Introduction

Economists, policymakers, and business leaders widely regard central bank independence as a desirable feature of monetary-institutional design. What is central bank independence, and why is it valuable? How has central bank independence worked in practice? And how should we think about the independence of the United States’ central bank, the Federal Reserve (“the Fed”)? This explainer answers these questions for interested non-experts.

The explainer begins by defining central bank independence and describing its theoretical desirability. Next, it reviews classic and contemporary studies on how central bank independence affects key macroeconomic variables, particularly inflation. The explainer then discusses the constitutional and legal standing of the Fed and how each relates to central bank independence.

Defining Central Bank Independence

An independent central bank can make monetary policy decisions without direct interference from politicians. Our central bank does not need the president’s permission to change its target for the federal funds rate, and it does not need to check with Congress before it conducts open-market asset purchases to increase the money supply. “Independent” is thus a reasonable description of the Fed’s day-to-day activities.

There are four kinds of central bank independence. A central bank has goal independence if it can choose its own objectives. It has instrument independence if it can choose the means for pursuing its goals. It has financial independence if it controls its own budget—for example, by being self-funded. And it has personnel independence if its chief officers cannot be removed except for cause.

A plausible link exists in economic theory between central bank independence and good macroeconomic outcomes, such as low and stable inflation. Policy is a matter of incentives. If the Fed’s monetary policy decisions were under direct political control, politicians might loosen monetary policy in the run-up to elections to bolster their chances of staying in office. Artificially cheap credit and rapid money growth would make the economy look stronger than it is, but the inevitable long-run result is painful inflation, and perhaps even a recession if investors are fooled by low rates into undertaking unsustainable projects. Also, since the Fed can make loans but is not subject to the same profitability constraints as private banks, politicians might use a central bank to steer credit to politically favored, but economically wasteful, causes or projects.

Classic Studies of Central Bank Independence

A large academic literature explores central bank independence. Below are summaries of classic works, as well as more recent investigations. Interestingly, the newer studies are less supportive of central bank independence than the classic studies.

Alex Cukierman, Steven B. Webb, and Bilin Neyapti published a paradigm-defining paper on central bank independence in 1992. They created an index measure of central bank independence, which has been widely used in follow-up studies, and showed that central bank independence correlates with lower inflation in developed countries. This paper set the stage for decades of investigations into the consequences of central bank independence.

A year later, Alberto Alesina and Lawrence Summers showed that increased central bank independence is associated with lower inflation without any harm to real economic performance, as measured by unemployment, GDP growth, and interest rates. This provided additional support for the argument that central bank independence was desirable.

Economists have also interpreted three influential papers, which predate the above studies, as supporting central bank independence. The first two, one by Finn Kydland and Edward Prescott and the other by Robert Barro and David Gordon, show that discretionary (self-chosen) monetary policy has an inflationary bias compared to rule-bound monetary policy. Economists tend to associate period-by-period decisions with politicians on short-term election cycles and a more stable, long-term outlook with central bankers.

The third paper is Kenneth Rogoff’s study of monetary policy commitment as embodied in a “conservative” central banker, meaning one who is more hawkish on inflation than the general public. Credibility is key to keeping inflation low. Political control of central banking damages central bank credibility because politicians cannot long diverge from the public’s inflation preferences. The less political dependence, the greater the macroeconomic stability.

Recent Studies of Central Bank Independence

Given these articles and their reception, it is unsurprising that central bank independence enjoys strong support among economists and policymakers. But this may be starting to change. Recent studies show that central bank independence does not necessarily lead to better macroeconomic outcomes, especially in terms of price stability.

In 2010, Jeroen Klomp and Jakob de Haan published an important paper showing that “there exists no general significant negative relation” between central bank independence and inflation. Earlier results, while valid, are not robust to alternative estimation methods and newer data.

Daniyar Nurbayev’s 2017 article goes even further: the apparent effect of central bank independence on price stability (e.g. low and predictable inflation) is due to broader commitments to the rule of law, rather than central bank independence alone. Notably, “CBI [central bank independence] has no significant effect on price stability when the rule of law is weak.”

Cep Anwar published a paper in 2022 focused on central bank independence in developing countries. The effects of central bank independence on inflation are not uniform; the particulars of a country and its government matter more. This may be confirming evidence of Nurbayev’s claim that more basic institutional and legal commitments to the rule of law actually explain the correlation between greater central bank independence and lower inflation.

Not all recent studies run against the older consensus. Carola Binder, for example, showed in her 2021 paper that increased political pressure on central banks is correlated with higher inflation and greater inflation persistence. “Even central banks with high legal independence frequently face pressure — nearly always for looser monetary policy,” she notes. Empirically distinguishing between (formal) independence and (informal) pressure is a worthwhile endeavor. Of course, political pressure itself has institutional antecedents. Following Binder, the next round of papers will likely attempt to identify these antecedents.

The takeaway is this: the benefits of central bank independence appear to be contingent. Underlying political and economic institutions matter greatly. The conditional benefits of central bank independence should make us hesitant to treat it as a macroeconomic panacea.

Is the Modern Fed Independent?

So how does the US Federal Reserve rank among the four types of independence — goal, instrument, financial, and personnel?

When discussing the independence of the Fed, we need to distinguish between its ordinary operations and its legal standing. It enjoys significant independence in terms of the former, but not the latter.

The Fed has considerable goal independence. It is true that Congress sets the goal as a legislative mandate: currently, a three-part mandate of “maximum employment, stable prices, and moderate long-term interest rates.” But the Fed has broad latitude in determining what constitutes success in achieving those goals. The Fed decided on its own that the best way to achieve the goal of stable prices is by adopting a two-percent inflation target.

