Tempting as it may be, I have no business assigning homework to readers of The Daily Economy. Perhaps, however, I can inspire with enthusiasm. 

Every year on the Fourth of July, while others are already enjoying grilled meat and fireworks, I reread the Declaration of Independence. This year’s reading, on the Declaration’s 250th anniversary, will be particularly special. I love the simple and elegant bridge that Thomas Jefferson constructed between abstract political philosophy and applied constitutionalism.

“We hold these truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” There is the philosophy, a pithy distillate of the Enlightenment. Applied politics follows: “to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.” The rest is magnificent. But it is secondary.

Alas, it’s become too fashionable to bash the American Founding, and jettison its myriad achievements because it wasn’t perfect, and its bounty did not extend immediately to all.

The 1619 Project is one such example, initially the 2019 brainchild of The New York Times and a flagrant example of yellow journalism that puts impressionism and ideology over historical accuracy. The Project’s main attempt at historical revisionism is twofold. First, it contends that America was born in sin – the sin of slavery – rather than conceived in liberty, with slavery as a disgraceful part of an overall noble project. 

Second, it claims that American history did not begin in 1776 (with the Declaration of Independence), but in 1619 (the year the first African slaves arrived in Virginia). Among other outlandish claims, the Project claims that the American Revolution was fought primarily to preserve slavery. Prominent historians have condemned the 1619 Project (which was led by a journalist, rather than a professional historian). 

Setting aside the avoidance of careful scholarship to fit an ideological bias, there is a deeper problem: the Project’s emphasis on slavery is divisive and misses the point about the Enlightenment and its promise. Slavery is a stain on American history, of course – but it does not encapsulate American history.

The American Founding as Part of the Bigger Enlightenment Project

Consider the Enlightenment – an intellectual, then a political, revolution. This radical shift gradually moved humanity from the Ancient and Medieval pre-modern world to the modern world. In the pre-modern world, individuals were born with a specific role in the grand order of things: kings ruled, nobles supported the king and defended the commoners, and commoners worked for the noble on whose estate they were born. With the modern turn, the divine right of kings gave way to constitutions, hereditary privilege gave way to democracy, a static world order gave way to meritocracy, and superstitious fear of nature was replaced by the scientific method and technology. As with any intellectual and political change, the process was not immediate. The Enlightenment is generally considered to have taken place between the mid-17th century and the early 19th century. But the process was gradual. And it is still unfolding.

French serfs were formally liberated in 1789, with ripples across Eastern Europe over the next half-century. Russian serfs were not legally emancipated until 1861, then debts kept them tied to the nobles’ land until the 1917 Revolution (and their lot hardly improved under the communist dictatorship). American women did not gain the national right to vote until 1920, with the Nineteenth Amendment. Their French sisters had to wait until 1946, the Portuguese until 1976, and those in the recalcitrant Swiss Canton of Appenzell Innerrhoden until 1991. Today, women’s suffrage is shaky, at best, in Pakistan, Afghanistan, or Qatar. Slavery, which had existed since biblical times and throughout the Ancient world (much as we ballyhoo the achievements of the Greeks and Romans), was abolished by Britain in 1833, the French Empire in 1848, the US in 1865, and Brazil in 1888; Libya, Mauritania and North Korea still have open slavery, and more than 40 million people in the world were recently estimated to be in some form of involuntary servitude. Today, many humans still lack access to global markets, just as half the countries in the world are not (yet) democracies. The Enlightenment is still a work in progress.

Though incomplete, the Enlightenment has astonishingly bolstered human flourishing. Before 1800, effectively 100 percent of humanity was poor (sure, some had gold or land, but none had modern plumbing or medicine, air travel or modern dentistry). Before 1776, no part of the world lived in a constitutional democracy. In 1900, the percentage was about 10 percent (but there was no universal female suffrage). By 2000, with the fall of the Soviet Empire, about 63 percent of the countries in the world were democracies. Alongside this progress, economic freedom continued to expand, with China’s partial experiment with markets, the relaxation of India’s licensing Raj, and globalization. In 2015, for the first time, the world’s extreme poverty fell below 10 percent (unfortunately, it has plateaued since then, as the world endures a decade of democratic backsliding, and a post-COVID drop in economic freedom).

