By any serious measure, and certainly by every economic metric, the claim that the United States has been “ripped off” or “mistreated” by its trading partners over the past several decades is incoherent. The rhetorical scaffolding upon which the Trump administration’s protectionist tariff regime rests is a fundamentally flawed understanding of international trade. It substitutes a mercantilist worldview — discredited since the eighteenth century — for evidence-based economic policy, and in so doing risks sabotaging the very system that has helped drive US prosperity, innovation, and leadership in global commerce.

The administration’s argument is built on the premise that large bilateral trade deficits — particularly with China, Mexico, Germany, and Japan — represent exploitation. In fact, a trade deficit is not a measure of being “taken advantage of;” it is a simple macroeconomic identity. It reflects the fact that the United States consistently imports more than it exports, with capital inflows from abroad financing both private investment and public debt. This inflow — recorded as a capital account surplus — signals that global investors view the US as a safe and attractive destination for capital. Far from being a symptom of decline, this pattern is a reflection of economic strength and international confidence in US institutions. Trade deficits are not inherently bad; in fact, they often correlate with periods of strong growth and low unemployment.

The administration’s use of tariffs as a blunt-force tool to “correct” these deficits reflects a fundamental misunderstanding of comparative advantage, one of the most basic principles in economics. By imposing tariffs on imports, the government reduces consumer choice, raises input costs for American firms and the cost of living for households, and invites retaliatory measures that harm US exporters. The idea that protectionism leads to economic strength has been discredited repeatedly — whether during the Smoot-Hawley debacle of the 1930s or more recent empirical studies on the costs of steel and aluminum tariffs imposed in March 2018 under Section 232.

Moreover, the assertion that past trade agreements — such as NAFTA, the WTO accession of China, or the US-Korea FTA — were one-sided giveaways is economically unserious. Those agreements were negotiated to promote mutual gains through the reduction of barriers to trade and investment. Some industries contracted, as expected in any process of specialization and reallocation. But far more jobs were created in sectors where the US holds competitive advantages: high-tech manufacturing, advanced services, and capital-intensive production. Consumers have benefited from lower prices, and American firms gained access to global supply chains that improve productivity and innovation.

It is undoubtedly emotionally comforting and politically expedient to tell out-of-work machinists, demagogues, and nativists that the only reason their jobs disappeared is because America was “ripped off” by cunning foreigners. It’s a narrative that flatters the ego and assigns blame elsewhere, suggesting that American workers were betrayed and that blue-collar workers in the US are too noble, too skilled, or too moral to compete in a crooked game. But the truth is more mundane and more painful.

While it’s true that high union wages in the American Midwest were easily undercut by equally capable workers abroad, the deeper force was the relentless advance of automation and technological change, which rendered entire job categories economically obsolete. Scapegoating trade agreements for this transformation ignores that the greatest dislocation came not from container ships, but from code and machines. And for all the wailing about dignity and livelihoods, the fact remains: American consumers, including many of those simultaneously lamenting lost factory jobs, consistently choose cheap goods over preserving high-wage, low-efficiency employment in their own communities. They vote with their wallets at Walmart, not at the ballot box — and what they’re currently voting for, consciously or not, is the dismantling of the very economic world they claim to miss.

The Trump administration also frequently complains about “unfair” trade practices, but fails to distinguish between legitimate grievances — such as intellectual property theft or forced technology transfers — and the broader reality of global competition. Instead, it lumps all trade imbalances into the same narrative of betrayal, ignoring the role of domestic policy failures. Blaming Mexico or China, for example, for deindustrialization in the US ignores the effects of automation, underinvestment in education and infrastructure, and a tax code that rewards rent-seeking over productive enterprise. Consider as well that the same government that extended hundreds of billions in loans for unproductive, ideological college degrees is now bemoaning the fact that populations an ocean away are frequently more ready and able to occupy and support massive industrial and manufacturing sectors. 

In fact, contrary to what the Trump administration claims, if there has been a shift away from free trade and toward coercive, erratic, and protectionist trade behavior, it has mostly been undertaken by the United States. Over the past three decades, the United States has steadily shifted toward unfree trade, even before Donald J. Trump took office. According to the Fraser Institute’s Economic Freedom of the World, US trade freedom peaked in the 1990s — ranking eighth globally — before entering a long-term decline. By 2000, the US had slipped to 22nd in trade freedom — and today, it has dropped even further, ranking 53rd.

Similarly, the Heritage Foundation’s Index of Economic Freedom shows a downward trend in the US trade-freedom score from the early 2000s to the present.

This gradual move toward trade restrictions has intensified sharply under Trump’s ascendancy. The implementation of Section 232 tariffs on steel and aluminum, along with escalating tariff campaigns against China, the EU, and other major partners, pushed the US into one of the most protectionist positions among its top ten trading partners. While other advanced economies have maintained or increased trade openness, America reversed course — undermining its own leadership in the rules-based trading system and fueling policy volatility. This shift not only weakened American credibility but also raised costs for domestic consumers and firms, all at a time when the global trend favored liberalization rather than retreat.

Perhaps most damaging is the abandonment of multilateral frameworks in favor of a transactional, zero-sum approach to trade. The imposition of tariffs on allies and strategic partners, much under the absurd guise of “national security,” has undermined American credibility in institutions like the WTO and alienated countries that share America’s long-term interests in a rules-based global system. Rather than using these institutions to enforce rules and settle disputes, the administration has opted for ad-hoc coercion, making trade policy unpredictable and undermining business confidence.

The notion that America’s trading partners have been “laughing at us” or “getting rich at our expense” is empty demagoguery, but not only that. It is economically backward as well. Trade is not a zero-sum game. When American consumers buy foreign goods, they do so voluntarily, because those goods offer better value. When foreign nations sell to the US, they often reinvest the proceeds in US assets — Treasury securities, real estate, and factories. That flow of goods and capital has enriched the US economy, not impoverished it. 

(The idea that trade deficits with foreign nations are to blame for the $37 trillion tower of US government debt is a textbook abdication of responsibility. That debt wasn’t imposed on us — it was voluntarily offered, eagerly purchased, and politically normalized, with the proceeds spent on the two “fares”: welfare and warfare. From allies to adversaries, the world simply bought what the US government was all too willing to issue.)