Similarly, the Fed enjoys a high degree of day-to-day instrument independence. It can use its monetary policy tools, such as setting the target range for the federal funds rate, conducting open-market operations (buying or selling securities), and setting the discount rate (the rate for borrowing directly from the Fed), without consulting elected officials.

The Fed is also financially independent. It funds itself through its monetary policy activities. Its revenues come from returns generated by its asset portfolio. Congress does not currently authorize its funding.

Finally, the Fed has significant personnel independence. It is very difficult to remove the Fed governors or the chair, for example. It is not clear how Congress’s impeachment powers apply to the Fed. The president can remove a Fed chair, but only for incompetence or inability to perform essential duties, not for policy disagreements.

Limits of Fed Independence from Congress

Whatever independence the Fed has, however, ultimately depends on Congress. Article I, Section 8 of the Constitution vests in Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin,” establishing that monetary policy is ultimately the prerogative of the legislature. Ordinary (operational) independence is best understood as a legislative grant.

The Fed’s history bears this out. Congress passed the Federal Reserve Act in 1913 and has since amended it more than 200 times. The Fed’s mandate comes from Congress and was last modified in 1977. And many laws, such as Dodd-Frank, enacted structural and procedural reforms. Congress could change the Fed’s goals or operating framework again if it wished.

There are also limits to the Fed’s personnel independence. The Senate must confirm the president’s nominees to the Board of Governors. Most recently, one confirmation failed during President Trump’s first term, when economist Judy Shelton did not secure a majority in a full Senate vote. Stephen Moore and Herman Cain, whom Trump also put forward, withdrew their nominations, presumably because they lacked the confirming votes in the Senate. Under President Biden, Sarah Bloom Raskin withdrew her nomination due to opposition from members of the Senate Banking Committee.

Congress could also restrict the Fed’s instrument independence if it so chose. Legislators could limit the assets the Fed may purchase (e.g., Treasury debt only) or restrict its lending activities (perhaps even closing the discount window).

As for financial independence, while the Fed is currently self-funding, Congress could make the Fed get its financial resources for non-monetary policy activities (namely, regulation) from the normal appropriations process. Importantly, this would not work for open-market monetary policy. The Fed does not need taxpayer resources to buy or sell assets; it creates or destroys dollar reserves to conduct these operations. Of course, Congress could divert Fed earnings or other balance sheet resources for fiscal purposes, as it did in 2018.

In short, the Fed’s independence is a Congressional delegation of power. It lasts as long as Congress pleases and no longer.

Fed Independence from the President

A stronger argument can be made that the Fed is independent from the president. The chief executive nominates Fed governors, but cannot remove them except for cause — something which has never been done. Legal precedent holds that the president can only remove officers who wield purely executive power. Because much of what the Fed does is quasi-judicial (e.g., issuing cease-and-desist orders) and quasi-legislative (e.g., setting reserve requirements for depository institutions), its highest decision-makers enjoy formal protections from the president.

While the Supreme Court recently extended the degree of presidential control over federal personnel, it also exempted the Federal Reserve. The court’s majority wrote in support of its order that the Fed is “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” However, nobody knows what a “distinct historical tradition” means, nor is it well understood why the Fed specifically merits a carve-out. Justice Kagan, for example, was puzzled by the “bespoke Federal Reserve exemption.” These ambiguities mean additional court cases could ensue.

Of course, presidents can wield all sorts of informal pressure on Fed chairs and governors. Nearly every president since Eisenhower has tried to influence monetary policy decisions. President Nixon (in)famously prevailed upon then-chairman Arthur Burns to loosen monetary policy in the run-up to the 1972 presidential election. Even President Reagan, whom history credits with presiding over America’s economic revitalization during the 1980s, was worried about how then-chairman Paul Volcker’s battle against inflation would affect his reelection prospects. More recently, during the Biden administration, there is some evidence that the Fed delayed monetary tightening in the wake of rising inflation because Chairman Powell wanted to secure his reappointment over Lael Brainard, a more dovish candidate. Presidential interference with monetary policy more closely resembles the bad-incentives concerns about running the printing press for partisan or electoral reasons than does Congressional oversight.

Independence in the Balance

In the last analysis, monetary policy cannot be independent from elected officials because monetary policymakers answer to Congress. We may wish to insulate central banks from overly ambitious presidents. History shows that chief executives may be willing to sacrifice price stability for political or electoral success. Nevertheless, central bankers still answer to legislators, as the Constitution requires.

Fed watchers in academia, government, and business largely assume the Fed both is and should be independent. The reality is more complicated. As economists Jerry Jordan and William Luther note in a recent study, “The United States ranks in the bottom quartile of countries on several measures of central bank independence.” This is by design: Constitutional principles require Congress to oversee any monetary authority to whom Congress delegates power. Furthermore, while economic scholarship has no legal standing, it is important to note that recent studies of central bank independence rarely find unambiguously positive effects.

The Fed’s operational independence de facto depends on Congress’s continued goodwill. Congress controls the Fed de jure and can intervene at any time to restrict goal, instrument, financial, or personnel independence.

Yesterday, the Federal Reserve’s monetary policy committee kept the target range for its policy interest rate at 4.25 to 4.5 percent, unchanged since December 2024. The decision came as no surprise to market participants who, despite President Trump’s recent clamor for rate cuts,  widely expected the Fed to hold steady amid ongoing economic uncertainty.

At the post-meeting press conference, Fed Chair Jerome Powell said the committee continues to view the economy as being in a solid position. He emphasized that the unemployment rate remains low and that the labor market is at or near full employment. He acknowledged, however, that inflation is still running above the Fed’s two-percent long-run target.

