Introduction

The minimum wage is one of the most frequently debated economic policies of the modern era. Advocates argue that it protects low-income workers from exploitation and ensures a livable wage. Critics contend that it distorts labor markets, reduces employment opportunities, and can contribute to inflation. 

This explainer offers a comprehensive analysis of the minimum wage, exploring its history, mechanics, intended goals, and real-world economic impact. We will also examine common criticisms and misconceptions about the minimum wage from a free-market perspective.

The History of the Minimum Wage

The idea of a government-mandated minimum wage first emerged in the late nineteenth and early twentieth centuries, under the ideological sweep now known as the Progressive Era. New Zealand was the first country to implement a national minimum wage (1894), followed by Australia (1907). In the United States, the minimum wage became law with the Fair Labor Standards Act (FLSA) of 1938, which set a national wage floor of $0.25 per hour (about $5.50 in 2024 dollars). The law aimed to prevent employers from paying substandard wages, particularly during the Great Depression.

Over time, the US minimum wage has been adjusted repeatedly, both in nominal terms (actual dollars and cents) and in response to inflation (to adjust for lost purchasing power). Many other countries have taken similar steps, though the specifics vary widely. Some nations, such as Switzerland and Sweden, have no statutory minimum wage, instead relying on industry-specific wage agreements negotiated through collective bargaining.

How the Minimum Wage Works

At its core, a minimum wage law establishes a legally binding floor on wages, meaning employers cannot pay workers below a certain hourly rate. Certain employers may be exempt from minimum wage laws, such as small businesses with fewer than a specified number of employees, those hiring seasonal or agricultural workers, and family-owned businesses where only immediate relatives are employed. Additionally, exceptions often apply to tipped workers, student workers, and certain disabled employees under specialized wage programs, allowing employers to pay below the standard minimum wage under specific conditions. 

The intent, as typically stated, is to ensure that even the lowest-paid jobs provide a basic standard of living. The minimum wage does not operate in a vacuum, however. Its effects depend on broader economic conditions, labor market dynamics, and the relative bargaining power of employers and employees. When a minimum wage is set above the market equilibrium rate—the wage at which supply and demand for labor naturally balance—it can lead to unintended consequences, such as reduced employment opportunities and increased automation.

The economic explanation is found in the graph below:

When a minimum wage (P_mw) is set above the market equilibrium wage (P*), a labor surplus is generated. At the equilibrium price (P*) and quantity (Q*), labor supply and demand are balanced. However, at the higher mandated wage (P_mw), the quantity of labor supplied (Q_s) exceeds the quantity of labor demanded (Q_d), resulting in excess labor—commonly referred to as unemployment. The discrepancy reflects the reduced hiring incentives for employers and the increased willingness of workers to enter the labor market at the elevated wage level.

The Minimum Wage in the United States

In the United States, the federal minimum wage is set by Congress and applies to most workers covered under the Fair Labor Standards Act (FLSA). As of 2024, the federal minimum wage remains at $7.25 per hour, a level unchanged since 2009. Individual states, however, have the authority to set their own minimum wages above the federal level, and many have done so to reflect local cost-of-living differences. As of March 2025, the highest state minimum wage is in Washington, at $16.28 per hour, while the lowest federal level remains in states that have not enacted their own higher wage laws. Some cities, such as Seattle and San Francisco, have implemented even higher local minimum wages. 

Employers are legally bound to comply with the highest applicable wage—whether federal, state, or local—ensuring that workers receive the maximum legally mandated amount in their jurisdiction.

What the Minimum Wage Actually Does

Economists have extensively studied the effects of minimum wage laws, and findings indicate that the policy often comes with trade-offs. Here are some of the primary impacts of a minimum wage:

Sets a Floor on Labor Costs

A legally mandated minimum wage forces employers to pay at least a specified amount, regardless of the productivity or skill level of the worker. When businesses are legally mandated to pay higher wages, they may compensate by reducing other forms of compensation, such as benefits, bonuses, or training opportunities. Furthermore, industries with low profit margins (retail, food service, hospitality) are disproportionately affected, as they rely heavily on low-wage labor. These increased labor costs result in higher prices for consumers, potentially offsetting the intended benefits of wage increases.

Reduces Employment

When a minimum wage is set above the market rate for specific jobs, it creates a price floor that can lead to labor surpluses—commonly referred to as unemployment. Employers may find it too costly to hire as many workers as they otherwise would, particularly those in entry-level or low-skilled positions. This is especially concerning for small businesses, which often operate on tight budgets and cannot absorb higher wage costs as easily as large corporations. Empirical studies on this issue have produced mixed results, but many show that increasing the minimum wage leads to job losses, particularly among young and less-experienced workers. Over time, this effect can contribute to higher structural unemployment and reduced workforce participation.

Incentivizes Employers to Hire Fewer Workers and Work Them Harder

To maintain profitability amid rising labor costs, employers often adjust their workforce strategy by hiring fewer employees and increasing the workload of those who remain. This means existing workers may face greater job demands, longer shifts, and increased pressure to be more productive. While some employees may appreciate the extra hours, others may experience burnout, stress, and reduced job satisfaction. Additionally, businesses may shift toward employing fewer full-time workers and instead rely on part-time or temporary staff to reduce costs. This can make it more difficult for employees to secure stable, long-term employment with non-wage benefits such as health insurance and retirement contributions.

Encourages Automation

As the cost of human labor rises, businesses have a stronger incentive to invest in automation to perform tasks previously done by low-wage workers. This trend is particularly evident in industries like fast food, retail, and manufacturing, where self-checkout kiosks, robotic food preparers, and automated customer service software are increasingly replacing human employees. While automation can improve efficiency and reduce business costs, it also reduces opportunities for low-skilled workers to gain entry-level jobs that provide essential work experience. Over time, this shift can exacerbate income inequality by favoring highly skilled workers who design and maintain automated systems, while eliminating opportunities for those with fewer skills.

Distorts Market Signals

In a free-market economy, the price of labor functions as a key signal to allocate labor resources efficiently. When wages are artificially set above equilibrium levels, businesses and workers receive distorted signals about labor supply and demand. For example, high minimum wages can lead to an oversupply of workers seeking jobs that no longer exist, while discouraging investment in industries that might otherwise create more employment opportunities. Furthermore, businesses may relocate operations to regions with lower labor costs or invest in outsourcing, reducing domestic job availability. These distortions lead to unintended consequences and inefficiencies, such as labor shortages in specific sectors and persistent unemployment in others.

Hurts Marginal Workers the Most

One of the most concerning effects of high minimum wages is their disproportionate impact on marginal workers—those with the least experience, lowest skill levels, or the greatest barriers to employment. Young workers, immigrants, and individuals with limited education often struggle the most to secure jobs when wage floors are high, as employers prioritize hiring more experienced or highly skilled workers. This can create long-term economic disadvantages, as job seekers are unable to gain the experience necessary to move up the career ladder. Additionally, minority and disadvantaged communities are often hit hardest by minimum wage hikes, as they tend to have higher unemployment rates and greater dependence on low-wage jobs for workforce entry.

Ignores Business Heterogeneity

A mandated minimum wage assumes a one-size-fits-all approach to labor costs, ignoring the vast differences in business structures, profit margins, and financial resilience across industries. A large multinational corporation can often absorb higher wage costs with relative ease, while small businesses with lower revenue streams may struggle to remain viable. This disparity can trigger market consolidation, where only larger firms survive, reducing competition and innovation. Additionally, regional cost-of-living variations make a federal wage policy particularly problematic, as a rate that is feasible in a high-cost metropolitan area may be unsustainable in a rural town.

Variables Affecting the Impact of a Minimum Wage

The economic impact of a minimum wage increase depends on several key variables. One of the most important factors is the size of the jump from one increase to the next. When minimum wages (labor costs) rise significantly over a short period, businesses have less time to adapt, which can lead to employment reductions, automation, or price increases. Another factor is the frequency of increases; more frequent but smaller adjustments can allow employers to gradually adapt, whereas infrequent but large jumps tend to create economic shocks. Finally, the gap between the prevailing average wage in a state or locality and the new minimum wage is critical. If the minimum wage is already close to the median wage, the impact on employment is likely to be small. However, if the minimum wage is significantly higher than what many workers currently earn, businesses may struggle to absorb the cost increases, leading to job losses or cutbacks in hours. These variables shape how disruptive a given minimum-wage policy is to labor markets.

The Card Krueger Findings

One of the most well-known studies on the minimum wage was conducted by economists David Card and Alan Krueger in the early 1990s. Their research examined the impact of a minimum wage increase in New Jersey’s fast-food industry, comparing employment changes to neighboring Pennsylvania, where the minimum wage remained unchanged. Their findings suggested that, contrary to conventional economic theory, the wage increase did not lead to a reduction in employment and may have even slightly increased job numbers.