The tariff-centric trade doctrine currently dominating the policy landscape is built on interest group pandering and economic myth. The idea that America has been systematically exploited by its trading partners over the past 30 years is not supported by data, logic, or the historical record. What has actually happened is that US policy has until recently embraced open markets, competition, and global integration. Doing so resulted in enormous gains in productivity, innovation, and consumer welfare as a result. 

To reverse this trajectory in the name of imagined victimhood is to embrace decline, not renewal. A nation with a $21 trillion consumer economy, in the top ten of proven oil reserves worldwide, home to seven of the top ten universities on the planet, and unmatched global reach claiming to be a victim of smaller, mostly economically undifferentiated nations — many of them developing countries — is not so much unconvincing as it is pathetic.

Before Amazon.com existed, you had to buy books — and any number of other things — at physical stores. If you wanted a new washer or refrigerator, you had to go to a Sears store.

Now imagine if, even worse, there were different stores for different manufacturers of refrigerators: one store for Whirlpool, another for LG, yet another for Bosch, and so on.

That’s just how most of us are forced to buy cars in the United States. Twenty-eight states, including Georgia, prohibit car manufacturers from selling directly to consumers with only narrow exceptions.

Georgia’s Motor Vehicle Franchise Practices Act (MVFPA) generally prohibits manufacturers from owning or operating car dealerships, and a few years ago legislators carved out a special exception for Tesla. New car companies, like Lucid Motors, that want to sell directly to consumers? They’re out of luck.

These protectionist policies are a relic of a bygone era, and they hurt not just carmakers like Lucid, but every consumer who wants more choice, better prices, and a modern buying experience. That’s why we at AIER filed an amicus curiae brief in support of Lucid’s legal challenge before the Georgia Supreme Court.

We took this step because Georgia’s law is an economically harmful, constitutionally suspect violation of freedom of contract, equal protection, and the principle of legal uniformity.

Georgia’s MVFPA is a straightforward restriction on competition in the automobile retail industry. It protects dealerships from facing competition in the form of direct-to-consumer sales. As such, the law harms not only manufacturers, but consumers as well.

None of the traditional economic justifications for enacting state regulations in the automotive context apply to direct-to-consumer (“DTC”) business models. The primary justification advanced in support of such laws, like the MVFPA, is that, without them, manufacturers will abuse and undercut auto dealerships. In particular, the expressed concern is that manufacturers will be able to use the services dealers provide without paying for them and then sell cars directly to consumers, cutting out the independent dealers altogether. While this argument might provide some justification for banning direct auto sales for manufacturers who also have franchised dealerships, it has no application to manufacturers (like Lucid) whose entire business model is premised on DTC sales. In this context, these laws serve only to stifle competition, drive up the cost of cars, and disadvantage consumers.

In fact, the argument doesn’t really provide a justification for banning direct auto sales even for existing manufacturers. After all, manufacturers aren’t going to want to undercut their own dealerships. If they did that, their dealerships would quickly switch to selling other brands. Manufacturers have to compete for dealerships too. At most, if the law allowed, manufacturers would be able to use the option of direct sales to make sure that their dealerships treat customers fairly and set prices competitively.

And again, the law makes no sense whatsoever when applied to manufacturers that do not have dealerships.

To understand better the effects of DTC sales bans on consumers, we investigated the empirical evidence on state restrictive franchise regulations, which limit manufacturers from ending contractual relationships with dealerships and/or establish by law exclusive dealership territories. (Because all states banned DTC sales until very recently, there is no evidence yet specifically on how legalizing DTC sales affects consumers, but the effects should be similar to other pro-dealership regulations.)

We found no credible, independent studies that found consumer benefits of limits on dealer competition. In fact, several credible studies have found that these regulations raise prices and reduce sales, just what you would expect from an uncompetitive market.

The losses are big. The most comprehensive study of anticompetitive franchise regulations found that these laws transferred more than $30 billion annually nationwide from consumers to dealers. They also created about $2 billion of deadweight loss to the American economy — value that has been completely destroyed.

Dealerships can provide value; that’s why the auto manufacturers adopted the franchise model in the first place. Manufacturers couldn’t feasibly build nationwide retail networks, so they outsourced sales to local dealerships, who bore the cost and risk of showcasing cars, arranging test drives, and offering repairs.

That model made sense — in 1925. But in case the Georgia legislature hasn’t noticed, it’s 2025. We want to buy stuff online!

When was the last time you went to a car dealer’s lot, and they had the exact model you wanted with all the features you wanted and none of the ones you didn’t? Never, right?

Well, if online sales were legal, you could go online and customize your car just the way you want it. In fact, GM pioneered its economy Celta as a build-to-order model in 2008 — in Brazil, where this wasn’t illegal. The Celta quickly became one of the top-selling cars in Brazil.

If these laws are so harmful, why do they exist? The short answer is the political power of dealerships. Auto dealerships are highly organized, deeply entrenched, and politically influential in every state. They fund campaigns, lobby legislators, and fiercely protect their privileged position. They have a strong incentive to lobby because these laws make a vital difference to their profits, and politicians have an incentive to pay attention, because there are car dealerships in every district. Manufacturers, by contrast, are fewer in number and geographically concentrated with global revenues, so they have less incentive to lobby state legislatures. Consumers largely aren’t even aware of how these laws affect them, and even if they were aware, have little incentive to get politically active about something that affects them only once in a while.

The Georgia state legislature isn’t likely to solve this problem on its own, given the political power of dealerships. That’s why it’s important for the courts to step in to rule against a law that limits competition, harms consumers, and provides a narrow exemption for one single company.

In July 2024, after a shocking massacre at a children’s dance class in Southport, UK, speculation about the identity of the killer sparked widespread unrest across the country. Riots erupted, fueled by public anger over immigration policy. Amid the chaos, Lucy Connolly, a mother from Northampton, posted a tweet calling for “mass deportation” while expressing her indifference to the riots.   

She is now serving a 31-month prison sentence for that tweet. Across Europe, this increasingly appears to be the new normal: expressing an opinion the state deems immoral or “hateful” has become a punishable offense. 