Echoing his remarks in May, Powell noted that the specter of new tariffs prompted an unusual surge in imports, which temporarily distorted first-quarter GDP measurement. Even so, he pointed to solid underlying demand: private domestic final purchases — which exclude net exports, inventory investment, and government spending — rose at a 2.5 percent annual rate. 

Powell noted that wage growth has continued to moderate while still outpacing inflation, and payrolls have increased over the past three months. The unemployment rate, he noted, remains low at 4.2 percent and has stayed within a narrow band for the past 12 months. Overall, Powell concluded that key indicators point to a labor market that is broadly in balance. 

Nonetheless, the summary of economic projections, also released Wednesday, indicates that the committee sees higher unemployment later this year. The median unemployment rate projection inched up to 4.5 percent from 4.4 percent in March, likely reflecting the committee’s concerns about slower economic growth in the second half of the year.

At the same time, Powell cautioned that surveys of households and businesses continue to reflect declining sentiment and heightened uncertainty, largely stemming from unresolved trade policy tensions. He noted that it remains unclear how these sentiments could influence future spending and investment. This concern can be seen in the committee’s projections of GDP growth. The median projection now puts real GDP growth at 1.4 percent in 2025, down from 1.7 percent in March and 2.1 percent in December.

On prices, Powell noted that both market- and survey-based measures of inflation expectations have edged up in recent months, with rising tariffs cited as the primary driver. But he emphasized that longer-run inflation expectations remain well anchored near the Fed’s two-percent target. Nonetheless, the median inflation projection for 2025 rose to 3.0 percent, up from 2.7 percent in March and 2.1 percent in December.

Powell noted that the effects of tariffs on inflation will depend on their ultimate level. He explained that although it now appears tariffs will be set lower than many had anticipated in April, this year’s increases are still likely to raise prices and slow economic activity.

Consistent with his remarks in May, Powell noted that any inflation brought on by the higher tariffs could be short-lived, amounting to a one-time shift in the overall level of prices, also warning that if prices do not respond quickly to the higher tariffs, the inflationary effect could prove more persistent. Whether that happens, he noted, will depend on the magnitude of the tariffs and the speed at which they pass through to prices. 

To prevent a one-time increase in the price level from turning into a broader inflation problem, Powell reiterated that the committee is fully committed to keeping the public’s long-run inflation expectations anchored at two percent. He explained that meeting this obligation could require placing greater emphasis on the price-stability side of the Fed’s mandate, noting that sustained price stability is essential for maintaining strong labor market conditions.

Powell again cautioned that ongoing uncertainty could create tension between the prongs of the Fed’s dual mandate: price stability and maximum employment. If such a conflict arises, he explained, the committee would assess how far inflation and unemployment are from their respective goals — and how long it might take for those gaps to close — before adjusting policy accordingly.

Despite holding the policy rate target steady, the median projection for the policy rate suggests the Fed is likely to begin cutting rates later this year. The median projection for the federal funds rate remained at 3.9 percent — 35 to 60 basis points lower than the current federal funds rate target.

Powell explained that Fed officials are wrapping up the five-year review of the Fed’s monetary policy framework. He reiterated that they remain committed to incorporating the lessons learned over the past five years. The review, Powell explained, should be completed later this summer, at which point the Fed will release an updated Statement on Longer-Run Goals and Monetary Policy Strategy.

Powell’s remarks during the Q&A shed further light on the Fed’s wait-and-see posture. He explained that while the committee expects the new tariffs to feed through to the price level, there is still uncertainty about the size and timing of that effect. Given the overall strength of the economy, he said, Fed officials have the flexibility to let events unfold before deciding whether a policy response is warranted.

Taken together, Powell’s remarks highlighted three key themes: inflation remains elevated, uncertainty surrounding tariffs is clouding the outlook, and the broader economy is strong enough to give the Fed room to wait. Rather than pre-committing to rate cuts, Powell emphasized the importance of letting the data guide decisions. The message was clear: the Fed is no longer operating under extraordinary forward guidance — it’s back to a more traditional, data-dependent approach.

The One Big Beautiful Bill Act (OBBBA), intended to lower the tax burden for Americans and thus to stimulate growth, contains one provision that has caused much alarm in Canada — potentially imposing a punishing tax on Canadians who invest in US companies. Canadian individuals and entities could face increased US withholding tax rates of 30 percent or more on US-source dividends, interest, royalties and capital gains on real estate. The financial implications are severe, conceivably gutting Canadian pension funds that are normally tax exempt.

Section 899 of the OBBBA, passed by Congress last month and currently before the Senate, is expressly designed to hurt investors from countries that impose what the legislation terms “unfair” foreign taxes. The OBBBA defines these taxes as those which are exclusively or predominantly applicable to non-resident individuals and foreign corporations or partnerships because of the application of revenue thresholds or exemptions that ensure that substantially all residents other than foreign corporations and partnerships supplying comparable goods or services are excluded. This language could hardly be clearer; it is an obvious reference to Digital Services Taxes (DSTs).

Canada instigated its DST last year, purportedly to address the concern that the world’s biggest tech companies do not pay their fair share of tax because they are able to locate their head offices in low tax jurisdictions while serving clients around the world. Canada’s DST applies to large businesses, ostensibly foreign and domestic, that meet both of two revenue thresholds: total global revenue of €750 million or more in a fiscal year; and greater than CA$20 million in earnings in Canada in the calendar year. The tax applies at a rate of 3 percent on profits over CA$20 million.