While Card and Krueger’s study has been widely cited by minimum-wage proponents, its findings are highly context-dependent. The study focused on a specific industry (fast food) in a limited geographic region and covered a relatively modest wage increase ($0.80). Additionally, factors such as local labor market conditions, employer responses, and data-collection methods have been subjects of debate. Later research, using more comprehensive datasets and improved methodologies, has produced mixed results, with many studies confirming that higher minimum wages tend to reduce employment, particularly among low-skilled workers. Thus, while Card and Krueger’s findings contribute to the discussion, they do not establish a universal principle applicable to all minimum wage increases.

Common Assertions Regarding Minimum Wage Laws

“Raising the minimum wage will reduce poverty.”

While higher wages benefit those who remain employed, job losses among the least skilled workers often offset these gains. Moreover, many low-wage workers are not in poverty (e.g., teenagers from middle-class families), and many impoverished individuals do not work at all. Direct cash transfers, earned income tax credits, and job-training programs are often more effective poverty-reduction tools.

“Minimum wage increases boost the economy by increasing worker spending.”

Although higher wages may increase spending for some workers, the net economic impact is unclear. Higher labor costs force businesses to raise prices, cut jobs, or reduce investment, which can counteract any demand-side stimulus. Moreover, mandated wage hikes do not create new wealth—they simply redistribute it, often inefficiently.

“Businesses can easily absorb higher wages by reducing profits.”

Many small businesses operate on thin profit margins and cannot simply absorb higher wages without making other adjustments. Large corporations may be better positioned to handle wage hikes, but small businesses—which employ a significant portion of the workforce—may struggle to remain viable.

“Raising the minimum wage will reduce reliance on government assistance.”

While some workers may rely less on social welfare programs after a wage increase, others will lose jobs or see their hours cut, potentially increasing their need for assistance. Additionally, higher wages do not address underlying issues such as high living costs or a lack of affordable housing.

“Other countries have high minimum wages without major job losses.”

Countries with high minimum wages often have other policies that offset their impact, such as lower payroll taxes, less-restrictive labor regulations, or stronger apprenticeship programs. Moreover, countries with stronger productivity growth can sustain higher wages without adverse employment effects.

“Minimum wages ensure fair pay, otherwise employers would pay excessively low wages.”

The idea that a legislated wage floor ensures fairness ignores that wages naturally adjust to reflect worker productivity. In competitive labor markets, employers must offer wages that attract and retain employees. If a worker’s productivity does not justify the minimum wage, employers are incentivized to automate or eliminate the role entirely, reducing opportunities for low-skilled workers.

“The minimum wage helps lift low-income workers out of poverty.”

While higher wages help some workers, minimum wages often lead to job losses, particularly for young and inexperienced employees. Rather than lifting people out of poverty, a minimum wage increase can push marginal workers into unemployment, and trap others by removing the bottom rung of the employment ladder. Targeted policies such as the Earned Income Tax Credit (EITC) are more effective in assisting low-income workers without distorting labor markets.

“Minimum wages stimulate consumer spending, and workers with higher incomes are likely to spend more, boosting demand in the economy.”

Though higher wages may increase individual spending, the broader economic impact cannot be ignored. Employers facing higher labor costs may offset these expenses by reducing jobs, cutting hours, or raising prices. The net effect can neutralize or even reverse any perceived boost in overall consumer spending.

“By setting a higher wage floor, minimum wages may reduce worker exploitation and turnover.”

While higher wages may reduce turnover, they also lead employers to increase workloads for existing employees and impose stricter hiring requirements. This disproportionately harms low-skilled workers who rely on entry-level jobs as stepping stones to better employment. A freer labor market allows for more diverse job opportunities and career progression.

“Raising the minimum wage lifts the earnings of the lowest-paid workers, thereby reducing income inequality.”

Artificially raising the wage floor compresses the wage distribution, but does not address underlying skill gaps or barriers to upward mobility. Instead, it discourages investment in workforce training and makes it harder for low-skill and entry-level workers to gain employment. Economic growth driven by innovation and productivity gains is a more sustainable way to reduce inequality than wage mandates. 

While outside the main focus of this discussion, it’s worth briefly considering whether the wage gap merely reflects variations in skill, experience, and other factors, and if efforts to narrow it might unintentionally cause more harm than benefit.

Recent Findings

Recent studies have examined the effects of minimum wage increases on various demographic groups, including young people, individuals with low skill levels, and minorities. Key findings include:

• General Employment Effects: A comprehensive meta-analysis by Neumark and Shirley (2021) found that 79.3 percent of studies reported negative employment effects following minimum wage hikes, with the impact being more pronounced among teens, young adults, and less-educated workers.
• Impact on Young Workers: Research by Kalenkoski (2024) indicates that minimum wage increases can lead to reduced employment opportunities for young, unskilled workers. A separate study highlighted that a 10 percent increase in the minimum wage could result in a decrease in employment rates among this group.
• Effects on Low-Skilled Workers: Newmark (2018), focusing on the least-skilled workers, finds strong evidence that minimum wage increases can lead to job losses in this demographic.
• Influence on Minority Employment: National Bureau of Economic (NBER) research suggests that race differences in employment effects of minimum wages could be more pronounced when considering low education and skill levels. The study specifically found evidence that higher minimum wages led to greater job losses among black workers compared to other racial groups.
• On-the-Job Training Reduction: A study by Neumark and Wascher found that a 10 percent increase in minimum wages decreased on-the-job training for young people by 1.5 to 1.8 percent, potentially hindering skill development and future earnings.

These findings underscore the complex and varied impacts of minimum wage policies across different segments of the labor market. Pushing on one economic lever has varied effects, many of them unintended.

Conclusion

The minimum wage remains a contentious policy. While well-intended in its aim to protect workers and alleviate poverty, a minimum wage generates significant trade-offs that should not be ignored. Minimum wages artificially raise labor costs, which can lead to unintended economic distortions, including reduced employment opportunities, increased automation, and higher consumer prices. Small businesses, which often operate on thin profit margins and for which labor comprises a high percentage of total operating expenses, are particularly vulnerable to these changes and may be forced to lay off workers or reduce hiring.

Additionally, minimum wage laws disproportionately harm those they are intended to help, such as young, low-skilled, and minority workers, by making it harder for them to gain entry-level employment. Employers facing increased wage costs often respond by cutting hours, eliminating benefits, or raising performance expectations, which can make work more demanding without necessarily improving overall job satisfaction. Rather than fostering broad-based prosperity, rigid wage floors risk excluding the most vulnerable from the workforce altogether.

Before Trump’s re-election in November 2024, progressive commentators often advocated higher US tariffs to achieve three overlapping goals: improve jobs and wages for workers; boost the manufacturing sector; and reduce US trade deficits. A few populist commentators on the right voiced the same agenda. But President Trump’s chaotic tariff proposals since his inauguration far exceed the prescriptions of policy advocates outside the president’s inner circle. With that context in mind, it’s worth summarizing what tariff advocates say, now that Trump’s agenda dominates the headlines. 

AFL-CIO

For decades, the nation’s premier labor organization has opposed nearly all trade agreements and has endorsed restrictions on manufactured imports, such as autos (strict rules of origin in the USMCA), steel and aluminum (Trump 1.0 tariffs). But AFL-CIO President Liz Shuler issued the following statement in response to Trump’s tariffs against Canada and Mexico: 

While we support the targeted use of tariffs to protect workers from unfair competition, the Trump administration’s blanket tariffs run the risk of causing unnecessary economic pain for America’s workers without addressing workers’ core economic priorities. The tariffs on Canada are particularly damaging…

Representative Marcy Kaptur (D-OH)

Rep. Kaptur is the longest-serving Congresswoman (since 1983). She was a strident opponent of NAFTA, and supports tariffs on manufactured imports, particularly steel. But Kaptur has energetically opposed Trump’s tariffs on the House floor and in the media. This is one quote from BlueSky: 

The Trump Administration’s imposition of a 25% tariff on US-Canada trade will severely impact jobs and companies in the Great Lakes region, including across Northwest Ohio. Canada is our best trading partner and these unneeded tariffs are about to raise your prices on everything.

[image or embed]— Marcy Kaptur (@repmarcykaptur.bsky.social) March 4, 2025 at 10:14 AM

Kaptur urges Trump to focus his tariffs on China and other countries that run large trade surpluses with the US.  