European citizens have been losing their freedoms, bit by bit, as integration advances. The Lisbon Treaty, signed in 2007 and in force since 2009, gave legal personality to the European Union, allowing it to act as a State in international treaties, increasing its global weight and reducing the power of member countries, centralizing important decisions.

One acquired competence was the harmonization of certain crimes across all member states, regardless of their national legislation. Article 83 of the Treaty on the Functioning of the European Union (TFEU) provides that serious crimes such as terrorism, human trafficking, and sexual exploitation of minors be treated in a uniform manner.

The problem is not in the nature of these crimes but in the power given to a central entity. It was predictable that the scope could be extended to increasingly subjective matters.

In December 2021, the European Commission proposed including “hate speech and hate crimes” in the formal extension. Brussels justified the move by citing the rise of politicians and activists it classifies as far-right in several member states—figures whose rhetoric centers on immigration and criticism of multiculturalism, which the Commission deemed alarming.

The European Parliament explicitly referred to the so-called “Great Replacement” theory as a conspiratorial narrative that was being normalized in the political discourse of these political actors, demanding a coordinated response.

Among those targeted are parties from the new European right, vocal on matters of uncontrolled immigration, and many of which have grown as part of national governments or at least with significant parliamentary representation.

By attacking democratically elected parties, Brussels enters the domain of ideological control over its member states, imposing a singular ideology. In this framework, artificial intelligence emerges for European institutions as a tool at the service of censorship.

The AI Act, under discussion in Brussels, intends to regulate the use of AI, imposing automatic filters to identify and eliminate speech considered offensive or hateful. Cathy O’Neil, author of Weapons of Math Destruction, warns that algorithms are not neutral; they reflect the values of those who program them. Subjectivity is inevitable.

Also, Evangelia Psychogiopoulou, in the German Law Journal, warns about the risks of a common definition of hate speech and the dependence on digital platforms for moderation, which can lead to inconsistent interpretations, abuses, and undue removals, affecting freedom of expression.

It is not up to governmental institutions to define what can be said. Freedom of expression is essential so that the success or failure of ideas is measured at the polls. Brussels tries to criminalize political opposition, curtailing it by all means: despite the sharp growth of the new European right, there is a deliberate quarantine imposed against the Patriots for Europe group, which includes most of these parties, and despite representing already the third-largest European group, they are excluded from posts and influence.

Although the extension of Article 83 has not yet been approved, due to the requirement of unanimity and opposition from some member states, the European Union has circumvented the issue with instruments that do not require unanimity, such as the Digital Services Act and regulations against “disinformation,” which pressure platforms, companies, and citizens.

In Germany, a mega-operation in June 2025 targeted 140 people for online comments, with home searches and arrests, reflecting a fourfold increase in hate speech prosecutions since 2021.

In the United Kingdom, despite being outside the European Union, Keir Starmer follows the same regulatory logic faithfully. Since becoming Prime Minister, he has intensified online repression: over 3,500 arrests in six months for alleged incitement to hatred or offensive content on social networks, with home searches triggered by the expression of opinions on immigration, national identity, or criticism of the government.

In summer 2024, the lack of official information about the identity of a killer who murdered three children in Southport led to thousands of clashes in streets and social media. The result: 1,280 arrests, with the government creating more than 600 prison places to handle the volume, many related only to online posts.

In Spain, Isabel Peralta was sentenced to one year in prison for words at a demonstration; in Portugal, Mário Machado was the first convicted for a tweet. The controversial past of nationalist movements softens the social impact of these convictions, but Europeans realize they could be next. What was once called censorship is now normalized as a “greater good” for inclusion.

In the United States, progressive sectors have considered the European experience as a model to combat disinformation and hate speech online, especially after events like the 2021 Capitol riot. Organizations like the Center for Democracy & Technology (CDT) Europe have actively participated in the European Commission’s public consultation on the “European Democracy Shield,” highlighting the importance of balancing freedom of expression with the need to fight “disinformation.”

Although the First Amendment of the US Constitution offers broader protection of free speech, the growing influence of American tech companies in Europe, such as Google, Meta, and TikTok, and the implementation of regulations like the EU’s Digital Services Act (DSA), have raised concerns about the extraterritorial application of these laws.

Therefore, it is crucial that Americans remain alert to global digital regulation trends and actively defend freedom of expression, avoiding the adoption of European models, as freedom is lost gradually, slice by slice, through centralized decisions.

In 2023, Americans used Buy Now, Pay Later (BNPL) services to finance over $100 billion in US retail transactions, up nearly fivefold since 2020. This surge has alarmed personal finance professionals and media commentators. Their concerns fall into two related categories. First, overall levels of consumer debt are rising. Second, the way these loans are designed and advertised — buy now, pay later — encourages consumers to take on more debt, increasing the risk of overextension. 

“Buy now, pay later programs are a scam,” Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth, said on LinkedIn. “They encourage overspending, destroy credit, saddle you in debt, and target consumers who are most susceptible to borrowing when they shouldn’t. Society would be better off without them.”

So far, Consumer Financial Protection Bureau rulemaking has focused on holding BNPL companies to the same dispute resolution and credit bureau reporting requirements as credit cards. But it’s easy to see how critics of payday loans might go after BNPL short-term credit as well.

Concerns about BNPL center on two main issues. First, these programs make it easy for consumers to justify impulsive or unaffordable purchases—buying things they don’t need at prices they can’t afford. Second, market observers see BNPL being utilized more frequently as a sign of broader economic stress. In this case, people living paycheck to paycheck may be using BNPL programs to afford basic goods. 

Regulators and financial professionals worry that BNPL fuels rising consumer debt, burdening the already financially struggling and pilfering from the savings accounts of hard-working individuals, does so largely unnoticed by government or markets.

Despite these concerns, BNPL is a rapidly growing alternative to traditional credit, offering consumers the ability to split purchases into smaller, manageable installments, often with zero interest if paid off in the short term. 

So how does it work?

In the checkout window online, a consumer may elect to utilize a BNPL service like Klarna or Affirm. The BNPL provider and that specific business have entered into a contractual relationship, with the lender charging a fee (typically 2 to 8 percent) to advance the full sum of the consumer’s payment to the business, taking on the responsibility of repayment itself. 