The DST disproportionately impact US companies, an unfortunate, if not intentional, consequence of outcome-based equity-minded policymaking. The US launched a complaint against Canada’s DST last August via the United States Mexico Canada Agreement (USMCA), the Services chapter of which prohibits discrimination between foreign and local services or services suppliers.

While it is arguable that Canada’s DST is indeed discriminatory against US companies, Canada could seek to raise a USMCA complaint of its own against the OBBBA withholding tax. The USMCA’s Investment chapter prohibits discrimination against foreign investors, with investment broadly defined to include shares in US companies and various other assets which would probably be caught by the Section 899 withholding tax.

In other words, Canadian legislation that violates an international treaty will be countered by US legislation which is illegal under the same treaty. The situation does not inspire much confidence in the two countries’ respect for international law. The respective taxes are yet more levers in an age of brazen unilateralism, not to mention trade protectionism.

Investors from Canada are not the only targets of the OBBBA. Many countries impose DSTs,  using identical wording based on the OECD model. OBBBA Section 899 goes on to state that

The Secretary shall issue … regulations or other guidance which list the discriminatory foreign countries … in guidance, … update such guidance on a quarterly basis… [and] exercise the authority to provide exceptions [emphasis added].

This leaves the door open for the US to impose higher withholding taxes on investors from certain countries, much as President Trump has done with tariffs, or to exempt some countries entirely. The variable application of the measure could therefore function as “leverage” in the broader bilateral trade negotiations. It was reputed that the UK’s DST would be eliminated as part of the US-UK “deal” finalized last month, the details of which remain unclear; apparently, however, this was not the case. Exempting the UK from the “unfair taxes” designation might be one aspect of the arrangement.

Canada’s DST will almost certainly feature in the USMCA’s renegotiation next year. If it keeps the DST, Canada would need to seek an exemption from the withholding tax.

All countries imposing DSTs would be wise to abandon them, as they generate little in the way of revenue, apparently, the UK’s DST is expected to yield around £800m per year. DSTs are ultimately passed on to consumers anyway, hardly a sensible policy in an era of high inflation. It is difficult to resist the conclusion that DSTs are largely symbolic — designed to give the appearance of fairness or to convey a sense of distribution of wealth that still appeals to some segments of the electorate. Ultimately, they are anti-growth, operating as a drag on economic activity and innovation.

By pressuring foreign countries to ditch their DSTs via the threat of tax retaliation, the OBBBA could actually end up spurring growth beyond US borders.

On June 9, about 300 employees of the National Institutes of Health, representing all 27 NIH institutes, issued a letter they called the “Bethesda Declaration,” calling on NIH director Jay Bhattacharya, MD PhD, to reverse the Trump administration’s course on multiple initiatives. 

The declaration was explicitly inspired by the October 2020 “Great Barrington Declaration,” co-authored by Bhattacharya, an epidemiologist who was then a professor of health policy at Stanford. That declaration asked public health authorities to redirect anti-COVID efforts away from mandatory school and workplace closures, since children and healthy adults were at low risk of death, and focus efforts on the elderly and chronically ill. For voicing this perspective, its authors were blacklisted on Twitter (now X) and personally targeted for attack by federal health officials.

The authors of the Bethesda Declaration call on Bhattacharya to pay more than lip service to “establishing a culture of respect for free speech and dissent,” affirm that “dissent is the very essence of science,” and ensure that dissenting voices are “heard and allowed.” They accuse the Trump administration of politicizing research; cutting funding for research on health disparities, COVID immunization, health impacts of climate change, and the health needs of diverse populations; undermining global collaboration, peer review, and funding of indirect research costs; and firing essential NIH staff. 

Both parties to the dispute can agree on one thing: the NIH’s annual budget of about $50 billion makes it the world’s largest and most influential organization supporting biomedical research. To be sure, pharmaceutical firms and biomedical device manufacturers invest several times this amount in research each year, but their programs are more directly tied to future profit, while NIH can support investigations with no immediate prospects of generating revenue. Many such projects, including Watson and Crick’s discovery of the structure of DNA, have subsequently turned out to produce immense economic returns.

Yet Bhattacharya’s mission, as he conceives of it, extends far beyond cost reduction to the very ethos and culture of biomedical research. For one thing, he is focused on the contemporary “replicability crisis.” A 2016 paper published in Nature showed that more than 70 percent of over 1,500 researchers polled have been unable to reproduce the published results of another researcher. One well-known 2021 review of cancer biology research showed that among studies that had been repeated, the effect sizes were on average 85 percent smaller than what had been reported.

Bhattacharya means to combat this reproducibility crisis by reversing the current heavy bias against publishing replication studies. As things stand, biomedical journals are almost 10 times as likely to publish positive as negative results, meaning that any medical researcher who wants to get a doctorate, get published, and get funded needs to show that the therapy under investigation is effective. The culture of science must shift to recognize that studies that fail to replicate published results are as important a part of good scientific practice as positive ones. 

Bhattacharya himself incurred the wrath of leaders at NIH such as director Francis Collins, not only by co-authoring the Great Barrington Declaration but also by publishing results during the first months of the pandemic that showed that the prevalence of COVID infection was far higher than officials supposed (the Santa Clara study). The significance of this finding was this: calculations of mortality rates depend not just on numbers of deaths (the numerator) but also on numbers of cases of infections in the population (the denominator). Bhattacharya found estimates of the latter were systemically too low, which dramatically and incorrectly inflated COVID’s perceived lethality. 

For many, it is difficult to believe that published scientific results could be wrong. But as Bhattacharya’s colleague John Ioannidis has long argued, most findings are almost certainly wrong, due to biases built into research methodology that Bhattacharya aims to correct. This is not mainly fraud but unrecognized bias. For example, most studies have small sample sizes and low statistical power, data sets are routinely not shared, the culture of scientific publication and citation favors positive results, study results are not subjected to replication, and researchers are under tremendous pressure to “succeed.” 