Lori Wallach, American Civil Liberties Project

As a leader in the litigation group Public Citizen, Lori Wallach founded and directed the Global Trade Watch in that organization. Currently she is director of the Rethink Trade program at the American Civil Liberties Project. In these roles, Wallach fought against NAFTA, the WTO, and the TPP. In her own words, “I opposed corporate-rigged trade deals/hyperglobalization and supported industrial policy before it was cool.” 

Wallach’s views are largely posted on videos and YouTube appearances. Here is an excerpt from a recent interview: 

Tariffs are part of the formula of the tools you use to try and reestablish our ability to make things here that we need and create good jobs for the two-thirds of Americans who don’t have a college degree, so making solar panels, medicine, EVs… But slapping on tariffs on Mexico and Canada, ostensibly about migration and drug trafficking, is not just ineffective — I mean, it’s like trying to do surgery with a saxophone instead of a scalpel — but also is going to be damaging. It’s going to cause enormous disruption, but without any of the outcomes and goals that one might actually want to use a tariff to achieve to help working people or build our resilience.

Economic Policy Institute

The Economic Policy Institute (EPI) has long criticized trade agreements and advocated tariff protection for the manufacturing sector. Thea Lee, a recognized progressive voice on trade issues, was president of the EPI from 2017 to 2021 before serving as Deputy Undersecretary for International Labor Affairs in the Department of Labor from 2021 to 2025. Lee and EPI chief economist Josh Bivens have shaped the EPI’s trade agenda. 

In February 2025 (updated in March 2025), EPI published a “Fact Sheet” on tariffs with extensive comments on Trump’s agenda.  Key excerpts: 

Tariffs can do a number of useful things…[But h]igh and broad-based tariffs [cannot] fix the US trade deficit or rebuild manufacturing employment…mostly because high and broad-based tariffs will also reduce exports along with imports, and this will leave the balance of trade mostly unchanged.” Moreover, “American households will bear most of the burden of higher tariffs. This will mostly come through higher prices for imported goods and, crucially, higher prices for domestic goods that compete with imports.” 

Tariffs should not become a significant revenue source for government spending because, “Tariffs are essentially a tax on consumption and are, hence, more regressive than most current federal revenue sources.” 

And to conclude, “Narrow, strategic tariffs can be a useful tool. Trump’s broad-based, chaotic tariffs would cost consumers in every state.” 

Clyde Prestowitz, Economic Strategy Institute

Founder of the Economic Strategy Institute, Prestowitz served in the Reagan Administration as a Counselor to the Secretary of Commerce. Along with over 130 former Republican officials, in 2020 Prestowitz signed a statement indicating Trump was unfit to serve another term in office. Prestowitz advocates high tariffs on manufactured goods as a pro-growth policy, argues that the economics profession has wrongly castigated the Smoot-Hawley Tariff of 1930, and contends that liberalizing trade with China was an historic mistake. But Prestowitz severely criticizes Trump’s tariff agenda for targeting Mexico, Canada, and the European Union.  

Michael Pettis

A finance professor at Peking University and a senior fellow at the Carnegie Endowment for International Peace, Pettis published an article in Foreign Affairs shortly after Trump’s election, titled “How Tariffs Can Help America”. Arguing that economists distilled the wrong lesson from the Smoot-Hawley Tariff of 1930, Pettis contends that high tariffs today could depress consumption, increase savings, and thereby improve the US trade balance, especially in manufactured goods. Accordingly, he sees tariffs as a policy tool to boost growth and raise American living standards. 

But reflecting on Trump’s proposal for uniform 10 percent or 20 percent tariffs, Pettis posted this comment on X: 

Actually I think across-the-board import tariffs, if properly implemented, can indeed reverse the US role in accommodating global savings and trade imbalances, but as I’ve said many times before, they are the least efficient way, in part because they are very blunt…

In March 2025, Pettis had this to say about Trump’s tariff agenda: 

For now, I don’t think Trump’s tariffs will have much impact on the overall US trade deficit, which I expect to be as large this year as it was last year. It is only once the US takes serious systemic steps to reduce its trade deficit that real trade disruption will occur.

Oren Cass, American Compass 

Founder and Chief Economist of the conservative American Compass, Oren Cass ranks among the most avid defenders, outside the White House circles, of Trump’s tariff agenda. Like other right-of-center populists, Cass sees the decline of manufacturing jobs as an American calamity: 

I think what we are seeing in the US economy today is sort of a fundamental disorder that is a function of saying that manufacturing just doesn’t matter, that we don’t need to make anything. We can have our iPhones designed in California and it doesn’t matter where they’re actually produced.

Writing in the Washington Post in February 2025, Cass declared, 

For all the lamentations about President Donald Trump’s unconventional volley of tariff threats over the past week, the result is remarkably sane — approaching ideal.

No duties had actually been imposed on imports from Mexico or Canada, though both countries stepped up their border controls, but “Trump has delivered [tariffs against China] with a precision strike, refuting claims that tariffs cannot be done well.” 

Bipartisan Dissent from Bad Ideas

Among the progressives sampled, no enthusiasm can be found for Trump’s tariff agenda. The same is true of three left-of-center Washington policy institutes: the Center for American Progress, the Institute for Policy Studies, and Third Way. 

Progressives are distressed by threatened tariffs on Canada and Mexico, and are visibly concerned about the regressive cost-of-living impact Trump’s agenda will have on lower-income households. Beginning with the NAFTA debate during the Clinton Administration, progressive voices provided the ideological foundation for a high tariff agenda, but they are far from pleased with Trump’s implementation. 

Populist conservatives cited in this blog are a mixed bag. All three favor high tariffs on the manufacturing sector, believing that cheap consumer goods are a false objective, and are very critical of China’s industrial prowess. But only Oren Cass truly embraces Trump’s tariff agenda. On April 2, 2025, Trump will reveal his falsely labeled “reciprocal” tariffs, seemingly designed to confront every US trading partner with higher tariffs. Trump has designated April 2 as “Liberation Day.” The verdict of progressive and populist tariff advocates remains to be seen. 

Economists have extensively analyzed Trump’s latest trade war, examining both the Econ 101 effects of tariffs and the more underrated consequences of policy uncertainty. But there’s another critical angle worth exploring: the dynamics of interventionism suggest that government responses to the fallout from this trade war will likely trigger a cascade of additional interventions, ultimately worsening our economic problems.

Unsurprisingly, one of the first major policy decisions of Trump’s second administration has been to impose tariffs on a wide range of imported goods. Protectionism has been one of Trump’s most consistent policy positions since his first term. Despite this consistency in rhetoric, considerable uncertainty remains about the precise implementation of protectionist policies under Trump 2.0. This uncertainty itself creates pernicious effects for businesses and trade relationships, compounding the already-negative impacts of tariffs.

While specific trade policies may be difficult to predict, the concept of the “dynamics of interventionism” gives us a framework to anticipate how these policies will unfold. This concept, originating with economist Ludwig von Mises and further developed by contemporary economists like Sanford Ikeda, outlines the logical progression of government intervention.

Consider this illustrative example:

1. The US government imposes a tariff on Chinese steel
2. China retaliates with tariffs on US agricultural products
3. US farmers suffer losses, prompting government agricultural subsidies
4. These subsidies are funded by revenue from the initial tariffs
5. The subsidies artificially maintain resources in inefficient sectors
6. New problems emerge, triggering additional interventions

The chain reaction of interventions creates a self-perpetuating cycle of policy responses to problems caused by earlier policies.

The dynamics of interventionism are playing out in real-time with Trump’s latest trade policies. Let’s track how this cycle is already beginning to unfold.

Trump imposes substantial tariffs on Canada and Mexico — some of America’s most reliable trading partners — disrupting established supply chains and raising costs for businesses.

Financial markets tumble in response. Policy uncertainty indices soar. Business outlooks darken considerably as companies struggle to adapt to the new trade landscape.

Seeing these negative effects, the administration announces a targeted pause on tariffs specifically for the auto industry. This selective enforcement creates winners and losers, distorting market incentives and introducing opportunities for regulatory arbitrage. Inevitably, once the government selectively lifts tariffs for one industry, others will seek similar exemptions. This invites rent-seeking behavior such as lobbying and currying of political favoritism, creating additional market distortions and reinforcing the cycle of intervention.

The administration seems to believe that this pause will give automakers time to shift production to US soil. Trump’s argument boils down to: once cars are produced domestically, no need for tariffs!

This logic fundamentally misunderstands why production occurs where it does. If domestic production were truly the most efficient option, companies would already be manufacturing here, without government pressure. While domestic production avoids tariffs, it won’t necessarily result in lower prices for consumers, due to higher labor and material costs.

When these higher prices inevitably materialize, what happens next? Following the dynamics of interventionism, we can predict a third wave of interventions: perhaps subsidies for US automakers or tax credits for consumers who “buy American.” These policies will artificially shift demand toward domestic producers, creating substantial economic deadweight loss and trapping labor and capital resources in sectors where they’re less productive than they could be elsewhere.