BNPL providers earn income from business fees, interest charged on longer term products, such as six or 12 month offerings, late fees, and occasionally a percentage of the total payment financed. Those business fees tend to be larger than those charged by traditional credit card companies, sometimes double. Repayments usually cannot be made with a credit card. Short-term plans, such as four installments or 30-day terms, tend to be entirely free of interest if repaid within the agreed upon window.

If this sounds familiar, good. It should.

BNPL services operate nearly identically to traditional credit cards. The only material difference is the expressed flexibility BNPL offers consumers. Where a traditional credit card offers interest-free financing of purchases over the course of a single billing cycle, BNPL offers this same service over a potentially longer period of time (two months in Klarna’s ‘pay in four’ plan). 

Consumers choose BNPL services for much the same reason they use credit cards — ease of transacting, quick access to credit and loans, and membership perks. But BNPL can offer more. The APR charged by BNPL services for longer-term repayment plans is cheaper than the average APR charged by credit cards for carrying a balance — 19.99 percent for Klarna, 24.33 percent for credit cards, saving consumers nearly five percent. BNPL also gives consumers more control over timing their purchases. A consumer who needs to make a $300 purchase immediately at the end of their credit-card billing cycle might face full repayment in just a week or two. Using BNPL instead allows them spread the payment out interest-free, like resetting the clock on their billing cycle. It’s a flexible way to manage spending without incurring additional costs.

Here’s the rub — BNPL is credit, not a paycheck advance. They aren’t debt, in the traditional sense, they’re credit. And consumers who use the service agree: 53 percent of users choose the BNPL service for convenience and 23 percent use it to avoid incurring credit card debt. Consumers in general still prefer store credit offerings, but younger shoppers are driving BNPL growth: 59 percent of Gen Z say they prefer it. 

That survey reveals a simple, reassuring fact: BNPL is viewed by consumers to be an alternative to store credit offerings. They choose between financing through banks, stores, or BNPL firms, and approach each with similar caution. Late payment data supports this: while 41 percent of adults report being charged a late fee for a BNPL purchase over the past year, this rate is roughly the same for credit card users — 37 percent.

If swiping a credit card for groceries is considered normal, choosing BNPL shouldn’t raise any eyebrows — especially when it offers clearer terms and more inclusive access. People don’t use BNPL because they’re broke, they use it because it makes sense to do so. It’s not a sign of economic distress, but of evolving consumer choice. Just as credit cards became a staple of everyday transactions despite initial skepticism, BNPL gives people more flexible and transparent ways to manage their money. For many, it provides short-term liquidity without revolving debt or hidden fees. If no one questions the middle-class shopper swiping a credit card for essentials, why rush to judge someone using BNPL for the same purpose?

Financial tools should empower, not penalize, everyday consumers. Consumers are telling us BNPL deserves a fair shot.

Senator Ted Cruz wants a federal moratorium on state-level AI regulation, centralizing authority in Washington. But if the federal government takes control, who controls the bureaucracy that will decide which AI products get licensed — and which get banned? 

Back in 2023, OpenAI CEO Sam Altman warned the US Senate that artificial intelligence posed risks on par with nuclear weapons. In hindsight, those warnings sound less like public service and more like strategic fearmongering — a bid to scare lawmakers into protecting OpenAI’s market position through regulation and multibillion-dollar subsidies for his Stargate infrastructure project.

Today, Altman sounds a different note: “I believe the next decade will be about abundant intelligence and abundant energy,” he told Politico. “We need to give adult users a lot of freedom to use AI in the way that they want.” But noticeably absent is any call to give AI developers the freedom to compete with OpenAI.

If wealth is knowledge and growth is learning, then AI promises a revolution in both — accelerating discovery and lowering the cost of insight. It can put eight billion people on exponential learning curves. But will heavy-handed regulation actually accelerate this transformation — or suffocate it?

Perhaps the greater benefit comes not from centralized control, but more competition — among AI companies and among governments themselves. Let nations and states compete to foster innovation.

What makes your local McDonald’s serve you better? It’s the Burger King across the street, not a government inspector with a clipboard. Competition drives better service, lower prices, and more innovation. Regulation protects incumbents, empowers bureaucrats, and often serves political interests more than the public. If you want better choices, more value, and faster progress — bet on open competition, not central control.

Remember, it wasn’t regulation that drove down the cost of AI models from $100 million to just $30. It was competition. And it happened in less than 60 days. That’s the power of open markets. That’s how progress happens.

Flags of Convenience for AI Innovation

Flags of convenience refer to the practice of registering a merchant ship in a country other than that of the ship’s owner, usually to enjoy more favorable regulations, taxes, and labor laws. Four countries — Panama, Liberia, the Marshall Islands, and Hong Kong — account for over half of the world’s maritime freight capacity today.

In the 1950s, the US registered 50 percent of global capacity. US registration has dropped almost 99 percent, to just 0.57 percent today. Could the same pattern repeat if the US government attempts to license AI?

“Capital goes where it is welcome,” noted the great banker Walter Wriston, “and stays where it is well treated.” By capital, Wriston meant both the capital in your wallet and the capital in your head.

Where Is AI Capital Welcome and Well-Treated Today?

While the US, the EU, and China build expansive bureaucracies to regulate and tax AI innovation, a new set of countries is emerging as “flags of convenience” for AI startups — offering low taxes, business-friendly environments, and innovation-focused policies.

Singapore stands out as the most advanced option, combining low corporate taxes, strong legal protections, world-class infrastructure, and active government support through its National AI Strategy. With top universities, generous R&D grants, and seamless access to Asian markets, it’s an ideal launchpad for globally ambitious AI companies.

Estonia offers a lean, digital-first alternative within the European Union. Known for its zero-percent tax on reinvested profits, fully online incorporation, and GDPR-compliant data policies, Estonia is perfect for small, privacy-conscious AI teams. Its tech-savvy population and transparent government create a strong foundation for early-stage innovation.

