” he said. “It’s a means of achieving certain important and particular policy outcomes.” Its purpose is instrumental: to deliver low and stable inflation.

In practice, however, central bank independence has become a rhetorical sword, enabling the Fed to cut a path well beyond its remit. “‘Independence’ is reflexively declared when any Fed policy is criticized,” Warsh said.

That approach is ultimately self-defeating. When the Fed strays beyond its congressionally assigned mandate — venturing into climate policy or social justice — it weakens its claim to independence in monetary policy. And when it dismisses legitimate oversight as political interference, it further erodes the credibility it depends on.

Perhaps even more damaging to the cause of independence is the Fed’s recent performance on inflation. The “intellectual errors” that contributed to high inflation over the last few years — overconfidence in models, complacency about inflation risks, and downplaying the contributions of monetary and fiscal policy to high inflation — have exposed the limits of technocratic authority. The widespread recognition of those limits, in turn, has left the case for independence on shakier ground.

Warsh said independence is “chiefly up to the Fed.” It must be earned through competence, restraint, and accountability. When outcomes are poor, “serious questioning” and “strong oversight” are not threats to independence. They are prerequisites for its survival.

The Case for a Narrow Central Bank

If monetary dominance and abuse of independence are the disease, Warsh’s prescription is institutional modesty. He called for a narrow central bank focused relentlessly on its core mandate.

The Fed, Warsh argued, has come to resemble “a general-purpose agency of government.” A narrow Fed, in contrast, would eschew fashionable causes, limit discretionary interventions, and operate within well-defined and clearly-articulated frameworks. It would abandon performative transparency — shifting metrics, maintaining data dependence, revising forecasts, and offering forward guidance — in favor of quiet consistency. 

“Our constitutional republic is accepting of an independent central bank, only if it sticks closely to its congressionally-directed duty and successfully performs its tasks,” he said.

A Test of Conviction

Warsh has sketched a high-level vision for reforming the Federal Reserve. Whether his vision can be transformed into a coherent plan that survives contact with power is unclear. 

Congress has learned to rely on accommodative monetary policy. Markets have grown accustomed to a Fed that intervenes early and often. Reversing course will not be painless.

If confirmed, Warsh will face a choice between rhetoric and resolve. He believes the Fed has weaponized the argument for central bank independence and drifted well beyond its mandate, thereby setting the stage for fiscal folly. But restoring genuine accountability and restraining Fed action will require resisting precisely the temptations he thinks led the Fed astray. 

If Warsh is serious about narrowing the Fed, his tenure could mark a genuine turning point. If not, monetary dominance will continue to run amok.

On February 20, the Supreme Court handed the Trump administration a stinging rebuke. In a 6-3 decision, the justices ruled that the International Emergency Economic Powers Act (IEEPA) “contains no reference to tariffs or duties,” pouring cold water on Trump’s claim that the IEEPA grants him unilateral authority to impose sweeping taxes on all goods entering or leaving the United States.

But where one road closes, Trump’s tariff regime finds alternate routes. Within hours, Trump signed a new proclamation slapping a 10 percent global tariff under Section 122 of the Trade Act of 1974, with promises to ratchet it to 15 percent. While this new round of tariffs will require a higher legal bar to implement, the administration is falling in lockstep with those across the political aisle who are rejecting free trade. Once viewed as the cornerstone of the global trading system, the US is turning its back on the market forces that ushered in Pax Americana — an era defined by rising living standards and unprecedented economic growth.

That chapter has ended.

Let’s be clear about the true costs of tariffs. Rather than being used as revenue generators or geopolitical bargaining chips, as Trump likes to tout, they are heavy taxes imposed on Americans. By 2026, the cumulative effect of Trump’s trade measures amounted to the largest tax increase as a share of GDP since the early 1990s. The average household faced roughly $1,300 more per year in costs. Broader estimates suggest price levels jumped more than two percent in the short run — translating to thousands of dollars in lost purchasing power for a typical family.

American manufacturers, the biggest supposed beneficiaries of America’s protectionist walls, are not exactly celebrating either. These measures cannot revive declining industries from which workers and capital have already moved to more productive sectors. A tax on consumers simply can’t reverse long-run economic forces that have made some industries obsolete. It simply transfers wealth from households to narrow interest groups, while leaving factory floors empty and workers worse off. According to researchers at the Federal Reserve, Trump’s Section 232 tariffs on steel and aluminum resulted in 75,000 manufacturing jobs lost downstream — in auto plants, construction firms, and appliance makers that depend on affordable inputs like steel — while adding only 1,000 jobs in steel production itself.