Each step in this sequence illustrates Mises’s insight: government interventions create unintended consequences that prompt further interventions, setting off a chain reaction that moves us progressively further from efficient market outcomes.

Trade policy under the current administration will undoubtedly be chaotic. But the dynamics of interventionism tell us something even more concerning: the ripple effects of new tariffs won’t be confined to trade policy alone. As the administration scrambles to address the negative consequences of its trade war, we should expect additional interventions implemented in ad hoc fashion across various economic sectors. These responses will likely compound existing problems while creating entirely new ones, setting the stage for yet more intervention.

The lesson is clear. When evaluating the impact of Trump’s trade policies, we must look beyond the immediate effects of tariffs themselves. The dynamics of interventionism tell us that today’s trade war will not be contained to tariffs — it will spill into other areas of economic policy, fueling distortions that policymakers will scramble to fix with yet more interventions. The result? An ever-growing, unpredictable web of government action that moves us ever further from free markets and economic efficiency.

An initial step that has been bandied about of late has been engineering a dollar retrenchment. Even with a weaker dollar, profound challenges will be found in the rebuilding of physical infrastructure, widening vocational training, and revitalizing transportation systems. But an even more fundamental challenge lies in international disparities and expectations where compensation is concerned. Collective bargaining and higher wages have long been hallmarks of American industry, raising living standards but also making US manufacturing uncompetitive against nations with cheaper labor forces. Countries like China, India, Brazil, and Mexico can produce goods at a fraction of the US cost, owing to lower wages, and frequently with far fewer regulatory obstacles.

For decades, political candidates and labor activists alike have vacuously dangled the idea of bringing large-scale manufacturing back to the United States. Over the last ten to fifteen years, as the economic fortunes of formerly industrial regions have declined — exacerbated by globalization, automation, and a devastating opioid crisis — those promises have only grown louder.

Bringing manufacturing back to the US is a complex challenge that requires a realistic assessment of economic, logistical, and structural factors. While political rhetoric often frames reshoring as a straightforward solution to job losses and trade imbalances, the reality is more nuanced. It’s one thing to incentivize existing manufacturing firms to relocate to the US; it’s another to rebuild entire supply chains and industrial ecosystems that have lain fallow. Simply imposing tariffs or offering subsidies won’t undo decades of economic shifts overnight. Instead, a sober approach requires acknowledging the trade-offs, understanding which industries can feasibly return, and recognizing that reshoring may not necessarily lead to the same kind of job growth that manufacturing once provided.

The Labor Cost Problem

This creates a difficult, perhaps insurmountable, trade-off. If American workers demand wages consistent with the prior industrial era, domestic manufacturing will remain a stagnant relic. If wages are lowered to match global levels, domestic workers may find their parents’ or grandparents’ standards of living unattainable. Automation may provide a solution, as robots and AI-driven production could potentially make American factories far less labor-intensive and more efficient — but this would also accelerate the decline of US manufacturing jobs.

Global Supply Chains and Geopolitical Risks

Another overlooked factor is the complexity of modern supply chains. Many products today — especially in electronics, pharmaceuticals, and automotive manufacturing — require numerous inputs across various stages of production in multiple countries. Even if new American factories sprang up nationwide, production would still depend on components from abroad. A weaker dollar — needed to make US goods more globally competitive — would make imported inputs more expensive, potentially offsetting the cost advantages of domestic production.

Global trade dynamics are constantly shifting. Geopolitical tensions with China, reshoring efforts in Europe, and supply chain disruptions (such as the COVID-19 pandemic) have revived interest in self-sufficient domestic manufacturing. However, becoming a fully self-reliant industrial power is a monumental challenge — one that would take decades, not years, to accomplish — and to doubtable benefits. Long-term plans are vulnerable to major disruptions, including technological advancements, changing manufacturing methods, and emerging financial and economic blocs, all of which could reshape the landscape significantly.

Tesla, Inc. global supply chain exposure (March 2025) (Source: Bloomberg Finance, LP)

Market approaches

If bringing back large-scale manufacturing is unlikely in the short to medium term, what might be done over a long time period? A free-market approach consistent with American foundational values would focus on minimizing government intervention while allowing the private sector to allocate resources efficiently. Summarized in one sentence, the prospects for building and running massive industrial enterprises in the United States must be made more 

Here are four realistic approaches:

1. Eliminate Barriers to Innovation and Entrepreneurship

 Rather than artificially manipulating the economy to recreate a nostalgic industrial past, the US should focus on reducing regulatory burdens and lowering corporate tax rates to encourage investment in advanced manufacturing and high-tech industries. A dynamic, open market allows companies to allocate capital where it is most productive.

2. Expand Global Free Trade and Strengthen Regional Supply Chains

 Protectionism and reshoring mandates are counterproductive in an interconnected, digital economy. Instead of assuming that all manufacturing should return, the US should eliminate restrictive trade agreements that limit specialization in high-value industries. Leveraging existing advantages — such as proximity to Canada and Mexico — can improve economic outcomes without causing market distortions.

3. Deregulate and Expand Workforce Development

Many American workers remain trapped in low-productivity service jobs due to an outdated education system and excessive occupational licensing requirements. By cutting red tape and investing in market-driven workforce training programs, the US can build a more competitive labor force without relying on costly, government-driven industrial policies.

      4. Manage Expectations

A new generation of workers must recognize that, in many cases, the wages they have earned in recent decades have been anomalously high by historical and global standards. As economic conditions shift, the structure and role of collective bargaining in the American workplace must be reevaluated — aligning more closely with the economic realities of business rather than being treated as an entitlement. Moving forward, labor negotiations must be tied to the needs of businesses to manage costs, investments, and long-term viability, rather than ideological narratives about the alleged superiority of American labor.

In response to these challenges, there has been a growing interest in industrial policy — government efforts to actively shape and support key domestic industries through subsidies, tariffs, regulations, and strategic investments. However, these policies are closer to a pipe dream than actionable solutions. At its core, industrial policy is central planning, which inevitably leads to inefficiencies, misallocated resources, and corruption. Politically connected firms, rather than the most innovative or productive ones, tend to benefit the most.

Protectionist measures such as tariffs and subsidies often provoke retaliatory trade policies, ultimately harming exporters and consumers. Historically, industrial policy encourages complacency, leading industries to lobby for continuous government support even as they become obsolete. A more detailed economic analysis is needed to fully understand the long-term consequences of such interventions.

Pragmatism First

The era when most of the world’s industrial powers were crippled by world wars, leaving American manufacturing to thrive in a competitive vacuum, is long over. Inducing the relocation of a factory from, say, Vietnam to Ohio based on the simplistic notion that American workers are inherently “better” than their foreign counterparts is not only misguided but a hollow, pandering argument that fits better in a child’s worldview than serious economic discourse. The conditions for operating a large industrial enterprise in the United States must be at least as accommodating and advantageous as those found elsewhere — ideally, even more so. 

The longer it takes labor unions, manufacturing associations, workers, and investors to adjust to this reality, the harder it will be to compete.

Political leaders benefit from oversimplifying the realities of reshoring manufacturing, ignoring the economic, logistical, and geopolitical hurdles. While industrial policy and protectionist measures promise revitalization, they are more likely to create distortions and inefficiencies than meaningful growth. Automation and technological innovation may offer a path forward, but they will not restore traditional manufacturing jobs. If the goal is to strengthen the economy, the US must prioritize reducing barriers to innovation, expanding trade partnerships, and reforming workforce development. Instead of empty promises about reviving a bygone era, the focus must be on radically reshaping how human capital is developed and deployed in a rapidly evolving global economy.

The professional forecasters were right: inflation remained elevated in February. The Personal Consumption Expenditures Price Index (PCEPI), which is the Federal Reserve’s preferred measure of inflation, grew at an annualized rate of 4.0 percent in February 2025, down from 4.1 percent in the prior month. PCEPI inflation has averaged 3.1 percent over the last six months and 2.5 percent over the last twelve months.

Core inflation, which excludes volatile food and energy prices, grew faster still. Core PCEPI grew at an annualized rate of 4.5 percent in January 2025, up from 3.6 percent in the prior month.  Core PCEPI inflation has averaged 3.1 percent over the last six months and 2.8 percent over the past 12 months.

The question facing Fed officials is whether this is a temporary blip on the path back to 2.0 percent; or, whether inflation has settled in half a percent above target. The answer depends in large part on the stance of monetary policy.