The United Arab Emirates provides a gateway to the Middle East with zero- to nine-percent corporate taxes, fast-track company formation in free zones, and a national strategy focused on AI and smart cities. With strong infrastructure and no income or capital gains tax, it’s well-suited for AI startups in logistics, finance, or government tech.

El Salvador, while less mature in its AI ecosystem, offers the boldest tax incentives — zero percent on income, capital gains, and import taxes for tech companies. With a pro-crypto stance and low cost of operations, it’s especially attractive to early-stage or decentralized startups seeking freedom from regulatory overhead.

Together, these four countries are positioning themselves as global safe harbors for AI innovation, providing startups with the flexibility, incentives, and strategic advantages to grow in an increasingly restrictive global environment.

As the AI revolution accelerates, the real question isn’t whether we need some rules — it’s who gets to make and impose them, and whether those rules will help innovation thrive or tie it down. The history of economic progress shows us that technological breakthroughs don’t flourish under monopolies or ministries or central planning — they flourish in open systems where people are free to build, experiment, and compete. That’s why a new wave of countries is stepping up as “flags of convenience” for AI, offering low taxes, simple rules, and room to grow. 

The US has always led by encouraging bold ideas and letting people build. We can keep that lead in AI, but only if we stay open, value competition, and trust in the power of free individuals. If the US tries to control AI through heavy-handed licensing and regulation, we won’t stop the future. We’ll just watch it happen somewhere else. 

Inflation ticked up last month, the Bureau of Labor Statistics reported. The Consumer Price Index (CPI) rose 0.3 percent last month and 2.7 percent over the past year. Core inflation, which excludes volatile food and energy prices, rose 0.2 percent last month and 2.9 percent over the past year.

After several months of disinflation, a possible resurgence seems worrying. But look a little closer and we can see June’s data is about microeconomic trends, not macroeconomic ones. “The index for shelter rose 0.2 percent in June and was the primary factor in the all items monthly increase,” BLS notes. Remember, the shelter index is one-third of the CPI by weight. Hence faster-than-average shelter price growth disproportionately affects the overall index. 

Last month’s “inflation” hike is really a housing price spike in disguise. This reflects supply and demand conditions in shelter markets, not aggregate demand. And remember, since the shelter index tends to lag actual shelter prices, it likely overestimates how fast those prices are currently growing.

Averaged over the past three months (April, May, and June), the implied annual inflation rate is about 2.4 percent. This is a better figure than the annualized one-month rate. Since the most recent data is disproportionately affected by shelter prices, smoothing out the data likely gives us a clearer picture of actual inflationary trends, which we can use to assess the stance of monetary policy.

The Federal Reserve’s target for the federal funds rate is 4.25-4.50 percent. That corresponds to a real rate target range of 1.85 to 2.10 percent. In comparison, the New York Fed’s estimate for the natural rate of interest was between 0.78 percent and 1.37 percent in 2025:Q1. The Richmond Fed’s median estimate was 1.76 percent during the same period. Real market rates are higher than the natural rate estimates, suggesting tight money.

As for the money supply, M2 is up 4.48 percent from a year ago. Broader measures of the money supply, which include additional assets and weight those assets by liquidity, are up between 3.93 and 4.01 percent from a year ago. Our rule-of-thumb estimate for money demand (real GDP growth plus population growth) is 1.99 percent plus 1.0 percent, yielding 2.99 percent. (The data for real GDP growth for 2025:Q1 was recently revised downward.) It looks like the money supply is growing faster than money demand, which indicates loose money.

As with last month, the problem is the unusually low GDP figure (an accounting quirk due to imports) from 2025:Q1. Data for 2025:Q2, which will be released late this month, will likely show that output rebounded. The Atlanta Fed’s GDPNow tracker predicts 2.6 percent annual growth next quarter; the annualized figure from the Wall Street Journal’s forecasts is 2.4 percent. 

Using these GDP estimates yields faster money demand growth: 3.4 to 3.6 percent next quarter if the GDP projections are correct. The money supply growth figures still outpace this, but it’s significantly closer to neutral.

Interest rate data suggest monetary policy is loose and monetary data suggest monetary policy is (slightly) tight. This presents a dilemma for the Federal Open Market Committee (FOMC), which next meets July 29-30. Markets currently assign a very low probability to a target rate cut this month. Regardless, policymakers should seriously consider a 25-basis-point (0.25 percent) cut. 

The data suggest monetary policy is tighter than it should be. We may needlessly lose output and employment if policymakers don’t begin cautious easing. A one-month jump in inflation, especially compared to recent months-long trends, ought not deter the FOMC. Neither should concerns about the supposed inflationary effects of tariffs, which are overblown. 

The Fed got behind the curve when it was time to tighten. But that doesn’t mean they should make the opposite mistake now. If we wait for the “perfect” signal from the data to ease policy, it will already be too late.

AIER’s Everyday Price Index (EPI) rose to 295.8 in June 2025, an increase of 0.51 percent. June was the first month since February, in which the EPI rose more on a percentage basis than our same-month CPI proxy, ending a streak of three months when EPI increases were lower. 

Of the 24 components making up the EPI, fifteen rose in price, seven declined, and two were unchanged from the previous month. The largest price increases were seen in housing fuels and utilities, fees for lessons and instruction, and housekeeping supplies. The most pronounced declines occurred in intracity transportation, nonprescription drugs, and recreational reading materials. 

The sharp increase in the AIER Everyday Price Index in June 2025, its largest since February and the seventh largest since January 2024, probably reflects rising costs in tariff-sensitive consumer goods. Nine of its 24 constituent categories are highly exposed to tariffs on imports from Mexico and China, including housekeeping supplies, tobacco products, personal care products, pet products, alcoholic beverages at home, nonprescription drugs, audio media, recreational reading materials, and food at home. An additional three categories — food away from home, prescription drugs, and motor fuel — are moderately exposed to tariff-driven price pressures.

AIER Everyday Price Index vs. US Consumer Price Index (NSA, 1987 = 100)

On July 15, 2025, the US Bureau of Labor Statistics (BLS) released its June 2025 Consumer Price Index (CPI) data. On a monthly basis, the headline CPI rose 0.3 percent, which was in line with forecasts. Core CPI rose 0.2 percent versus an expected 0.3 percent.