And of course, the working-class Americans whom Trump purports to champion are absorbing the biggest economic blows. Tariffs have fallen hardest on low- and middle-income households that spend the greatest share of income on goods like furniture, clothing, and food. Steel and lumber tariffs drive up housing prices. Higher input prices drive down real wages. And deficit spending further erodes purchasing power through inflation, which has only worsened lately thanks to a misguided belief that tariff revenue will offset America’s spending spree.

While Americans suffer from self-inflicted wounds at home, the world moves on.

Across Asia, China’s meteoric rise as an economic alternative to the US could serve as the deathblow to Pax Americana. One survey found 56.4 percent of regional respondents identify China as the dominant economic force — a figure that has only grown as America retreats from the global stage. Nations across the region are deepening ties with Japan, the EU, India, and Australia, rather than gambling on Washington’s trade whims.

In Europe, the picture is even more stark. The EU’s trade commissioner flew to Washington 10 times in four months in 2025, seeking relief from US tariffs. Each time, he returned empty-handed. European capitals are quickly realizing that once-leader of Pax Americana is an unreliable partner, driven by self-defeating populist impulses that will make America and the world a lot poorer.

Accelerated by Trump’s tariffs, the EU has  signed or updated trade deals with  Mercosur, Indonesia, India, and Mexico. Other countries across the Anglosphere like Canada and New Zealand are inking new free trade agreements in an effort to diversify beyond the U.S. In other words, as America raises its trade barriers, the rest of the world is lowering theirs, further undermining its standing as the global economic powerhouse.

Meanwhile, the US dollar — America’s enduring monetary advantage — is losing its luster as the world’s reserve currency. Research from Stanford’s Graduate School of Business finds that after Trump’s “Liberation Day” tariffs took effect, foreign investors sold US debt and dollar-denominated assets en masse, a sharp break from historical norms, when the dollar typically strengthened during global stress. The dollar’s share of central bank reserves has slid to a two-decade low, with foreign nations flocking to gold and other less risky assets.

What does this all mean?

As Johan Norberg lays out in his book, Peak Human, golden eras — from Ancient Rome to the Abbasid Caliphate to Song China — flourished when they embraced the free flow of ideas and people. Today’s post-Pax Americana moment is no exception. We’re not immune to the fate of past golden ages, and the surge of fear-driven economic nationalism will only speed the pace of our decline.

While Pax Americana fades in the rearview mirror, that doesn’t mean the US can’t find its way back to the top of the world’s rules-based economic system. But it will require more than a Supreme Court ruling. It will require Congress to reclaim its constitutional authority over trade policy — and an administration that understands that global free trade is the best recipe for making the country great again.  

The Court may have struck down the IEEPA tariffs. But unless the US reverses its protectionist course, the costs will compound. Starting at home.Other nations are not waiting for America to find its footing. They are building the trading order for this century — and they are building it without us.

In 2017, Candi Mentink and her husband, Todd Collard, of Calvin, Oklahoma, launched Caskets of Honor, an innovative business selling caskets wrapped in vinyl graphics to honor the deceased. Todd, a graphic designer, created designs ranging from religious and patriotic themes to sports and hobbies.

The business grew quickly, but after four years, they discovered something surprising: in Oklahoma—one of only three states alongside Virginia and South Carolina—it is illegal to sell caskets without a funeral director’s license.

Candi and Todd learned this lesson the hard way. When they advertised their caskets at the Tulsa State Fair in October 2021, an Oklahoma Funeral Board investigator posed as an interested customer. After Todd told him he would be happy to sell him a casket, the investigator informed them that they were breaking the law. The investigator proceeded to file a complaint with the Board, which pursued an administrative action against the couple, resulting in a $4,000 fine, among other requirements.

To continue operating their business, Candi and Todd had to do some creative maneuvering. Obtaining a funeral director license was out of the question. That would require two years in a mortuary science program, a one-year apprenticeship, and thousands of dollars in fees. On top of that, to fully comply with the law, they would also have to transform their workshop into an official funeral home, which would be prohibitively expensive—not to mention wasteful, since they don’t plan on becoming funeral directors or running a funeral home.

Their workaround was moving the company’s legal home to Texas and requiring online orders. This allowed them to operate under interstate commerce rules, though Oklahoma law still bars them from selling or advertising to Oklahomans from their shop, cutting into sales.

Lawmakers have repeatedly tried to repeal the restriction, but pushback from the Funeral Board and a private trade association has stalled reform.

As a result, Candi and Todd have decided to sue. Working with the Institute for Justice (IJ), they filed a lawsuit on February 4 challenging the law as unconstitutional under Oklahoma’s protections of economic freedom.

Commenting on the lawsuit, IJ Attorney Matt Liles highlighted the absurdity of the current law. “At the end of the day, a casket is just a box. It serves no health or safety purpose,” he said. “You shouldn’t need to spend years studying unrelated topics just to sell a box.” 