The Federal Open Market Committee voted to hold its federal funds rate target at 4.25 to 4.5 percent. Recall that the nominal federal funds rate target is equal to the real federal funds rate target plus expected inflation. Markets are currently pricing in around 2.4 percent PCEPI inflation per year over the next five years. Hence, the real federal funds rate target range is around 1.85 to 2.1 percent.

To gauge the stance of monetary policy, we must compare the real federal funds rate with estimates of the natural rate of interest. The New York Fed offers two estimates of the natural rate: the Holston-Laubach-Williams estimate was 0.80 percent in 2024:Q4; the Laubach-Williams estimate was 1.31 percent. Both are well below the federal funds rate target range, suggesting monetary policy is tight.

The Richmond Fed offers an alternative estimate of the natural rate. Its Lubik-Matthes estimate puts the natural rate at 1.89 percent in 2024:Q4. That’s close to the lower limit of the federal funds rate target range, implying that monetary policy is neutral to tight.

Together, the estimates suggest that monetary policy remains tight, though the extent to which it is tight depends crucially on the estimate used. From each, we can expect inflation will continue to decline.

There is another reason to think inflation will fall in the months ahead. Problems with seasonal adjustments have meant that inflation readings have been higher over the first four months of the year than in the final eight months of the year. In the first four months of 2023, inflation averaged 4.0 percent. Over the final eight months of 2023, it averaged just 2.0 percent. Similarly, in 2024, inflation averaged 4.1 percent over the first four months and 1.9 percent over the final eight months. 

Inflation has averaged 4.1 percent over the first two months of 2025. Based on recent trends, inflation will be lower, on average, over the remainder of the year.

At the March FOMC meeting, the median member penciled in just two 25-basis-points worth of rate cuts this year. Of course, actual monetary policy will depend on how inflation and employment data evolve over the year. Futures markets are currently pricing in three cuts this year. Since FOMC members will only deliver more cuts than they have projected if inflation is lower, or real economic activity is weaker, than they currently expect it to be, the third rate cut implied by the futures market suggests those in the market believe monetary policy is tighter at present than FOMC members think. If market participants are correct, inflation will fall faster than FOMC members have projected.

On Friday, the Bureau of Economic Analysis released preliminary figures for GDP and personal income by state for last year. I prefer using personal income over GDP for comparing state economic performance because GDP includes corporate profits that are not distributed to individuals, but are partly based on where the corporations’ headquarters are located. So Delaware ranks very high in GDP, less so on personal income. But let’s dig into both figures.

Every state but North Dakota and Iowa had real, inflation-adjusted GDP growth in 2024. Growth was strongest across the South and weakest in the Great Plains. Note that these figures adjust for US-level inflation, but not state-specific inflation rates, so they will overstate growth for states that had faster-than-average inflation and understate growth for states that had slower-than-average inflation. With those caveats, the fastest-growing state was Utah (4.5 percent), and the slowest-growing state was North Dakota (-0.7 percent).

Personal income growth, not adjusted for inflation, looked like this in 2024. Every state saw nominal personal income growth, but the entire Mississippi River area had poor income growth, while the Pacific and South Atlantic regions did very well. The fastest-growing state was North Carolina (6.9 percent), and the slowest-growing state was North Dakota (0.1 percent).

A few states, like Arkansas and Oregon, had markedly different personal income growth and GDP growth last year. One reason for this is the changing international terms of trade. When oil prices fall, for example, that hits oil-producing states’ GDP hard right away, but it may take a little longer for the hit to personal income to arrive (drillers and refiners might not lay off staff or cut pay right away). Soft oil prices were undoubtedly a major reason for North Dakota’s economic woes in 2024.

In the short run, these sorts of industry-specific shocks play a big role in explaining why some states grow faster than others. But over time, state-level policies play a big role, too. In particular, state policies that deter population growth have a big impact on economic growth. Here are the estimated population growth figures for 2024.

The results are not too surprising. For the most part, the states with rapid population growth in 2024 (Arizona, Nevada, Utah, Idaho, Texas, Florida, the Carolinas) have had rapid growth throughout this century. Delaware is a more recent fast grower, and New Jersey is the real surprise, with a growth rate of 1.3 percent bucking its usual downward trend.

At the state level, historical fertility patterns and migration are the primary drivers of population growth — and, by extension, income growth. State governments can’t do much to encourage people to have more children, and even if they did, the effects on the labor market would come decades later; but they can affect migration. States that make it hard to build and have high taxes and regulations tend to lose people to states that have abundant housing and lower taxes and regulations. In that light, it’s not surprising that Washington (which does not have a personal or corporate income tax) is the fastest-growing state on the Pacific Coast. Or that Indiana, which has a 3 percent flat tax and a friendly regulatory climate, grows faster than its neighbors to the east, west, and north, and Louisiana and Mississippi, lowest on economic freedom in the South, lag behind the rest of the South in population growth.

In December, we’ll finally get updated estimates using state-specific inflation rates, which will provide a clearer picture of which states truly performed best last year.

It is no secret that many of the nation’s largest and most prestigious law firms went woke. For years, they have publicly championed left-wing social causes, fired conservatives for representing conservative clients, and used racial preferences for applicants and employees.  

That last one has gotten them into trouble with the Equal Employment Opportunity Commission, a federal agency tasked with policing employment discrimination. 

The Acting Chair of the Commission, Andrea Lucas, has sent letters to twenty firms requesting information about their race-based employment practices. The letters appear to be a prelude to investigations and, depending on how the firms respond, enforcement actions.  

The letters to the firms are titled “Review of [Firm’s] Compliance with Title VII of the Civil Rights Act of 1964,” and reveal shocking practices that top lawyers, like those who staff these firms, should have known were illegal.  

For example, about half of the letters suggest that the firms held attorney applicants to different standards depending on their race. It has long been rumored that some of the top law firms required lower GPAs for black and Hispanic applicants than they did for Asian and white students, and would recruit the former from lower-ranked schools than they would the latter. The letters suggest that this rumor was more than speculation.  

To prove whether the firms are using different standards for different groups, the letters ask the firms to produce information about their applicants’ race, law school, and GPA. The law firms could refuse to disclose the information, which might raise the inference that they are guilty. Like the good lawyers they are, they will defend their nondisclosure by saying that refusal to provide exculpatory information is not an admission of guilt.  Although technically correct, that rule is little help in race discrimination cases, which turn on intent, and the practices documented in these letters are strong evidence that the firms intend to discriminate. 

For example, the letters describe the firms’ “diversity scholarships” and “diversity internships.” These programs offer priority access to job interviews, pipelines to employment, special stipends or scholarships, or additional pay all given to people because they check a certain identity box — a plain violation of Title VII of the Civil Rights Act, which forbids employment discrimination.  

Some firms, perhaps thinking that they were being clever, outsourced this discrimination to third parties. Kirkland & Ellis, for example, partners with an organization called “Afro Law,” which gives “Afro” students a “pipeline” to employment with Kirkland that is denied to applicants of other races. Kirkland and many other firms on the list also partner with Sponsors for Education Opportunity (SEO), which despite the less-obvious name, does much the same thing.  

As the letters explain, SEO is another fellowship program that partners with law firms to put its fellows on fast-tracks to employment at these firms. It also entitles fellows to extra pay or scholarships, mentoring, and other things that Title VII calls “terms, conditions, or privileges of employment.” Although SEO says its fellowship is open to anyone, the letters document how the fellowship is, in fact, limited to “students of color.” Unhelpfully for both SEO and the firms that partner with it, some law schools, like Columbia University, revealed the truth and told students that the fellowship is restricted to, or at best focused on, certain racial groups at the exclusion of others.  

Perhaps the lawyers thought that discrimination was permissible if it was outsourced to third parties, but this is delegated discrimination, and it doesn’t fly under Title VII.  

The letters also target race- and sex-based staffing quotas. These are demands, usually made by clients, that specific matters are staffed with specific numbers or percentages of lawyers from various race, sex, or gender groups. As explained elsewhere, these programs typically hurt the lawyers they are supposed to help by denying them control over their own careers. Lawyers from the groups on the quota lists are forced to work for clients that maintain such lists whether they want to or not, whereas lawyers who aren’t on the lists remain free to work on whatever they choose.  

Then there are “Affinity Groups,” another practice that the firms are not shy about. As the letters explain, these are employee groups organized around race, ethnicity, sex, or other characteristics that Title VII prohibits organizing around. The letters demand to know whether participation in the groups is a factor in getting promoted. But even if it isn’t, the groups are still a special “privilege of employment,” and therefore prohibited.  

The discriminatory practices go on. The letters demand that firms explain their annual reports and plans for increasing “demographic representation.” They demand that the firms reveal whether they hired or promoted people because they checked an identity box, whether partners’ compensation was tied to “representation goals,” and whether the firms paid bigger recruitment bonuses to employees who recruited candidates who checked certain boxes.   