The increase in the monthly headline number was largely driven by shelter costs, which advanced 0.2 percent. Within shelter, owners’ equivalent rent rose 0.3 percent, rent increased 0.2 percent, and lodging away from home declined 2.9 percent. Core CPI, which excludes food and energy, rose 0.2 percent in June following a 0.1 percent gain in May. 

Food prices continued their steady climb, rising 0.3 percent in June. Food at home also increased 0.3 percent, though gains were uneven across categories: nonalcoholic beverages jumped 1.4 percent (with coffee up 2.2 percent), fruits and vegetables rose 0.9 percent (citrus fruits up 2.3 percent), and “other food at home” edged up 0.2 percent. Elsewhere, cereals and bakery products declined 0.2 percent as meats, poultry, fish, and eggs fell 0.1 percent (a large portion of which was due to a 7.4 percent drop in egg prices). Dairy products slid 0.3 percent. Food away from home rose 0.4 percent, led by an 0.5 percent increase in full-service meals and a 0.2 percent rise in limited-service meals. 

The energy index increased 0.9 percent following a 1.0 percent decline in May, with gasoline prices up 1.0 percent, electricity rising 1.0 percent, and natural gas increasing 0.5 percent.

In core, household furnishings rose by 1.0 percent, as did medical care (up 0.5 percent), recreation (up 0.4 percent), apparel (up 0.4 percent), and personal care (up 0.3 percent). The medical care increase was supported by gains in hospital services and prescription drugs (each up 0.4 percent) and physician services (up 0.2 percent). Offsetting some of those gains were declines in used cars and trucks (down 0.7 percent), new vehicles (down 0.3 percent), and airline fares (down 0.1 percent).

June 2025 US CPI headline and core month-over-month (2015 – present)

For the 12 months ending in June 2025, the headline Consumer Price Index rose 2.7 percent, higher than the forecast increase of 2.6 percent. The year-over-year increase in core CPI met expectations of a 2.9 percent rise.

June 2025 US CPI headline and core year-over-year (2015 – present)

From June 2024 to June 2025, food prices rose broadly. The food at home index increased 2.4 percent and food away from home by 3.8 percent. Within food at home, meats, poultry, fish, and eggs surged 5.6 percent, driven largely by a 27.3 percent jump in egg prices alone. Nonalcoholic beverages rose 4.4 percent, while cereals and bakery products and dairy each rose 0.9 percent, fruits and vegetables 0.7 percent, and other food at home by 1.3 percent. The index for full-service meals climbed 4.0 percent as limited-service meals rose 3.5 percent. 

The energy index declined 0.8 percent over the year, as gasoline prices dropped 8.3 percent and fuel oil fell 4.7 percent, though electricity rose 5.8 percent and natural gas leapt 14.2 percent. Within the core inflation index, over the past 12 months shelter prices increased by 3.8 percent. Notable gains were also seen in motor vehicle insurance (up 6.1 percent), household furnishings and operations (up 3.3 percent), medical care (up 2.8 percent), and recreation (up 2.1 percent). 

While headline inflation was pushed higher by gasoline and shelter, the uptick in core prices was largely prompted by tariff-sensitive goods — appliances, furniture, toys, and apparel — suggesting early signs of import cost pass-through. Declines in new and used car prices helped offset some of those pressures. Services inflation, particularly outside housing, remained firm, and medical care posted a notable gain. Housing costs, a major inflation driver in recent years, are cooling. 

Some companies, like Walmart and Nike, have begun modest price increases in response to tariffs, while others are delaying moves until trade negotiations play out. The inflation picture is now shaped by growing uncertainty surrounding President Trump’s sweeping tariffs, which include across-the-board 10 percent import duties, 50 percent levies on steel and aluminum, and threats of both a 50 percent tariff on copper and 30 percent on EU goods starting August 1. Though June price data showed only scattered evidence of broad-based tariff inflation, underlying price strength in core goods — excluding cars — was the sharpest monthly increase since late 2021. 

Fed Chair Jerome Powell has signaled caution, saying he wants to see how the economy digests the tariffs before adjusting rates, and policymakers appear divided: while inflation remains modest by post-pandemic standards, the risk of sticky price increases from prolonged trade frictions is keeping the Fed sidelined for now. Trump continues to demand rate cuts, publicly criticizing Powell while asserting that inflation is already under control. Yet with real average hourly earnings growth decelerating to just 1.0 percent annually and retail sales data due later this week, the Fed is likely to hold steady at its July meeting, with markets increasingly looking to September for a possible pivot. A cut may be in the cards if both inflation cooperates and tariff escalation is avoided.

Do increases in the minimum wage only manifest themselves in reduced employment? Or are there other not-so-visible, but also not-so-trivial, effects that should be part of the policy discussion? As I will argue with a short anecdote, the consequences of government interfering with private labor contracts can arise in some surprising places.

A Caffeinated Conundrum 

There is a small coffee bodega in one of the university buildings where I frequently teach classes. I regularly stopped and purchased a 16-ounce drip to fuel me through afternoon seminars.  

One day something mysterious happened. When I pulled out a few dollar bills to pay for my beverage, the barista quickly said, “I’m sorry but we no longer take cash.” 

“Why?” I asked. 

“We want to serve all of our customers better, so we only take credit and debit cards,” the attendant cheerily replied. 

I quickly fired back. “But I am a customer, and I never use a credit or debit card for anything below twenty dollars! This is not serving me better!” (As this was nine years ago, I will let readers ponder whether I still prefer cash.) 

The poor employee, visibly flummoxed by my answer, reiterated that he was not allowed to accept cash. In fact, he informed me, to my dismay, that all campus food service locations now refuse cash. (I will further let readers speculate as to whether I paid for the already-poured beverage with a card or left the drink at the counter and left.) 

Herein lies a mystery. Why would our university’s food service outlets stop accepting cash? By making it hard for someone like me to pay, wouldn’t they risk losing business? I asked this of my seminar students that day, and several reasonable answers were given.  