The NIH has been perfectly designed to produce the results it is currently getting. What is it really good at? Keeping established researchers funded and ensuring that current research paradigms are carried forward into the future. To sit on a committee that evaluates research proposals, for example, scientists must be funded, which tends to reinforce current paradigms. Moreover, researchers must present preliminary data to show that their proposals are likely to produce positive results. Not surprisingly, the NIH culture makes it difficult for new researchers to secure funding to investigate new ideas. Likewise, it’s rare to receive funding for research that challenges or seeks to overturn NIH’s previously published findings. 

Bhattacharya also criticizes NIH’s current pattern of funding for indirect costs. While there are nearly 6,000 US colleges and universities, only a relatively small number – dozens – receive substantial amounts of NIH funding, often charging indirect costs rates of over 50 percent. Every $1 million of direct research funding needs to be accompanied by more than $500,000 of additional funding to cover costs such as facilities, maintenance, utilities, and support personnel. This concentrates research in relatively few centers, further reducing diversity among researchers, their investigations, and scientific ideas. 

The core question is this: what does the NIH, and more broadly speaking, the scientific enterprise, exist to do? Is its principal purpose to sustain funded researchers and their research programs? Or is it to promote discoveries that improve human health? If the latter is paramount, then the culture of the NIH must shift to put truth above success. What matters most is not how many grant dollars scientists garner, how many papers they publish, or how many awards they receive, but the degree to which they accurately illuminate what we really need to know. 

Much hangs on Bhattacharya’s response to the Bethesda Declaration. Will he engage in character assassination and retribution, seeking to silence or terminate those criticizing the administration’s policies? Or will he speak out and act on behalf of good science, a word with origins in the Latin root meaning “to know.” 

Science needs open and self-critical discussion that welcomes differing points of view, insists on the highest standards of evidence, shuns biases, and prizes the truth above all else. The NIH’s pursuit of knowledge has been ailing, and restoring it to good health will require strong medicine. 

One of the largest residential solar installers, Sunnova, went belly up on June 8. The company had over $10 billion in debt and a market cap of over a billion dollars less than a year ago. While aggressive spending on expansion and poor management account for some of Sunnova’s problems, they also faced significant policy headwinds: high interest rates, higher costs due to inflation, uncertainty and higher costs due to tariffs, and freezing of Inflation Reduction Act subsidies.

Those familiar with this space may remember Solyndra, a failed solar company that had received a $500 million loan from the federal government. Some people point to a $3 billion loan guarantee with Sunnova under the Biden administration as a larger version of Solyndra. This is incorrect.

A loan guarantee differs from a loan. The guarantor agrees to make up the difference of what a defaulting borrower agreed to pay and what they actually paid. Furthermore, the $3 billion loan guarantee was for consumer loans to install solar panels, not loans made directly to Sunnova itself. Finally, less than $50 million in loans were made under this loan guarantee program before the Trump administration cancelled it last month. This means, at least at the federal level, that the Solyndra bankruptcy cost taxpayers at least ten times more.

Besides the federal loan guarantee, the Sunnova bankruptcy highlights many of the distortions that governments have created in solar energy. But it is also personal: I installed solar panels on my house in New Jersey using Sunnova and can speak to how government incentives affected my decision.

The solar panel array Sunnova sold me had a sticker price of about $20,000. I estimate it saved me $80 to $120 per month on my electricity bill. So let’s call it $1200/year in energy savings. That’s a 6 percent return on investment. Not bad, but not great either — especially given the significant outlay required up front — and the fact that the panels depreciate over time. But when you incorporate federal and state subsidies, installing solar panels became a no-brainer.

At the time, the federal government was offering a 30 percent tax credit on solar panels. In effect, this reduced the price from $20,000 to $14,000. The rate of return from my $1200 in annual savings jumped to 8.6 percent. Then the state subsidy kicked in.

Some states engage in a practice called net metering where utilities must pay owners of solar energy for any electricity they put back on the grid. There are many complications and problems with this method that we need not worry about here. In my case, NJ required energy producers to “buy” solar power generation. Every additional thousand kilowatts of energy my solar panels generated, for my own benefit mind you, I could also generate something called an SREC (Solar Renewable Energy Certificate) and sell it on an exchange.

The price of SRECs ranged from about $200 to $240 while I owned the system and my system would generate 2-3 SRECS per year. So call that roughly $500/year in additional direct payments to me, the owner of the solar panels, and my rate of return rises to 12 percent — not a bad deal. So I, and thousands of others, bought solar panels.

And that’s the calculation with just two subsidies. Based on the time, location, and nature of the purchase, there are dozens of other forms of subsidies for solar panels. Which brings us back to the Sunnova bankruptcy and the state of solar power in the US.

Solar energy has become an enormous industry over the last decade. Part of this is due to rapidly improving technology and significant versatility. Improving technology has led to solar panels with higher efficiency and lower production costs. There are also solar panels being developed that can capture sunlight from both sides. Improvements in materials like organic photovoltaics and ultra-thin silicon are leading to thin, bendable, and lightweight solar modules that can be integrated into various surfaces — including windows and facades — as transparent solar panels become a reality.

The economic question, though, is not only about how impressive solar technology is, but whether the cost of producing, installing, and maintaining solar panels can be justified based on their direct benefits to consumers. Environmental activists and opportunistic politicians and the solar lobby obscured the answer to this question by asserting massive indirect benefits for the climate from solar energy and subsidizing solar installation at every opportunity they could find — which leads to my story.