Reading through the letters (together, they span 210 pages), one wonders how on earth the most prestigious lawyers with the shiniest credentials our elite universities can offer could have done all this. Title VII is not a new or complicated statute, after all. Its core provision says simply that it is unlawful “to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin” and to “limit, segregate, or classify” individuals in a way which tends to adversely affect their employment. No one needs a law degree from an Ivy League law school to understand it. But perhaps prestigious degrees are precisely the reason that these lawyers misunderstand it.  

A degree from those vaunted halls was once a reliable indicator of intellect and good legal judgment. Now, however, it’s a reliable indicator of zealous adherence to a trendy ideology that says “the only remedy to past discrimination is present discrimination.” By the dim light of that backward dogma, the law is either a tool of oppression or a plaything to be melded by the cognoscenti, but either way, if it commands a benighted outcome, it can be ignored. And so it has been. 

Rebels against this ideology who have spent time in these firms will not be surprised by the letters or the practices they detail. In truth, the only surprising thing about the letters is that more firms didn’t get one. When the list went public, heterodox thinkers at other firms reached out to say things like “I’m amazed my firm isn’t on it.”  

To which a twofold response is due: First, save some screenshots and please share them. And second, just wait. We’re two months in; 46 remain.  

Federal Reserve Z.1 data show that the net worth of the household and nonprofit sector (HNPS) reached a new record of $168.8 trillion in 2024Q3, eclipsing the previous record of $164 trillion set in 2024Q2. Bloomberg, Marketplace, and InvestmentNews all reported that higher real estate and stock prices drove household wealth to a new record level, echoing prior stories by Bloomberg and Reuters that heralded the second-quarter estimate of $164 trillion as a new record.  

While the financial press celebrated record household wealth, contemporaneous survey results found that households were having trouble covering expenses. A 2024 Philadelphia Federal Reserve survey (PDF) found that a larger share of households in all income and age groups were worried about their ability to pay their bills, including households with income over $150,000. These findings echoed those of a Consumer Financial Protection Bureau’s 2024 survey, “Making Ends Meet”:  

Overall financial stability and well-being deteriorated from 2023 to 2024. The deterioration occurred across demographic groups and measures. … More households had difficulty paying bills or expenses.  

This apparent contradiction can be reconciled by recognizing that there is a difference between estimates of HNPS net worth and the net worth of households, and this difference has grown over time. Moreover, HNPS net worth is measured in current dollars and fails to account for inflation, which has significantly diminished households’ real net worth. Adjusting HNPS net worth estimates for these factors, I estimate that inflation-adjusted household wealth peaked in 2021, before households spent their COVID relief payments and inflation diminished the real value of their savings.

What factors skew the HNPS data away from reflecting American households’ real net worth?

Household and Nonprofit Sector Net Worth 

According to the Federal Reserve (PDF),  

The households and nonprofit organizations sector is comprised of individual households (including farm households) and nonprofit organizations such as charitable organizations, private foundations, schools, churches, labor unions, and hospitals. The sector is often referred to as the “household” sector, but nonprofit organizations are included because complete data for them are not available separately.  

Net Worth Estimates of the Nonprofit Sector  

Internal Revenue Code (IRC) section 501(c)(3) exempts from federal income tax the revenues of organizations engaged in religious, charitable, scientific, literary, or educational activities.  Organizations that are exempt from taxes under IRC code 501(c)(3) must file IRS form 990 or 990-EZ annually. State chartered credit unions are tax exempt and must file annual IRS Form 990 or 990-EZ. Churches, religious organizations, federally chartered credit unions and section 501(c)(3) tax exempt organizations with annual revenues under $25,000 are tax exempt and exempt from the annual filing requirement.  

Because of data limitations, the Federal Reserve historically has not produced separate estimates for the household and nonprofit sectors in its quarterly Z.1 statistics. In 2018, the Fed started providing supplemental annual estimates of the aggregate balance sheet for the nonprofit sector for years beginning in 1987. According to the Fed’s most recent estimate, the net worth of the nonprofit sector was about $10.7 trillion as of year-end 2023.  

Net Worth Estimates of Private Investment Funds 

According to the Fed’s Enhanced Financial Accounts, 

The hedge funds sector has not been fully incorporated in the regular Financial Accounts publication… the assets of domestic hedge funds are usually assigned to the household sector… 

The Fed’s Enhanced Financial Accounts discuss aggregate hedge fund balance sheets. However, the Fed’s HNPS Z.1 estimates include all private investment funds’ assets and liabilities in its estimates of the HNPS balance sheet. The US Securities and Exchange Commission (SEC) recognizes hedge, private equity, securitized asset, real estate, liquidity, venture capital and other special investment purpose funds as private investment funds.   

Private funds are exempt from SEC regulations that apply to mutual fund and other institutional fund managers. While private funds are not required to publicly disclose their portfolio holdings or prepare annual or semi-annual public reports describing their performance, the Dodd-Frank Act required all private fund advisors who manage more than $150 million in assets to provide confidential disclosures to the SEC on Form PF.  

Beginning in 2013, the SEC began publishing quarterly estimates of aggregate private fund data collected from Form PF. I use the SEC’s estimate of total private fund net assets, also called assets under management (AUM), as an estimate of the net worth of private investment funds. As of 2024Q1, the last data available, the SEC reports that private funds filing Form PF had more than $15 trillion AUM.  

A study by the Office of Financial Research [Barth, Joenvaara, Kauppila and Wermers (2021)] compared SEC Form PF hedge fund data with hedge fund data compiled by several commercial vendors. Advisors of smaller private funds are not required to file Form PF. Using SEC Form PF and vendor data, the study estimated total hedge fund AUM to be roughly $5 trillion in 2016, of which about $3.5 trillion were reported to the SEC on Form PF. These results suggest that significant AUM balances are likely omitted from the SEC industry total AUM figures. 

Household Net Worth Adjusted for Inflation  

Estimates of HNPS, the nonprofit sector and private funds respective net worths are measured in current dollars whereas the real consumption value of household wealth depends on the price level. To estimate the real consumption value of household wealth, I adjust current dollar estimates of household net worth for the impact of consumer price inflation using the CPI for all urban consumers (1982-1984=100). Figure 1 shows end-of-year Fed Z.1 estimates of current dollar HNPS net worth, the adjustments made to arrive at current dollar estimates of household net worth, and the estimated value of constant dollar (inflation-adjusted) household net worth.  

Current dollar household net worth is constructed as the Fed’s estimate HNPS net worth, less the Fed’s estimate of the nonprofit sector net worth, less private investment fund total AUM as reported by the SEC. The estimates use Fed and SEC year-end data from 2013 through 2023. The chart also includes two quarterly estimates for 2024Q1 and 2024Q2 each of which includes at least one component that is extrapolated using prior quarter relationships in the data. 

The 2024Q1 estimate uses the SEC 2024Q1 private funds estimate of $15.1 trillion AUM. The Fed does not publish quarterly estimates for the net worth of the nonprofit sector. I use the 2023 estimated nonprofit sector share of HNPS net worth (6.62 percent), the 2024Q1 HNPS net worth estimate ($164 trillion) to estimate nonprofit net worth for 2024Q1 at $10.9 trillion. Subtracting $26 trillion in aggregate nonprofit and private fund net worth from HNPS net worth yields $137.8 trillion as the 2024Q1 estimate of household sector net worth. 

The Fed estimates 2024Q2 HNPS net worth to be $168.8 trillion. In 2024Q1, the SEC’s private fund AUM estimate accounted for 9.3 percent of HNPS net worth. Using this share, in total, I estimate that nonprofit and private funds account for 15.92 percent of 2024Q2 HNPS net worth which implies 2024Q2 household net worth of $141.9 trillion. Household net worth estimates are upward biased to the extent that SEC aggregate private fund AUM estimates are understated. 

According to these estimates, constant dollar household net worth peaked in 2021, before households exhausted their government COVID stimulus payments and accelerated inflation depreciated their savings. The estimated current dollar value of household net worth was higher in 2024Q2 than at 2021 year-end ($141.9 trillion vs. $128.5 trillion). However, the gain in net worth measured in current dollars was more than offset by CPI inflation. In inflation-adjusted terms, household net worth was $45.5 trillion at year-end 2021 compared to $44 trillion in 2024Q1 and $45.2 trillion in 2024Q2.  

As we mark five years since the onset of the COVID-19 pandemic, many headlines trumpet the resilience of the US economy: unemployment is low, GDP has returned to growth, and markets have rebounded. But beneath the surface-level indicators lies a more complicated and sobering picture. 