The success story of the last 250 years is the same as the remaining challenge: more and more people, in more and more countries, have been brought into the fold of the Enlightenment. But many remain excluded.

Martin Luther King and the Enlightenment

One of the many groups that has been – and continues to be – incorporated only slowly into the Enlightenment Project is black Americans. Most arrived enslaved, just as the Enlightenment was starting to question the old ways. Slavery ended in 1865; the Fifteenth Amendment (1869) prohibited the denial of the right to vote on the grounds of race, color, or previous servitude. But it was not until the 1950s and 1960s that the Jim Crow establishment was dismantled. And disparities remain. The poverty rate for Black Americans (about 19 percent) is much higher than the poverty rate for white Americans (about seven percent). The average net household wealth for the former is about nine times lower than the latter. The unemployment rate for Blacks is twice as high as for Whites, with the median household income half. Blacks constitute 38 percent of federal inmates (for 12 percent of the population), with Whites at 57 percent (for 63 percent of the population).

Alas, many responses to these discrepancies are as facile as they are wrong-headed. They follow the ideological tenor of the 1619 Project: blame racism and the legacy of slavery. Focus on DEI hires and quotas. Emphasize division, rather than unity. Implement yet another federal program, rather than boldly unfettering markets. 

Despite the astonishing gains in human flourishing, such critics are rejecting the Enlightenment project and the American Experiment as fundamentally flawed. By contrast, Martin Luther King embraced the Enlightenment and called for more of it (he did support affirmative action and other race-based policies, but only as a temporary measure, and not as a fundamental philosophy). He had a dream, as expressed in his 1963 speech:

I have a dream that one day on the red hills of Georgia, sons of former slaves and the sons of former slave-owners will be able to sit down together at the table of brotherhood…

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character. . .

I have a dream that one day in Alabama, with its vicious racists, with its governor having his lips dripping with the words of interposition and nullification, one day right there in Alabama little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers…

This will be the day when all of God’s children will be able to sing with new meaning: “My country, ’tis of thee, sweet land of liberty, of thee I sing. Land where my fathers died, land of the pilgrim’s pride, from every mountain side, let freedom ring.”

In that same speech, Martin Luther King embraced the American Founding, the Declaration of Independence, and, a fortiori, the Enlightenment itself. Rather than rejecting it, he demanded that hitherto excluded Black Americans be included:

In a sense we’ve come to our nation’s capital to cash a check. When the architects of our Republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men—yes, black men as well as white men—would be guaranteed the unalienable rights of life, liberty and the pursuit of happiness. . . .

I say to you today, my friends, though, even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream. I have a dream that one day this nation will rise up, live out the true meaning of its creed: “We hold these truths to be self-evident, that all men are created equal.

Sadly, six decades later, Martin Luther King’s dream has not come to full fruition.

Dream to Reality: The Work That Remains

Space prohibits a full assessment of poverty and race in America.

I blame a failed K-12 government-run educational system. I blame invasive policing and runaway legislation, under which Americans unwittingly commit three felonies a day. I blame federal regulations, which cost 10 percent of GDP in annual compliance, and have a disparate impact on the poorest Americans. And, yes, I blame lingering racism – the ugly, old-fashioned kind, but also the racism of DEI, affirmative action, and targeted federal programs. As Ayn Rand so crisply wrote, “Racism is the lowest, most crudely primitive form of collectivism. It is the notion of ascribing moral, social or political significance to a man’s genetic lineage—the notion that a man’s intellectual and characterological traits are produced and transmitted by his internal body chemistry. Which means, in practice, that a man is to be judged, not by his own character and actions, but by the characters and actions of a collective of ancestors.”

Martin Luther King was first and foremost an advocate for expanding the umbrella and bounty of the Enlightenment. But when he was assassinated in 1968 at the Lorraine Motel (a chilling museum that is well worth visiting), he was supporting workers seeking better pay. Perhaps the best way of advancing his legacy is to dismantle the administrative state and the welfare state, to bring more people, and more fully, into the promise of the Enlightenment Project. Let economic freedom ring, indeed!In the meantime, I have a second reading assignment (err… suggestion) for you, dear reader. Every year on Martin Luther King’s birthday, I reread one of his works. Usually, it’s the “I Have a Dream” speech or his Letter from the Birmingham Jail.