Solar power (and wind power for that matter) has several major problems as a large-scale source of electricity for the grid. The most important problem is its intermittent nature. Solar panels don’t generate electricity at night. Nor do they generate much when it is cloudy. Furthermore, power generation is unreliable — it changes over seasons and can’t be dialed up or dialed down based on people’s demand for electricity — such as during severe weather events. The main way to deal with this problem entails massive energy storage (in effect, giant batteries) that are prohibitively expensive to build at scale.

Another oft-overlooked problem is the cost of transmission. The best locations for solar power installations are not necessarily near places with high demand for electricity. In fact, cities with high demand for electricity also have much higher opportunity costs for land than rural areas. But building transmission lines is expensive and not usually factored into the cost/benefit analysis of solar installations because regulators require utility companies (really their rate payers) to foot the bill of building transmission lines.

The explosion of solar energy has been driven by heavy government subsidization around the world. As those subsidies dry up or are cut off, such as with the current administration’s freezing of Inflation Reduction Act funds or the Big Beautiful Bill’s aggressive retiring of renewable energy subsidies, the cost/benefit calculus for solar changes, too. There will still be a market for solar energy without subsidies. It will just be much smaller. If that’s the case, we can expect stormy skies ahead for solar companies of all stripes. Sunnova’s bankruptcy is likely the beginning, rather than the end, of solar investors’ troubles.

People understandably have misgivings when someone injects the Bible into a discussion of economic issues. The Bible certainly is not an economics text. Its treatment of economic themes is desultory and brief, lacking in detail and depth. Not surprisingly, then, the Bible’s economic implications are perceived in many different ways. 

The Bible touches upon economic themes in ways that are sometimes descriptive (value-free) and sometimes prescriptive (value-laden, normative). These distinctions are crucial. 

For example, the Bible is being purely descriptive in relating an episode that features the law of supply and demand in operation during the Syrian siege of Samaria (2 Kings 6:24-7:18). When supply decreases, prices rise; when supply increases, prices fall. The Bible offers no value judgment about the operation of supply and demand. The economic law is neither right nor wrong; it is simply the way the world works, as value-free as to say that fire burns wood. 

The Bible is also merely descriptive in its treatment of voluntary exchanges, treating transactions that buyers and sellers make at mutually acceptable prices as a commonplace feature of life on Earth – e.g., Abraham’s purchase of a tomb for Sarah (Gen. 23:15) and King David’s purchase of supplies for a burnt offering (1 Chron. 21:24-25). Even usury (the charging of interest) is treated in a nonjudgmental way when Jesus, in his parable of the talents, tells the unproductive servant that he should at least have used the money entrusted to him to earn interest (Matt. 25:27). 

It is when we turn to the prescriptive (normative) aspects of economic phenomena in the Bible that controversies about how to interpret the Bible sometimes arise. Central to Bible teachings are what Jesus called the two great commandments (Matt. 22:36-40), telling how humans are to relate to the Deity and how they are to relate to each other. Indeed, those two commandments are a condensed version (early CliffsNotes?) summarizing the Ten Commandments (Ex. 20:3-17), four of which tell us what we owe to God and six which provide rules for how humans are to treat each other.  

Of particular relevance to economics are the Eighth and Tenth Commandments, “Thou shalt not steal” and “Thou shalt not covet.” Those are unequivocal statements mandating adherence to the principle of private property. (Incidentally, you don’t have to believe in God or the Bible to endorse the principle of private property. Ludwig von Mises, for example, through his entirely value-free economic analysis, concluded that it was logically demonstrable that if people desired prosperity, then an economy based on private property was the most effective means of achieving that end. It is interesting, though, that Mises came to the same conclusion via analysis that Moses came to via revelation – namely, that human beings are better off by honoring private property.) 

Some individuals have invented a concept called “Christian socialism” that is built on sophistries. They cite Bible verses such as Jesus’ statement in the Sermon on the Mount to give your cloak to the person who has stolen your coat, or the passage in Luke where the rich Lazarus suffered in the afterlife because he had not shared his earthly wealth with the poor. It is certainly true that Jesus repeatedly warned us about becoming too entangled in material comforts and that he urged us to be charitable toward others.  

Note, though, that humans were to be subject to the dictates of their own conscience about how much wealth to accumulate and not subject to the dictates of other humans. For example, when a man asked Jesus what he needed to do to inherit eternal life, Jesus told him to give all his wealth to the poor. When the man declined to do so, Jesus let him depart in peace. Jesus had essentially offered him a voluntary contract, and he respected the man’s right not to accept that contract. (See Mark 10:17-23.)   

Similarly, when another man pleaded with Jesus to tell his brother to share his inheritance with him, Jesus declined, saying, “Man, who made me a judge or divider over you?” (Luke 12:14) If the Son of God (or the most loving, moral person who ever lived, if you are more comfortable with that characterization) wouldn’t deny a man his property rights, then who are we to deny anyone those rights? 

Where many self-described Christians err is in regard to helping the poor. They assert that Christians should support government programs, whereby taxpaying citizens are compelled by law to support the less fortunate. Again, Jesus undoubtedly would endorse helping the poor, but the end does not justify the means. Try as you might, for all the exhortations in the Bible to be charitable, you will find no verse telling believers that the way to get into heaven is to make other people perform good works. Charitable deeds are to be done voluntarily, out of an inner impulsion of a loving spirit and heart, rather than in response to external compulsion, such as governments using the threat of fines or incarceration to raise taxes to fund welfare programs. 