A close examination of key economic metrics reveals that in several important areas, the US economy has not fully recovered from the effects of both the virus and the extraordinary government interventions it prompted. Despite warnings from economists and policy experts in 2020, the country implemented sweeping lockdowns, business closures, and monetary and fiscal expansions at a scale never seen before. These efforts were often framed as a necessary tradeoff between public health and economic output — a false dichotomy that ignored the long-run consequence of suppressing economic activity at such a vast scale. 

Today, the costs of those tradeoffs are still being paid, and the full price may not be known for years to come.

(All images sourced from Bloomberg Finance, LP)

1. US Manufacturers New Orders for Nondefense Capital Goods Excluding Aircraft (Conference Board)

One key indicator is the Conference Board’s New Orders for Nondefense Capital Goods Excluding Aircraft, which serves as a proxy for business investment in equipment and durable inputs. From 2015 through early 2020, the metric showed steady growth, signaling strong confidence and ongoing capital formation. But in the wake of pandemic disruptions, new orders plummeted. Although recovery began in 2021 and was supported by historically low interest rates, the metric remains below its pre-pandemic trajectory. As of March 2025, a slight month-over-month decline (-0.1 percent ) suggests that firms remain cautious about long-term investment. The uneven rebound signals lingering uncertainty in the business environment and may point to structural concerns like reshoring, labor shortages, or geopolitical risk.

2. US CPI Ex Food & Energy, Year-Over-Year (US Bureau of Labor Statistics)

Core CPI, which strips out volatile food and energy prices to provide a clearer picture of underlying inflation, remained stable at around 2 percent from 2015 to early 2020. But pandemic-era policies — including trillions in federal stimulus and prolonged supply chain disruptions — led to a surge in price growth. Core inflation peaked in 2022 and has cooled since, but as of early 2025, it remains elevated at roughly 3.1 percent year-over-year. This persistent inflation has eroded consumer purchasing power, particularly for middle- and lower-income households. It also complicates the Federal Reserve’s ability to ease monetary policy, potentially dampening future growth.

3. Conference Board Consumer Consumer Confidence Present Situation (Conference Board)

Consumer confidence, as measured by the Conference Board’s Present Situation Index, offers insight into how Americans perceive current economic conditions. Between 2015 and early 2020, consumer sentiment was buoyant, driven by low unemployment and strong income growth. The pandemic caused a steep drop, and while confidence has partially rebounded, it has not returned to prior highs. In 2025, many households remain wary amid ongoing concerns over inflation, interest rates, and job security. This hesitancy is reflected in cautious spending patterns and a reluctance to take on new debt, both of which could suppress future economic dynamism.

4. Real Average Hourly Earnings (1982–1984 Dollars, Seasonally Adjusted) (US Bureau of Labor Statistics)

Real average hourly earnings (adjusted to 1982-1984 dollars) present a mixed picture. From 2015 to 2020, real wages rose modestly in line with productivity gains and low inflation. In 2020, as lower-wage workers were disproportionately affected by job losses, average real wages appeared to increase temporarily. But subsequent inflation wiped out those gains. By 2025, real wages have only slightly improved relative to pre-pandemic levels, indicating that nominal wage increases have not kept pace with the cost of living. This stagnation undermines household financial resilience and places greater pressure on public support programs.

5. US Average Hourly Earnings Private Nonfarm Payrolls (1982 Dollars) (US Bureau of Labor Statistics)

Similarly, real average hourly earnings in the private nonfarm sector have struggled to regain momentum. Prior to 2020, steady gains reflected a competitive labor market and healthy economic fundamentals. Post-pandemic, however, wage growth has been neutralized by rising prices, leaving many workers with stagnant or declining real incomes. While some sectors — such as tech and logistics — have fared better, much of the workforce remains in a holding pattern. This weak earnings recovery affects not just consumption but also savings, investment, and overall quality of life.

6. Total Net US Saving, All Sectors (Flow of Funds, NIPA) (US Bureau of Economic Analysis)

Net saving across all sectors, as measured by the Flow of Funds accounts, showed balance in the years leading up to the pandemic. In 2020, government transfers and reduced consumption pushed household savings to record highs. But that was a temporary artifact. As of 2025, net saving has returned to trend or even fallen below it, as households grapple with higher living costs and diminished purchasing power. This reversal undermines long-term capital accumulation and leaves families more exposed to economic shocks.

7. US Employment-Population Ratio, Total Labor Force (Seasonally and Not Seasonally Adjusted) (US Bureau of Labor Statistics)

The employment-population ratio offers a broad view of labor market health. From 2015 to 2020, it trended upward, reflecting robust employment gains across most demographics. The ratio collapsed in early 2020 due to mass layoffs and business shutdowns and has not fully recovered even five years later. Persistent shortfalls can be attributed to early retirements, long-term illness, childcare challenges, and shifting labor force preferences. A lower employment-population ratio means fewer workers supporting growing pool of retirees, with implications for productivity, tax revenues, social program solvency, and economic growth as a whole.

8. Food Price Indexes (Various Measures, US Bureau of Labor Statistics / USDA)

Food prices remained relatively stable for decades, with annual increases closely tracking general inflation. However, the combination of extraordinary fiscal and monetary expansion, global supply chain breakdowns, and labor dislocations during the pandemic triggered a sharp and sustained rise in food costs. Beginning in late 2020 and accelerating through 2022, food prices followed a classic “hockey stick” pattern, with steeper increases in staples such as meat, dairy, and grains. By 2025, although the rate of increase has moderated, prices remain significantly above pre-pandemic levels. For American households — particularly those with fixed or low incomes — this has created lasting pressure on household budgets and elevated food insecurity across communities.

9. Median Inflation Expectations (One-, Three-, and Five-Year Horizons) (Federal Reserve Bank of New York)

Inflation expectations are critical to economic decision-making, influencing wage negotiations, consumer spending, and business investment. Before the pandemic, one-, three-, and five-year inflation expectations were typically stable. Since 2020, however, these expectations have not only risen but become substantially more volatile. This shift reflects the uncertainty introduced by both the initial inflation spike and the policy responses that followed. Elevated and unstable inflation expectations increase the risk premium on investment, discourage long-term contracting, and diminish real wealth as households adjust their behavior to hedge against future price instability. For policymakers, regaining credibility around inflation targeting is now a central challenge.

10. Housing Affordability Index, First-Time Buyers (National Association of Realtors)

A combination of factors, including a flight from urban centers facilitated by historically low interest rates and limited inventory drove home prices to unprecedented levels, especially in suburban and rural areas. As a result, first-time buyers — who often lack significant savings — have, since the pandemic, been priced out of the market at historic levels. Massively expansionary Fed policies also drove asset prices, which include home prices, up much faster than wages. Fiscal stimulus programs intended to mitigate economic damage inadvertently fueled demand for housing, intensifying growing price increases. Those dynamics, coupled with ongoing supply chain issues and delays in new housing construction, have deepened the affordability gap to record lows (since 1986), placing homeownership increasingly out of reach of many aspiring buyers.

Taken together, the post-COVID trends in these economic phenomena make clear that while some headline figures paint a rosy picture, the US economy remains structurally altered by the events of 2020. Pandemic-era policies, ostensibly aimed at preserving lives and livelihoods, imposed immense costs on economic activity, some of which were foreseeable and avoidable. By presenting the crisis as a binary choice between public health and economic output, policymakers created a narrative that neglected the possibility of more balanced, targeted interventions. And now, five years later, the economy bears the weight of those decisions. The consequences — lost earnings, reduced investment, lingering inflation, and lower labor force engagement — are still unfolding. As we look ahead, it is crucial to understand that the price of those tradeoffs is not only massive, but still growing and will be paid in ways both visible and hidden for many years to come.

President Trump’s recent actions have dramatically reduced US taxpayers’ financial support for worldwide population control efforts. First, he reinstated the Mexico City Policy, or the “Global Gag Rule,” which prevents the use of federal taxpayer dollars to fund abortion procedures overseas. Weeks later, he took action to dismantle the US Agency for International Development (USAID), which for decades has provided funding to international “family planning” NGOs such as the International Planned Parenthood Federation (IPPF) and the Population Council.

Trump’s administrative shifts also cut US funding to the United Nations Population Fund (UNFPA), which laid crucial groundwork for China’s infamous one-child policy and other draconian population policies in developing countries, including coercive abortions and involuntary sterilizations. 

Most recently, the Trump administration announced plans to freeze millions of dollars in federal grants to family planning organizations such as Planned Parenthood while investigating whether these subsidies were used for DEI (Diversity, Equity, Inclusion) efforts.