On top of a mountain in Yosemite in September last year, with the nation’s fiscal troubles and the size of the federal government about as far from my thoughts as could be, I would suddenly be reminded of the deeply entrenched divides of American society and contemporary politics. 

As my travel companion (a highly educated, woke, fairly average Californian in her 30s) and I approached the peak, we encountered an odd-looking man in a hat. He and his half-dozen collaborators were finding the optimal camera angles and comparing the sun-blistered vistas of the surrounding mountains to century-old drawings. Our new acquaintance turned out to be a filmmaker, until recently employed by PBS. 

“These guys are my friends,” he said, gesturing toward the remarkably fit crew of men roughly our age. “Because of the cuts, there’s no money for anything anymore; they’re here on their own dime, helping to make this documentary happen.”

Our hat-wearing filmmaker and my friend looked at each other with quick, pained smiles and “hmm” that only two artsy, big-government types can, the words “tragedy” and “cultural decline” visible across their faces. And there we stood, lamenting in no uncertain terms the “destruction of America” that a sum — all $1 billion of it, spent by the federal government in about an hour — had needlessly brought to our attention. What’s a billion among friends, when the federal government dashes out seven thousand such billions every year?

I’m reminded of that moment as the Corporation for Public Broadcasting this month finally threw in the towel, having had its allocated money cut and canceled in July. The House and Senate attributed the move to a request from the White House and a lingering consequence of DOGE. 

CPB was set up by Congress in 1967 to foster educational programming and has acted as a public body of media subsidy ever since. Most of its revenues flow directly to local radio and TV stations (of which NPR affiliates and PBS member stations are the most recognizable). 

From its beginning to its whimpering end, many observers inside and outside government considered it vital to facilitate, in the words of its current president and CEO, “trustworthy, educational, and community-centered media” free of commercial interests. In the digital era of the 2020s, you’d think technologies including the internet, having dramatically lowered the bar for all such efforts, have readily achieved that. Besides, whether Republican or Democrat, Americans’ trust in local or national news organizations has fallen by double-digits in a decade. Why pay for a thing you don’t trust?

DOGE, the brief effort in the spring of 2025 to cut government waste and shrink the deficit, has mostly failed and fallen out of favor. There was a brief, shallow moment when proposing to cut government spending was cool: Elon Musk wielded the memetic chainsaw, a poor impersonation of Argentina’s Javier Milei, and Mr. Trump spoke of “tremendous waste” and “bad spending.” Of course, that impetus didn’t last too long. The total waste cut from the outsized federal government amounted to a rounding error, of which CPB might become the most lasting icon.

The estimated savings involved are strangely disproportionate to the outsized media and political reaction it garnered. We spent six months or more viciously arguing over, and ultimately passing, a bill, that did nothing but marginally shift around some of the vast funds coming out of DC.

The political-media industrial complex, which idolizes all things public and taxpayer-funded, howled in pain. Lots of words about “democratic values” and the integrity of the media system were thrown around. But less, if anything, was said about whether taxpayers ought be forced to bankroll radio programs and TV shows they don’t consume — or at least don’t value enough to pay for. 

As a fiscal business, if you’re not touching entitlement programs (Medicaid, Medicare, VA benefits) or the defense budget — and there’s nothing you can do about the interest on the national debt — you’re out of luck for reining in the runaway train that is the federal government.

As a deficit-fighting funding cut, the CPB money is irrelevant — keep it or don’t, it matters not. As a political signal of the government’s role in society, it’s weak but perhaps directionally laudable. As a measure to filter out supporters and opponents of “owning the libs,” it’s ingenious. 

You could probably predict a person’s political leanings from their reactions to whether or not the government ought to be funding media outlets. My friend and the PBS filmmaker were certainly upset about it. Given these relative truths, the move reeks of political revenge rather than pragmatic politics. Remarked Jesse Walker for Reason, “Sometimes the king would rather lop off a head than watch someone bend the knee.”