The lawsuit drew particular attention to the protectionist nature of the current legal regime. “Oklahoma’s licensure requirements for casket sales have the intent and effect of establishing and maintaining a cartel for the sale of caskets within Oklahoma,” IJ writes. “…This anti-competitive cartel limits the lawful sale of caskets in Oklahoma to those who provide all other funeral services, while preventing individuals who do not wish to provide funeral services from offering caskets directly to the public. This scheme creates arbitrary and unreasonable barriers to conducting a lawful business and serves no legitimate interest related to public health, safety, or welfare.” 

Vested Interests and the Power of Public Opinion 

In his 1949 treatise Human Action, the Austrian economist Ludwig von Mises warned about the ever-present threat of special interest groups that wish to stifle competition through legislation. 

“There were and there will always be people whose selfish ambitions demand protection for vested interests and who hope to derive advantage from measures restricting competition,” he wrote. “Entrepreneurs grown old and tired and the decadent heirs of people who succeeded in the past dislike the agile parvenus who challenge their wealth and their eminent social position.”

It’s easy to see why Oklahoma’s funeral industry wants to block up-and-coming competitors like Caskets of Honor. Less competition allows them to charge higher prices and ignore evolving consumer preferences—such as customized casket designs. The Institute for Justice notes that “the average funeral in Oklahoma costs $5,671—18 percent higher than the cost in neighboring states.”

How do vested interests get away with policies so clearly harmful to competitors and consumers? Mises explains: “Whether or not their desire to make economic conditions rigid and to hinder improvements can be realized, depends on the climate of public opinion.” In other words, they succeed because public opinion is on their side—a fact reflected in the repeated failure of three bills to end Oklahoma’s protectionist law.

Such protectionism, Mises observed, would have been largely futile in the nineteenth century, when classical liberalism prevailed. “But today,” he wrote, “it is deemed a legitimate task of government to prevent an efficient man from competing with the less efficient. Public opinion sympathizes with the demands of powerful pressure groups to stop progress.”

Changing that public opinion is challenging, but one promising approach is to tell the stories of entrepreneurs like Candi and Todd. When people see the real-world impact of protectionist policies, the injustice becomes impossible to ignore.

President Trump has nominated Kevin Warsh for the top spot at the Federal Reserve. Though a former member of the Federal Reserve Board of Governors in Washington, DC, Warsh is out of sync with prevailing views at the central bank. That diversity of thought could improve the Fed’s monetary policy decisions.

Warsh’s candidacy for Fed chair has been widely construed as an effort to further politicize the Fed. The implicit assumption is that Fed policy is better if everyone is in sync. While the media has characterized dissent on the Federal Open Market Committee (FOMC) as controversial or divisive, diversity of opinion often improves the collective decision-making of deliberative bodies like the FOMC. Indeed, my research suggests that groupthink is a real problem at the Fed.   

At each FOMC meeting, staff economists at the Board of Governors brief participants on the state of the economy and present forecasts from the Tealbook, most notably the Fed’s FRB/US model. FOMC members then discuss their own observations and vote to raise, hold, or lower the federal funds rate target range — the interest rate that the Fed targets. Four times per year, FOMC members also provide their own projections for key economic indicators, like real GDP growth and inflation. An anonymized summary of these projections is initially released in the Summary of Economic Projections. Attributed projections are released five years later.

In a 2022 paper, I examined the forecast errors for real GDP growth projections made between 1992 and 2016. I found that while diversity of thought improves the accuracy of the FOMC’s projections, for the most part, FOMC member projections conformed strongly to those of the FRB/US model presented by the Board’s staff economists. Note that FOMC members can use whatever information they like when forming their own projections, including forecasts from regional Reserve Bank staff or private sector analysts. In practice, however, they largely defer to the Board’s model.

There are at least two potential explanations for the observed conformity. It may be that the Board’s staff economists produce the best forecasts and, recognizing this, FOMC members defer to them. An alternative case is that FOMC members suffer from groupthink — that is, that members are inclined to accept the Board’s projections by default rather than challenge them with potentially superior externally produced forecasts.

How good are the forecasts produced by the Board’s staff economists? Not good at all. 

Indeed, the evidence indicates that groupthink has led to suboptimal monetary policy and relatively worse economic outcomes. Two examples serve to illustrate.

In 2021, Fed officials repeatedly (but wrongly) claimed that the pandemic-era inflation was “transitory.” This caused the FOMC to delay raising its federal funds rate target range in late 2021 and early 2022, and proceed too slowly once it began raising the target range. The Fed’s sluggish response allowed inflation to reach a 40-year high, eroding the real incomes of average Americans. Fed Chair Jerome Powell attributed the Fed’s mistakes, in part, to groupthink, saying “everyone had the same model — which was the Phillips curve model.”