The first answer was that “nobody uses cash anymore so Professor Gill must be a weirdo and who would want a weirdo as a customer.” While it is true that fewer and fewer people pay with, let alone carry, cash these days (particularly college age students), I do know of enough old faculty like me that prefer greenbacks as the primary means of exchange. The bodega certainly lost my business going forward and probably a few other gray-haired faculty. While we are an old-fashioned minority, cutting off an opportunity for exchange seems like a poor business decision. 

The second answer advanced was that going cashless makes sense if you want to prevent crime. Cash is easy to steal and is fungible; credit card receipts are not. Eliminate cash, and you eliminate a major incentive for robberies. This is not such a bad idea considering it has been the rationale for several Seattle-area businesses as crime has risen dramatically in recent years. Nevertheless, our campus in 2016 was not a hotbed of theft and most of the food service outlets make awkward robbery targets based on where they are located.  Admittedly, we were starting to see an increase in homelessness on campus, so going cashless may have been a means of trying to discourage vagrants from using our cafeterias. 

It’s the Minimum Wage, Stupid

Not satisfied with any of my students’ answers, I started my own investigation into the situation by talking with different cashiers and managers around campus. Most were not actually given any rationale for the change by their bosses; they were told not to accept cash and that is what they did. Nonetheless, one intriguing answer did emerge after a few conversations – it was a way to cut labor costs. 

In 2014, the City Council of Seattle passed an ordinance that incrementally increased the minimum wage from $9.47 to $15 per hour over a two year period starting in April 2015. Do the math; that is a 58% increase in the base wage in just twenty-four short months. My university, being the progressive employer it is, typically offers a wage higher than the legislated minimum to benefit work-study students struggling to pay off ever-increasing tuition — a virtuous cycle if there ever was one!

But why should an increase in the minimum wage affect whether or not coffee shops accept cash?  

Here’s the rub. If retailers accept dollar bills and coins, employees must reconcile (or “cash out”) their till at the end of shift, making sure that the money they have on hand matches the receipts sold for the day. This is done for bookkeeping purposes and to monitor whether cashiers are pilfering. 

But “cashing out” requires time. Not a major amount of time, mind you, but enough so that an employee might spend an additional fifteen minutes on this task. Even if the task only takes a few minutes, the employer is usually required to pay a quarter hour’s wage. At the new minimum wage of $15/hour, that equals an additional $3.75. Calculated as a change from the early $9.47 minimum wage, that is roughly an additional $1.50 per hour that must be paid merely to have an employee count cash. 

While such an increase in wage cost seems trivial, remember that the employer was also paying an additional $4 per hour throughout the employee’s entire shift (plus the increase amount paid into FICA at a higher base wage). Moreover, we’re not just talking about one employee. For a campus-wide operation with dozens of outlets, you are paying this added expense across a large number of employees working a large number of shifts across multiple days, weeks, and months. Those costs add up quickly and are often reflected in higher prices that potentially chase away customers. 

(The problem is exacerbated for college food service because students have shorter shifts under work-study requirements. Instead of paying one employee fifteen more minutes to cash out after an eight-hour shift, you end up paying two employees an additional 15 minutes each to cash out after their four-hour shifts, 30 minutes. Student workers on short shifts are more expensive than non-students working a full eight hours. It isn’t surprising that my university led the way among local eateries and coffee shops in going cashless.) 

If you want to shave labor costs to minimize upward pressure on product prices, simply eliminate the $3.75/hour (or more) you pay employees to reconcile their till. In other words, if you eliminate cash, you eliminate the expense associated with cashing out. When all payments are conducted electronically, employees need only click a single button at the end of the shift and all receipts are tallied automatically. Voila – immediate cost savings! 

And so, the mystery was solved. It was a rapid increase in the minimum wage that took away my ability to buy coffee with cash. Customer inconvenience is an economic cost, and it is a cost that is often ignored by econometric studies considering only employment effects of minimum wage legislation.  

But Wait…There’s More (of Less Service)! 

Undoubtedly, some of you may be rolling your eyes at my analysis. “Prof. Gill, is the minor inconvenience of using a credit card such a major burden relative to the economic gains and social justice that results from paying workers better?” To that, I answer emphatically, “YES!”  It matters to me, and I have decreased my on-campus purchase of coffee dramatically since then, preferring to carry a thermos from home now. Customer inconvenience is a real cost, and there is more to it than just having to reach for my MasterCard. 

In 2017, a task force of University of Washington (UW) researchers published a report (with updates) evaluating the costs and benefits of Seattle’s rather dramatic minimum wage policy. Interestingly, the team went beyond looking merely at employment effects but also conducted in-depth interviews with several restaurateurs in the city about the adjustments they were making to the policy. Increasing menu prices was one of the primary methods of dealing with the increased labor costs, but restaurateurs and other service-oriented businesses were reluctant to do that given the fear of losing customers in a highly competitive market. 

One of the surprising things the UW research team found was that several lower-mid-tier restaurants were eliminating direct table service. Instead of wait staff taking orders at the table, bringing the food, and bussing the tables, customers would order at a counter, pick up their own food, and be encouraged to deposit their dishes at a separate bussing station. In essence, some table service restaurants began to look more like McDonald’s.  

Again, this may seem trivial in the grand scheme of things, but losing the experience of table service and the interaction of an attentive server does diminish the overall dining experience. Granted, this did not happen at four-star, white tablecloth establishments that have clientele who can absorb higher menu prices. The restaurants affected tended to serve lower income individuals who suddenly were presented with a lower quality of service. Considering that proponents of higher minimum wages are usually advocates for the poor, it is odd to forget that the poor are not just workers, but customers as well. And why shouldn’t lower income individuals enjoy the benefits of table service at restaurants?  

Another key finding of the UW report was that restaurants responded to the increased wage by reducing staff hours. This is noteworthy as previous studies typically focused attention on whether increased minimum wage rates would create greater unemployment, including the famous Card & Krueger “natural experiment” study that showed little effect on layoffs. But such studies viewed labor as a binary variable – you were either working or not. 

In reality, labor is a continuous variable; employees can work 40 hours per week or just 30 hours. In Seattle, employers reacted to higher labor costs by reducing hours of their staff rather than laying them off. Finding and training new employees is expensive. Rather than laying off current workers, it made sense to cut their hours and hope there wouldn’t be any corresponding loss in productivity. Ironically, the UW study found that while the average hourly pay for service employees did increase due to minimum wage increases, the reduced hours worked meant that there was little gain (and even a small loss) in overall monthly pay. 