CPB claimed to be the single-largest funding source for thousands of public radio and local TV stations, including NPR and PBS affiliates. If those media outlets provide good, valuable content, they’ll find their audience and stay in business. Why the federal government ought to provide means (read: make-work programs) for a small number of journalists and podcasters, in an era when everyone can effortlessly listen to and voluntarily support whichever show they want, makes no sense. 

Financing media outlets with public money is tragically unfit for purpose, a legacy of a time when airwaves were scarce and national attention carefully gatekept. Of course, then, we should be happy to see CPB go. But it was too much political bang for too few bucks, purchased by further alienating half the country. Absent national divorce, I have no proposals for how to address that problem, but removing select media funding from Congress’s overburdened plate was not worth anybody’s time. 

There are much bigger fish to fry, and a billion is, among friends, practically nothing.

The White House announced last week that it is “taking steps” to ban large institutional investors from buying single-family homes. It’s unclear whether the President has legal authority to do this without action from Congress. But setting aside that issue, let’s investigate the merits of the policy.

Many commentators have pointed out that institutional investors have such a small presence in the single-family market that it is implausible to attribute much of the recent appreciation in house prices to their activities. Institutional investors, defined as those owning 100 or more homes in their portfolios, own less than 1 percent of the single-family housing stock nationally and only about three percent of single-family homes for rent. Their purchasing activities have declined since 2022, but even at the peak the largest (1000+ homes) investors accounted for under three percent of single-family house purchases nationally. Institutional investors matter more in some markets than in others, but in no metro area do companies with 100+ home portfolios own more than five percent of the single-family stock.

What commentators have so far left unsaid is just how beneficial the small amount of institutional investment is for the American housing market. It’s not just not a big problem; it’s not a problem at all, but rather something to be welcomed.

Institutional investors help make the housing market more liquid and less cyclical. They upgrade the quality of the housing stock, typically at lower cost than smaller renovation outfits. They make desirable neighborhoods accessible for households that could not afford to buy in those neighborhoods. Increasingly, they are directly increasing housing supply.

Institutional investors first started to take interest in single-family houses in 2012, at the bottom of the last housing cycle. They are less capital-constrained than smaller investors, let alone most owner-occupiers. As a result, they are better able to use cash reserves to identify good deals and the market and buy them at prices that make sense over the long run. The ability of institutional investors to support the housing market after a financial crisis will help prevent future liquidity problems in the mortgage finance sector from spiraling into a housing crash.

Why have institutional investors only emerged as players in single-family housing so recently? Economists point to technological advances such as cloud computing and mobile connectivity that have helped with acquisition and management of single-family houses. Machine learning (artificial intelligence) may have helped develop forecast models for acquisition as well. To be sure, some buyers became overconfident in their forecast models and ended up losing a lot of money — most famously Zillow. But Zillow’s model was to buy low and sell dear, rather than manage rental properties. Most institutional investors tend to focus on particular neighborhoods or cities to reduce the per-unit costs of property management.

Mortgage underwriting standards tightened dramatically after the Great Recession, making it difficult for younger Americans and those with a lot of income from “side gigs” and self-employment to qualify. As a result, homeownership rates declined. By making more single-family homes available to renters, buy-to-rent institutional investors have helped families that could not afford to buy or qualify for a mortgage to move into desirable neighborhoods.

The most recent and careful paper on the subject finds that large institutional investors slightly raise house purchase prices and reduce rents. The effect on prices is truly tiny: for every percentage point of the total single-family housing stock owned by large institutional investors, house prices go up 1.7 percent. Since these investors own less than one percent of the single-family housing stock nationally, counterfactually eliminating all large investor ownership of single-family housing would decrease national house prices by less than 1.7 percent. And even Trump is not proposing to force investors to sell what they already own.

The effect on rents is slightly bigger: for every percentage point of the single-family rental stock that institutional investors own, rents fall 0.7 percent. Since institutional investors own about three percent of the national single-family rental stock, the total effect on rents is around negative two percent. While small investors substitute to some extent for large investors, the Coven paper still finds that large investors increase the total supply of single-family rental homes by 0.5 for every home that they purchase.