Groupthink was also a problem during the Great Recession of 2007-2009. The FOMC adopted expansionary monetary policy at the start of the recession, but it ceased cutting interest rates in early 2008 as the economy continued to decline. Even as the financial system fell into crisis in September of 2008, the FOMC refused to loosen financial conditions by lowering its federal funds rate target. 

As then Fed Chair Ben Bernanke later recounted in his autobiography, “In retrospect, that decision was certainly a mistake.” In fact, it was a mistake that put nearly 15 million people out of work.

Warsh is a strong pick for Fed Chair. His out-of-sync views will bring much-needed diversity to the Fed and help break the Fed’s pervasive groupthink. Making space for different perspectives at the FOMC table will encourage discussion, which will help lead to better policy. 

That’s how diversity of thought works — and it is an essential component of effective deliberative bodies. The FOMC is no exception.

Inflation ticked up slightly in February, the Bureau of Labor Statistics (BLS) reported in its March release. The Consumer Price Index (CPI) rose 0.3 percent last month, up from 0.2 percent in January. On a year-over-year basis, headline inflation was unchanged at 2.4 percent.

Core inflation, which excludes volatile food and energy prices, rose 0.2 percent in February, down from 0.3 percent in January. On a year-over-year basis, core inflation was unchanged at 2.5 percent.

The uptick in headline CPI reflected rising food and energy prices. Shelter, which accounts for about one-third of the index, rose 0.2 percent and was, according to the BLS, “the largest factor in the all items monthly increase.” Food prices rose 0.4 percent, with food at home increasing 0.4 percent and food away from home rising 0.3 percent. The index for energy also increased in February, rising 0.6 percent, driven by a 0.8 percent increase in gasoline prices. These figures reflect price data collected before the recent spike in oil from the conflict involving Iran and the disruption to shipping through the Strait of Hormuz.

The easing in core CPI reflected a mixed picture across categories. Medical care posted the largest increase among core components, rising 0.5 percent, followed by apparel, which surged 1.3 percent. Airline fares rose 1.4 percent, and household furnishings and operations increased 0.3 percent. Prices also rose for education. 

Offsetting these gains were declining prices for communication, which fell 0.5 percent, used cars and trucks, which declined 0.4 percent, and motor vehicle insurance, which fell 0.3 percent. Personal care also declined. In short, the categories that saw lower prices more than offset those where prices rose, pulling core inflation below its January pace.

While the year-over-year figures continue to show gradual disinflation, the recent three-month trend tells a somewhat different story. Inflation averaged 0.27 percent per month across December (0.3 percent), January (0.2 percent), and February (0.3 percent), which is equivalent to a roughly 3.2 percent annual rate. That is well above the year-over-year figure of 2.4 percent, suggesting that the recent pace of price increases is running hotter than the trailing 12-month average. Part of that gap likely reflects missing housing data resulting from last year’s government shutdown that held down the year-over-year inflation rate.

Recent core CPI data tell a similar story. Core prices rose 0.2 percent in December, 0.3 percent in January, and 0.2 percent in February — an average monthly rise of roughly 0.23 percent, which is equivalent to a roughly 2.8 percent annual rate. That’s higher than the year-over-year core figure of 2.5 percent, meaning core inflation has also been running somewhat hotter in recent months compared to its year-over-year pace.

Although the Federal Reserve officially targets the personal consumption expenditures price index (PCEPI), the steady February CPI report offers little reason to expect an imminent pivot toward easier policy. According to the CME Group’s FedWatch tool, markets are assigning a 99 percent probability that the Fed will hold rates steady at its meeting next week. Markets’ expectations that the policy stance remains at least through July were modestly boosted as well. 

Even with the real shock to the economy from higher oil prices, policymakers are likely to look past them as a temporary energy spike — especially if longer-run inflation expectations remain well anchored. More relevant for monetary policy is whether overall nominal spending — that is, the total amount of money households and businesses are spending across the economy — is growing at a pace consistent with stable prices. By that standard, the recent inflation data offer an ambiguous signal. While the year-over-year inflation numbers look reassuring, the three-month annualized pace above three percent suggests underlying demand is running somewhat stronger than the trailing 12-month figures imply.

Factoring in the latest labor market data, the picture is more mixed. February’s employment report showed a 92,000 decline in payrolls, a figure some observers have taken as evidence that the labor market is weakening. The unemployment rate held steady at 4.4 percent, and both the labor force participation rate and the employment-to-population ratio were essentially unchanged. Wages are still rising at roughly a 3.8 percent annual pace, pointing to continued growth in nominal spending. 

Even with a dip in payrolls, those dynamics remain broadly consistent with nominal spending expanding faster than would be needed to keep inflation at the Fed’s two-percent target over time. In that environment, easing policy too quickly could risk reigniting price pressures. For now, patience remains the safer course.

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.