But again, it is not just the labor effects that we must pay attention to when evaluating the effects of minimum wage increases. With employers cutting back on hours, customer service takes a hit.  

Consider food service once again. While there is some degree of predictability with restaurant and bodega traffic, surprises always occur. A “typical” slow Wednesday might be hit with an unexpected rush of traffic. As restaurants are evaluated not only on food quality but service as well, not having enough staff on hand to handle that rush will likely result in slower service. For that reason, restaurants favor having additional wait staff and kitchen help on hand just in case. With labor costs rising, though, such a strategy becomes untenable in a sector with slim margins. The other option being pursued by several fast food outlets is to simply replace human workers with automated kiosks. While this may work for a quick meal at Burger King, the prospect of this alternative at casual sit-down dining establishments seems horrid. 

Owners may also shorten the hours of business, leaving early bird or late-night customers with fewer options (just like my cashless coffee bodega). All of this is likely to create disgruntled customers who spread their bad experiences online or via word of mouth. While anecdotal, many of my acquaintances and I have noted that the quality of restaurant service in Seattle has declined significantly over the past decade and many of us have scaled back our dining habits. And we’re not alone. Fewer people have been eating out and restaurants have been closing in surprisingly high numbers. The impact of a minimum wage increase need not be immediately felt; through the slow decline in service and convenience, an entire sector withering away.

The Bottom Line Isn’t Always about the Money 

Policy debates regarding the minimum wage typically focus on labor and whether providing a “living wage” improves the lot of workers or leads to increased unemployment. But that is only one side of the coin. Consumers are also affected by minimum wage policy, be it in terms of higher prices or, as we have seen, declining service and options. These interests must be considered when formulating policy. Government mandates often have unintended consequences, and not in ways that are easily measured.  

We all benefit from a vibrant service sector; making it difficult for business to offer quality service and plentiful options for a diverse customer base will only harm the economy writ large.

Few regions in Argentina symbolize the collapse of the Peronist model as clearly as La Rioja. This remote and impoverished province has depended for decades on subsidies distributed by the federal government to keep a heavily state-run economy functioning. In La Rioja, two out of every three workers are public employees, there is little private activity, and the productive sector is dominated by companies controlled by the provincial government itself.

Until the election of Javier Milei, the central government of Argentina regularly transferred funds to the provinces through so-called “discretionary transfers,” non-compulsory funds allocated on political grounds, which in turn fed clientelist networks.

With Milei’s election in 2023, this dynamic ended abruptly. His radical fiscal adjustment policy, focused on eliminating the deficit and restoring budgetary balance, led to a 98 percent cut in discretionary transfers to the provinces. Deprived of funds and without access to debt markets, La Rioja defaulted in February 2024.

In response, Governor Ricardo Quintela, a Peronist loyalist and vocal opponent of Milei’s liberal reforms, launched a desperate measure: the creation of a local quasi-currency, issued under the technical name Bono de Cancelación de Deuda (BOCADE), commonly known as the Chacho, after the local caudillo Ángel Vicente “Chacho” Peñaloza. With an official 1:1 parity with the Argentine peso, the Chacho is formally supposed to have the same value as one peso.

Starting in August 2024, the Chacho was used to pay around 30 percent of public employee salaries, and could be used in participating businesses and to pay local taxes. The government did not force merchants to accept it, but offered incentives for them to do so.

Although the measure initially triggered a spike in demand, with roughly half of purchases in some shops made in Chachos during the first week, its acceptance quickly dwindled, and the currency’s value deteriorated even further outside the province. Restrictions on use have emerged, along with parallel markets and stores that accept Chachos only for a percentage of the total purchase or give store credit instead of change. By the end of 2024, the Chacho’s circulation was increasingly minimized, with Governor Quintela complaining that most merchants wouldn’t accept it.

Despite considering the currency a “deceptive and harmful” measure, Javier Milei refused to intervene, as the Argentine President strongly believes in competitive federalism. Milei’s idea is that provinces must be free to determine their fiscal, budgetary, and even monetary policies, and at the same time bear the consequences of those decisions. The state should not be paternalistic — even if that means letting municipalities default on their debts.

Milei envisions a structure in which subnational jurisdictions compete with one another, adjusting taxes, regulations, and public services to attract capital investment and talent.

Argentina already experimented with a wave of quasi-currencies in the 1980s and early 2000s, when more than a dozen provinces including La Rioja resorted to local issuances of quasi-currencies during austerity crises. At the time, provincial bonds ended up being absorbed by the federal government and exchanged for pesos, a path Milei has vowed not to repeat.

There is concern that the Chacho could have inflationary effects, either directly or indirectly. According to economist Marcelo Capello of Fundación Mediterránea, if other provinces follow La Rioja’s example and these quasi-currencies are issued in quantities that exceed the province’s fiscal revenue capacity, this risk is real.

Furthermore, Capello warns of the risk of a “fiscal war” between the provinces and the national government if this kind of issuance spreads, undermining the national effort to contain inflation by allowing provinces to bypass fiscal adjustment and issue disguised money.

Quintela is trying the last breath of a model that survived for decades, while Milei is forcing a confrontation with reality: either the provinces reform, or they collapse without a safety net.

The Chacho experience reopens a recurring debate in the United States about bailouts. As economists Thomas Sowell and Milton Friedman warned over the years, the federal government should not rescue states from their debts, as this distorts the market and encourages government irresponsibility.

Over the past decade, US states with chronically unbalanced finances—notably Illinois, California, and New York—have benefited from implicit or explicit federal support mechanisms, especially during the pandemic. Such interventions dilute the incentives for sound governance by softening the impact of poor local management.

La Rioja’s case is a reminder that a functional federation requires competition between jurisdictions, not the mutualization of losses.

Federal bailouts for states do not save economies. They only destroy incentives and lull the problem to sleep, offering a “band-aid” solution paid for by all taxpayers.

Argentina is now trying to reverse this logic by removing the federal safety net for poor local planning. The United States should follow the same path.