Foreclosures are a disproportionate channel by which institutional investors acquire homes. For example, INVH reported that 37 percent of the houses they acquired between September 2015 and September 2016 were from distressed sales. Typically, large investors renovate homes before renting them out. Invitation Homes reported spending about $39,000 per purchased home on renovations in 2021. Large investors may have a comparative advantage in buying and renovating homes because they have full-time teams working in specific regions according to established procedures and buying materials in bulk. Thus, large institutional investors increase the average quality of the US housing stock.

Increasingly, large institutional investors expand total housing supply directly, through build-to-rent developments. In the Q2 2024 last year, build-to-rent (BTR) developments were 7.2 percent of all single-family house starts. BTR isn’t useful for getting renter households access to desirable neighborhoods, but it is especially useful for increasing overall housing supply, decreasing both sale prices and rents because the rental and for-sale markets are connected. When BTR drives down rents through new supply on the market, that encourages some households to rent rather than buy and reduces for-sale prices for buyers of the remaining homes on the market. BTR has been especially desirable in unfreezing a housing market challenged by mortgage lock-in. Unfortunately, HUD Secretary Bill Pulte reportedly wants to crack down on BTR as well as institutional purchases of existing homes.

In the last year, housing prices have declined the most in markets where large institutional investors are concentrated. If we look at the largest 15 metro areas in the country, house prices have grown 0.5 percent in the markets with under one percent institutional ownership and fallen 3.6 percent in the markets with 1-3 percent institutional ownership. In the only market with over 3 percent ownership (Atlanta), prices have fallen 2.9 percent. While correlation does not equal causation, these data certainly cast doubt on any claims that banning institutional investment will reduce house prices.

Left- and right-wing populists that want to ban institutional ownership of single-family homes will hurt the average American if they get their way. Institutional investors are increasing housing supply and making housing markets more liquid and less volatile. They help younger families and those of modest income gain access to desirable neighborhoods. Their upward impact on prices is tiny, and could even have reversed once we consider the new impact of build-to-rent development.

The latest clash between President Trump, Federal Reserve Chair Powell, and the Department of Justice has been widely portrayed as a constitutional crisis for central bank independence. The DOJ is investigating whether Powell made false or misleading statements to Congress regarding the scope and cost of the Federal Reserve’s m ulti-billion-dollar headquarters renovation. Powell denies wrongdoing and casts the inquiry as political pressure on monetary policy. Trump denies direct involvement, but has renewed his longstanding attacks on Powell’s performance as Fed chair. The affair has metastasized into a broader fight over law, accountability, and the nature of modern central banking.

Financial markets have responded nervously. Commentators warn of capital flight, politicized interest-rate decisions, and the erosion of US monetary credibility. Former Fed officials and many academic economists have rushed to Powell’s defense, framing the investigation itself as the real scandal. International central bankers have issued statements of solidarity. The elite consensus is clear: even asking whether the Fed chair broke the law risks catastrophic damage to institutional independence.

But this framing obscures the main issue. It matters greatly whether Powell lied to Congress. Legislative oversight is not a nuisance; it is the constitutional mechanism by which unelected officials remain accountable to the public. If Powell’s testimony was accurate, the investigation should end quickly and publicly. If it was not, that fact cannot be waved away by invoking the supposed sanctity of central banking. Accountability is not optional simply because the Fed is prestigious.

This matters even more given the Fed’s recent record. Under Powell’s leadership, the United States experienced the highest inflation in forty years — a clear failure of the Fed’s price-stability mandate. At the same time, the institution increasingly drifted into areas far beyond monetary policy, such as explicitly targeting racial unemployment gaps and inserting itself into climate policy debates. None of this appears in the Federal Reserve Act. Congress did not authorize a social engineer with a printing press. Yet the Fed has behaved as if its independence grants it a limitless commission.

That brings us to the deeper issue: what does “central bank independence” actually mean? In practice, it has come to mean governance by unaccountable technocrats — officials who exercise vast discretionary power over money and credit while being insulated from democratic control. This is difficult to reconcile with self-government under the rule of law. Independence from day-to-day political pressure may be defensible. Independence from law, oversight, and consequence is not.

Defenders of the status quo argue that independence delivers superior economic outcomes. But the latest evidence fails to corroborate that. Even if this claim were empirically correct, it would not settle the matter. No technocratic efficiency argument can override constitutional structure. Agencies do not derive legitimacy from good results but from lawful authority. If the benefits of independence require shielding officials from legal accountability, then the price is too high.