The UNFPA, the IPPF, and the Population Council advertise themselves as champions of women’s rights and reproductive freedom and choice, but their missions were historically (and are) committed to far less noble ideals: controlling the world’s population.  

Headlines detailing the absurd progressive causes funded by USAID abound, but a brief history of USAID’s involvement in this broader web of population control organizations and activities is necessary — and serves as further justification for their defunding or dissolution.  

Eugenics Reborn 

In the post-war era, a network of powerful US government agencies and NGOs launched a coordinated global campaign to reduce fertility, particularly in developing countries, based on neo-Malthusian concerns about population growth, resource depletion, and environmental degradation. Many of the key individuals involved, such as Margaret Sanger and Frederick Osborn, were heavy hitters in the eugenics movement, which had lost its moral and scientific credibility after the Nuremberg Trials. 

The horrors of the Holocaust were enough to discredit eugenics in the minds of most Americans, but some elite crusaders waging war against the “unfit” were unwilling to abandon their collectivist beliefs, especially the Malthusian presuppositions which undergirded them. 

In 1952, John D. Rockefeller III hosted an invitation-only meeting at Colonial Williamsburg to discuss the population “problem” with leading demographers and population scientists. The primary-sourced details of this meeting are documented in Columbia historian Matthew Connelly’s book Fatal Misconception: The Struggle to Control World Population.  

Several attendees discussed the possibility of withholding industrial development from poor, agrarian countries like India. Detlev Bronk, then-president of Johns Hopkins University, expressed concern about “the potential degradation of the genetic quality of the human race.”  

Planned Parenthood Federation of America (PPFA) Director William Vogt mentioned that population control programs “can be sold on the basis of the mother’s health and the health of the other children,” and that “there will be no trouble getting into foreign countries on that basis.”  

Following the Colonial Williamsburg meeting, the Population Council was established, with Rockefeller serving as its first president. The original draft of its mission statement expressed eugenic zeal for a world where “parents who are above the average in intelligence, quality of personality and affection will tend to have larger than average families.”  

The International Planned Parenthood Federation (IPPF) was founded three weeks later in 1952 at a conference in Bombay (present-day Mumbai), India, under the leadership of Margaret Sanger. In a letter to a birth control philanthropist two years before the IPPF was founded, Sanger candidly revealed her eugenic views:

I believe that now, immediately, there should be national sterilization for certain dysgenic types of our population who are being encouraged to breed and would die out were the government not feeding them.

Sanger’s vice chair at the IPPF, and drafter of its constitution, was Carlos Blacker, the former secretary of the British Eugenics Society. In a 1957 memorandum, he suggested that the British Eugenics Society should “pursue eugenic ends by less obvious means, that is by a policy of crypto-eugenics.”

American Eugenics Society (AES) co-founder and director Frederick Osborn, a long-time friend of Blacker, succeeded Rockefeller as Population Council president in 1957. Osborn shared Blacker’s conviction in a reformed eugenics, arguing that “if eugenics is to make any progress in the foreseeable future, we will not only have to drop the idea of assigning genetic superiorities to social or racial groups, but we will even have to stop trying to designate individuals as superior or inferior.” 

Thus, eugenics was reborn, but re-emerged by stealth and advanced its aims through “less obvious means.” Family planning programs would no longer openly humiliate the populations targeted for genetic elimination, but rather convince them that smaller families were to their own benefit. 

“Family Planning” — Voluntary and Coercive 

During the Eisenhower administration, the US foreign policy establishment became increasingly concerned about the alleged national security threat of population growth in the developing world. By 1959, the US Senate Foreign Relations Committee recommended that aid be given to “developing countries who establish programs that check population growth.”  

In 1961, the Kennedy administration established USAID, and Planned Parenthood was assured that “population was now AID’s Number One problem.” JFK’s successor, Lyndon B. Johnson, declared before the United Nations that “less than five dollars invested in population control is worth a hundred dollars invested in economic growth.” His administration’s policies made US economic assistance contingent upon countries’ willingness to enact population control policies. USAID officials were ordered “to exert the maximum leverage and influence” to ensure governments were constraining population growth.  

USAID subsidies for family planning increased by a factor of 25 between 1965 and 1969. The Population Council and the IPPF were both recipients of generous USAID grants.  

Then, in the February 1969 issue of the Population Council’s journal Family Planning Perspectives, Population Council President Bernard Berelson agreed on the necessity of moving “beyond family planning” as voluntary programs were “not enough” to “quickly and substantially” lower birth rates.  

Population control proposals “beyond family planning” consisted of measures for “involuntary fertility control,” including the “addition of temporary sterilants to water supplies or staple food,” “marketable licenses to have children,” “temporary sterilization of all girls via time-capsule contraceptives,” and “compulsory sterilization of men with three or more living children.” 

That same year, Planned Parenthood Federation sent a memorandum to Berelson proposing  measures to decrease fertility in the United States. In addition to “social constraints” on marriage and childbearing, the memo suggested efforts to “encourage increased homosexuality,” “encourage women to work,” and “discourage private homeownership.” 

Involuntary methods included “fertility control agents in water supply” and “compulsory sterilization of all who have two children except for a few who would be allowed three.” In 1969, abortion remained illegal in the United States, but “abortion and sterilization on demand” and “compulsory abortion of out-of-wedlock pregnancies” were included in Planned Parenthood’s memorandum on domestic population control. 

A Colorful UN Force 

Neo-Malthusians often feared that US government-sponsored population control measures directed at developing countries would generate significant controversy, such as accusations of imperialism and genocide. 

Bernard Berelson noted that US-backed population control in developing countries “seems more likely to generate political opposition abroad than acceptance.” However, the “proposal to create an international super-agency seems more likely of success.” 

A plan was orchestrated to disguise global population control efforts under the auspices of the United Nations, which could subsidize population NGOs such as the IPPF without the appearance of serving American interests, even as US taxpayers continued to foot the bill.  

Planned Parenthood Federation of America (PPFA) President Alan Guttmacher said, “If the United States goes to the black man or the yellow man and says ‘slow down your reproductive rate,’ we’re immediately suspected of having ulterior motives to keep the white man dominant in the world. If you can send in a colorful UN force, you’ve got much better leverage.”

In 1969, the United Nations Fund for Population Activities (UNFPA) was established, which is today known as the United Nations Population Fund. According to Connelly, the UNFPA operated independently and was not beholden to member countries. With Rockefeller calling many of the shots, US funding was channeled through USAID to the UNFPA, then dispersed to NGOs such as the IPPF operating on the ground in various countries.  

In 1974, then-US Secretary of State Henry Kissinger collaborated with the CIA and USAID to produce the classified National Security Study Memorandum 200 (NSSM 200), arguing that suppressing developing countries’ populations was necessary for US national security and economic interests. Kissinger recommended that these population activities (including IUDs, sterilizations, payments to encourage abortion, and “indoctrination” of young people) should be carried out in partnership with the UNFPA, the WHO, UNICEF, and the World Bank — and contemplated withholding food aid to countries that refused to implement family planning programs. 

Just a few years later, the UNFPA donated $50 million to support China’s one-child policy, which terrorized the Chinese population with forced abortions and involuntary sterilizations for over three decades. In 1983 alone, 16 million Chinese women were sterilized, and 4 million men received vasectomies. All couples with two or more children were required to undergo sterilization. 

Similar horrors played out in India in the 1970s and 1980s, where sterilization was sometimes required for access to water, ration cards, and health care. In 1975, over 8 million men and women were sterilized. The World Bank funded the Indian sterilization campaign with a $66 million grant.

A Sea Change

The Mexico City Policy, colloquially called the “Global Gag Rule” has been instated, rescinded,  and reinstated by subsequent administrations along party lines since the Reagan Administration. 

During the Biden administration, the UNFPA re-welcomed the United States as a major contributing partner to “the largest procurers of contraceptives in the world.”  

The new Trump administration not only followed the Republican tradition of defunding the UNFPA and population control NGOs, but has taken an extra step by moving to shut down USAID.  

USAID, the UNFPA, and their affiliated NGOs have legacies tainted by sponsorship of coercive anti-natal policies that violated the inherent dignity and rights of people worldwide. 

As fertility rates decline to sub-replacement levels, the US government should cease funding all population activities that endeavor, either subtly or implicitly, to drive down birth rates.  

Their neo-Malthusian agenda, subsidized by US taxpayer money, was predicated on a eugenic, misanthropic, and economically fallacious view of human nature and human beings’ relationship with the natural world. Whatever the fears of the 1960s and 1970s neo-Malthusians, the fruits of population growth were not famines, diseases, or resource scarcity, but a superabundant age of prosperity, innovation, and lower prices. A combination of population growth and economic freedom lifted billions out of poverty and improved the health and well-being of all.