Jesus provided the model of Christian charity in the parable of the good Samaritan (Luke 10:30-37).  When he encountered a man who had been badly hurt by robbers, the Samaritan personally attended to his wounds and spent his own money to provide food and shelter to the victim. When he had to leave to attend to his own pre-existing commitments, he promised to pay the innkeeper to care for the man.   

Thus, Jesus illustrated the two forms of Christian charity – first, giving aid personally and directly; second, rendering assistance indirectly by donating to those who have the time and skills to minister to those in need when we can’t do it ourselves. 

Let’s try a thought experiment: Suppose that the Samaritan, after spotting the wounded man, raised the funds he subsequently spent caring for the victim by imposing a toll on passersby on the road – a toll that they had to pay if they didn’t want theSamaritan to bash them on the head with his staff. The man in need still would have received the help he desperately needed, but would we still regard the Samaritan as a paragon of Christian virtue and charity? Is it genuine charity to be generous with other people’s money? Is it charitable to help some by threatening to hurt others? 

This is the murky moral territory into which many Christians stray in the name of “social justice” or the social gospel. The desire to help those in need is laudable, but the means employed by advocates of “social justice” are not. They vitiate a Biblical principle when they call for government to redistribute wealth to the poor, the sick, the widow.  Government necessarily introduces the additional factor of compulsion into the equation, for government is organized force. While it is Christian to be charitable, Jesus never mixed charity with compulsion, nor did he teach his followers to resort to force. 

For the Christian, private property is one of the central pillars of God-directed social morality. For the economist, private property offers maximum utility for promoting social prosperity. In that crucial sense, the Bible and economics do not conflict, but harmonize. 

1984 is back in the news. Orwell’s estate recently authorized a 75th anniversary edition of the timeless classic, with a new introduction by literature professor Dolen Perkins-Valdez. 

Perkins-Valdez’ introduction spends little time talking about authoritarianism, and a lot of time talking about race and gender in the story. She complains about Winston’s misogyny. She bemoans the fact that the story doesn’t focus on matters of race, writing that “a sliver of connection can be difficult for someone like me [Perkins-Valdez is black] to find in a novel that does not speak much to race and ethnicity.”

Perkins-Valdez’ introduction has sparked a firestorm. Novelist and essayist Walter Kirn calls it a “trigger warning” and blasts the imposed “permission structure” of an introduction designed to tell readers how they should feel about Winston’s sexism and Orwell’s statement that racism didn’t exist in Oceania. 

I actually disagree with Kirn’s characterization. Perkins-Valdez does grapple with Winston’s sexism and the lack of nonwhite characters, but in both cases she chooses to press on and gives her reasons for doing so. If that’s a trigger warning, it’s a very strange one. But nonetheless, Perkins-Valdez’ introduction represents an enormous missed opportunity.

The past several years of American life have been some of the most authoritarian in living memory. Online life created a digital panopticon not unlike the two-way televisions in every home in Oceania: everyone is being surveilled, all of the time. Many people, especially on the far left, used this surveillance and the new power of the online mob to silence their political opponents. People were fired for supporting J.K. Rowling or for dissenting from the Black Lives Matter agenda or even for not knowing what a bodega is. Yelp flagged businesses that disagreed with BLM, and PayPal and Etsy froze the accounts of center-right authors. Like the Inner Party, this new online movement punished people for Thoughtcrime. It found and made examples of its own Winstons and Julias, over and over and over again.

And like the citizens of Oceania, most of us were cowed into silence. In 2020, 62 percent of Americans agreed that “the political climate these days prevents me from saying things I believe because others might find them offensive.” 

In an example eerily reminiscent of the Party’s rewriting of history, academic papers were unpublished and memory-holed, not because they were academically flawed, but because they violated certain left-wing shibboleths.

It’s not just culture; top government officials have acted in increasing Orwellian ways. The Biden administration and its allies in the media spent years gaslighting Americans about Biden’s deteriorating health. They dismissed videos of Biden acting his age as “cheap fakes” and mocked first-hand accounts of Biden’s decreasing cognitive ability as right-wing propaganda. Why? There were several reasons, but a big stated one was the fear that, if voters knew the truth, then Trump would get reelected in 2024. In Wisdom of Crowds, political philosopher Samuel Kimbriel reported that, right after Biden’s disastrous debate performance, “Mike Madrid, co-founder of the Lincoln Project, gave a hot-in-the face two minute rant about how anyone made uncomfortable by what they’d seen on the debate stage was ignoring the actual danger to democracy.” This was Orwellian doublespeak at its finest: in order to save democracy, we have to lie to the American people. Saving democracy requires not letting the democratic process function.

And then there was the previous administration’s attacks on free speech. The Biden administration leaned on social media companies to blacklist or shadowban prominent opponents of its lockdown policy. The same administration sought to create a Disinformation Governance Board so that the government could decide what was true and what was false. What is that but an American version of Oceania’s Ministry of Truth?

And then there’s the Orwellian behavior on the right. Trump, who ran against political correctness run amok and who put out an executive order proclaiming his support for freedom of speech, has sued news outlets and law firms for the supposed crime of supporting his political opponents. As the right reacquires political and social power, it’s rediscovering the utility of cancel culture and of using the power of government to punish Wrongthink.

And of course there’s the behavior of Trump himself. Orwell describes doublespeak this way: “to know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them.” 

That’s a good description of many of Trump’s antics. As Jonathan Rauch writes in The Constitution of Knowledge:

One day he said his impeachment was hurting the stock market, then the very next day he bragged that the market was reaching new heights. He called government statistics showing unemployment declining under Obama ‘phony,’ but said the statistics showing unemployment declining in his own tenure were ‘very real.’

Believing all of Trump’s contradictory statements at the same time requires the same self-hypnosis as believing that Freedom is Slavery or that 2+2=5. 