None of this implies that Donald Trump is a disinterested defender of constitutional order. He plainly has political motives, and his history of browbeating the Fed is well known. Lawfare—the subordination of the state’s institutions of justice to personal ambition—is always improper in a free society.

But Powell’s culpability does not depend on the president’s motivations. Trump is the head of the executive branch, and the federal bureaucracy is not a sovereign entity unto itself. A system that delegitimizes investigations whenever they inconvenience elite institutions puts bureaucratic immunity above the rule of law.

More broadly, the idea that central banking can ever be apolitical is a complete fiction. Government intervention in money and credit necessarily allocates gains and losses based on political criteria. Interest rates, asset prices, and credit availability are inherently political when the political process decides to create and maintain a central bank. The real choice is not between politics and technocracy, but between democratic accountability and no accountability at all. If democratic oversight proves messy or destabilizing, that should prompt a more fundamental question: why grant the government such sweeping control over money in the first place?

Powell therefore does not deserve an automatic pass. “Independence” is not a constitutional exemption. If a public official — any public official — lies to Congress, there should be consequences. If he did not, the investigation should end and the facts should be made clear. Either outcome would strengthen, not weaken, the rule of law. 

“No one — certainly not the chair of the Federal Reserve — is above the law,” a central banker once said. That truism must be our lodestar going forward. However the investigation plays out, it’s time to discard the servile notion that the Fed is answerable only to itself.

One year ago, Donald Trump took office, swearing an oath to “preserve, protect, and defend the Constitution of the United States.” Americans were promised a new golden age, one in which the nation would flourish, in Trump’s words: “We will be the envy of every nation and we will not allow ourselves to be taken advantage of any longer.” One year into this so-called golden age, a familiar pattern has emerged. 

Internationally, the administration has erected tariffs in the name of reviving manufacturing. Domestically, it has implemented sweeping national policies to govern emerging technologies such as artificial intelligence. These are two sides of the same coin: executive power extending into domains traditionally disciplined by Congress and the states. These developments raise a central question: is the pursuit of national renewal reinforcing the constitutional and economic foundations of the republic, or quietly eroding them? 

Tariffs and Manufacturing

On April 2, or “Liberation Day,” tariffs captured much of 2025 as the administration sought to upend decades-long trading practices under the promise of bringing manufacturing back to the United States. In a return to an old-school mercantilist instinct, broad tariffs were imposed on imports to leverage the size of the U.S. economy against trading partners and supposedly spark domestic production, especially in nostalgic sectors such as steel and autos. 

According to FRED, both domestic auto production and employment in manufacturing continue to decrease. At the same time, prices have risen sharply over the past year. From March to September of last year, the Producer Price Index (PPI) for Metals and Metal Products rose roughly by 10 points, from 132 to 143. In autos, Fitch Ratings places the 60-plus-day auto-loan delinquency rate at a record high, with new car prices averaging more than $50,000 for the first time. 

Taken together, tariffs have taxed consumers while failing to deliver the promised production gains — manufacturing, in effect, a kind of policy-made madness. In addition, affordability is now casting a long shadow over the economy, especially when tariffs are applied to goods the United States has little or no capacity to produce at scale, such as bananas and coffee, revealing the bluntness of broad-based tariff policy and a poor understanding of America’s own production capacities.

The idea that tariffs can serve as a magic wand to revive industry rests on a false premise of government action in the economy. Governments do not trade and create prosperity. Firms and individuals do, as they truck, barter, and exchange their way toward a better future.

Artificial Intelligence National Policy

On December 11, 2025, Donald Trump set into motion a National Policy Framework for Artificial Intelligence. This Executive Order is designed to preempt state law: “My Administration must act with the Congress to ensure that there is a minimally burdensome national standard — not 50 discordant state laws. The resulting framework must forbid State laws that conflict with the policy set forth in this order.”