On the left and right, in government and in our popular culture, we are starting to manifest disturbing echoes of the world of 1984.

A better introduction to Orwell’s masterpiece might try to grapple with our recent lurch towards authoritarianism. It might ask us questions: what causes a rise in authoritarianism? What psychological conditions led the people of Oceania into totalitarianism, and what psychological conditions kept them there? If we want to curtail so-called “hate speech” (as many Americans do), where’s the line between that and the government persecuting people for Thoughtcrime—or is there a line?

Such an introduction might prompt us to reflect on our own tendency towards authoritarianism. It might talk about the importance of courage, and whether Winston and Julia’s rebellion was wise or ultimately foolish. It might wrestle with that peculiar feature of American exceptionalism, the idea that we and we alone could never fall into authoritarianism; and prompt us to see that for the comforting lie that it is. Such an introduction might prompt us to be more on our guard against authoritarianism, both from the online mob and from the government. It might tie the story’s eternal themes to our current circumstances, so that the novel can help inculcate us against authoritarianism in the way that Orwell intended.

Instead, Perkins-Valdez chose to focus on the novel’s depiction (or lack thereof) of minorities and the main character’s (temporary) sexism. It focused on minutiae that Orwell himself seemed to consider unimportant, rather than on the enduring need to heed Orwell’s warnings and protect ourselves from falling into an authoritarian regime. That’s an enormous missed opportunity.

Last week, Alex Shieh, a student in Brown University’s class of 2027, testified before Congress. The hearing was focused on antitrust violations in higher education and surging tuition prices.

Shieh’s testimony came just weeks after Brown University opened an investigation into him for creating a website that scrutinized how the $93,064-a-year institution allocates its funds.

Shieh, inspired by Elon Musk, launched the DOGE-style project in March. Working from the basement of his dormitory — a “room that floods whenever it rains and thus has plastic tarps, industrial fans, and wet floor signs permanently set up” — he discovered a “small army” of administrative staff who work at the Ivy League school. 

Using AI, he compiled a comprehensive list of university positions, then ranked them by operational importance with a custom-built program. He published the results on a site called Bloat@Brown — but Shieh didn’t stop there. Identifying himself as a journalist, he emailed staff members asking them to describe their roles, detail recent tasks, and explain how students would be affected if their positions didn’t exist. 

Shieh’s project was no doubt cheeky. Anyone who has seen Mike Judge’s movie Office Space knows employees don’t like having to justify their jobs. (Who can forget the Bobs?) And its results were predictable. Only twenty or so employees responded, two of whom told Shieh he could perform a sexual act on himself (one suggested he use “an entire cactus”).

Less predictable was Brown University’s response. 

First, Brown sent out a memo to employees instructing them not to respond. Then, according to The New York Times, officials informed Shieh “he was under investigation for possible violations of the university’s code of student conduct, including its prohibitions on invasion of privacy, misrepresentation, and emotional or psychological harm.”

Though Shieh and his associates were eventually cleared of wrongdoing, the episode is yet another demonstration of the intellectual and bureaucratic rot that afflicts America’s elite universities. As Joshua Pederson, a professor of humanities at Boston University, wrote in Slate, the intent of Brown was clear: “They came to bury Shieh, not to praise him.”

The university took this action even though Shieh was highlighting a genuine problem. Pederson cites a report by Paul Weinstein Jr. of the Progressive Policy Institute, which documents a dramatic rise in non-faculty hiring at the top 50 US colleges. There is now one administrative employee for every four students.

“The results of this research underscore that non-faculty employees at universities, both public and private, have grown considerably and without necessary oversight, under college presidents and their boards,” Weinstein wrote. “While some of this growth may have been necessary, there is no doubt that much of it has not.”

The problem is particularly acute at Brown, where the non-faculty employee-student ratio reportedly is 1 to 3. 

Officials at Brown may not like their hiring decisions being questioned by a mere undergrad, but it’s not outside the boundaries of academic inquiry. Indeed, Pederson says Shieh deserves applause for launching a project that is quite impressive for an undergrad. 

“If I’d had the opportunity to work with Mr. Shieh, I would have begun by praising him for identifying and focusing on a pressing problem for American higher education in a time of rising tuition costs: administrative bloat,” writes Pederson, adding that he doesn’t necessarily agree with Shieh.

Brown, unfortunately, chose another route, opting to launch a clumsy investigation into the rising junior. In doing so, the university elevated Shieh’s research, highlighting the administrative bloat that is putting college out of reach of many students and leaving countless others saddled with immense debt.

The surging cost of higher education stems from various factors, but Shieh’s project homed in on one of them. 

“I discovered that much of the money is being thrown into a pit of bureaucracy,” Shieh wrote at Pirates Wire.

Shieh — as a student, journalist, and taxpayer — was well within his rights to investigate how Brown University spends his and others’ tuition dollars. But instead of defending his academic freedom, Brown University chose to launch a punitive investigation, going so far as to accuse Shieh of trademark infringement for using the word “Brown” in an article headline!

It’s hard to imagine a more self-defeating response. What began as a student research project became a full-blown PR disaster. Brown was publicly rebuked by The Foundation for Individual Rights and Expression(FIRE), which stated that the university’s actions “clearly infringe on his expressive freedoms and further violate Brown’s robust guarantees to protect free expression consistent with First Amendment principles.” Shieh’s work has since attracted national attention, including his invitation to provide congressional testimony.

Like many elite universities, Brown receives hundreds of millions in federal funding each year despite its $7.2 billion endowment. Unfortunately, the university’s response is the latest evidence that US universities are broken, dysfunctional, and unworthy of public trust and support.