“Defending the Constitution” must mean something different in Washington, because the Tenth Amendment speaks exactly against this sort of power concentration. “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” 

Consolidating rules under one roof in this manner reflects poorly on the constitutional design in which each state has room to craft laws for its own people. How else can competing ideas be tried and tested if all states operate under a single federal banner? In other words, these blanket rules reduce the space for experimentation and creative destruction while concentrating power in firms such as: Microsoft, Alphabet, and OpenAI, companies that can retain large legal teams to navigate such federal laws.

Moreover, the “minimally burdensome national standard” comes equipped with an AI Litigation Task Force designed to pressure states into conformity with the new federal framework. “The Attorney General shall establish an AI Litigation Task Force (Task Force) whose sole responsibility shall be to challenge State AI laws inconsistent with the policy set forth in section two of this order, including on grounds that such laws unconstitutionally regulate interstate commerce.” In an effort to combat bureaucracy at the state level, the response is a new federal bureaucracy to police the states under a single policy.

An Executive Unchecked

Like Order 66, Executive Orders 14257 on tariffs and 14179 on AI policy reflect the modern temptation to treat governance as command rather than consent. When the executive frames trade deficits or emerging technologies as emergencies that demand immediate action, policy is issued from the center and enforced through agencies and litigation rather than deliberated through Congress and tested through federalism. The result is not merely bad policy in tariffs or AI; it is a constitutional shift. Each precedent for unilateral action becomes a template for the next, producing regulatory whiplash; one president governs by decree, the next reverses by Autopen, and eroding the stability that firms, households, and states require to plan. Over time, the republic begins to function less like a system of separated powers and more like an administrative chain of command. It is therefore no wonder that trust in government, according to Pew Research, has sunk to historic lows: “Just 17 percent of Americans now say they trust the government in Washington to do what is right ‘just about always’ (2 percent) or ‘most of the time’ (15 percent).”

James Madison, Father of the Constitution, anticipated this entire problem. In Federalist No. 10, he warned that “enlightened statesmen will not always be at the helm,” which is precisely why a free society cannot rely on the character or self-restraint of any single officeholder. The constitutional design assumes that emergencies will be invoked, passions will flare, and interests will press for advantage. The remedy is not to hope for better rulers, but to preserve the institutions that force restraint and distribute power. When emergency governance becomes routine, the public is asked to substitute trust in process with trust in personalities. A republic cannot remain stable on those terms.

A practical way to begin breaking this executive ratchet is to restore Congress as a genuine counterweight, and that requires rebuilding its federalist character. The Senate was originally intended to represent state governments as political units, not simply to mirror national party coalitions. The Seventeenth Amendment’s shift in 1912 to direct election, instead of election by state governments, altered senators’ incentives entirely. Direct election may be democratic, however it weakens the Senate’s original function as an institutional representative of state governments, thereby weakening federalism as a check on executive power. Instead of being accountable primarily to state legislatures and state institutional interests, they increasingly respond to national party lines and Washington’s internal logic. Repealing that amendment, so senators are once again anchored to state interests, would strengthen oversight of the executive, improve the representation of states within Congress, and rebalance authority between the states and the federal government. In one swift motion, both the federal government and the executive branch would be restrained while providing an incentive for people to care about state government affairs. 

If America wants a genuine golden age, it will not be issued by Executive Order, it will be rebuilt by restoring the limits that make self-government possible.

At the Bitcoin conference in Nashville in July of 2024, then-candidate Donald Trump made a campaign promise to end the war against the use and development of cryptocurrencies. This war was coined “Operation Chokepoint 2.0” and led by Senator Elizabeth Warren, former Chair of the Securities and Exchange Commission Gary Gensler, and the Biden Administration. Despite Trump’s obvious relatively relaxed stance on “crypto”, the Biden-era “Chokepoint 2.0” lingers on: the CEO of Bitcoin “mixer” Samourai Wallet sentenced to five years in prison by the Southern District of New York on November 6. (So-called “mixers” allow users of cryptocurrencies to obtain a level of privacy not normally possible on public blockchains). 

While the charge that ultimately stuck against Samourai Wallet CEO Keonne Rodriguez was conspiracy to operate an unlicensed money-transmitting business, repeated accusations of money laundering were used to build the case against him. 

In a similar case in August 2024, a jury found Ethereum developer Roman Storm guilty of operating an unlicensed money transmitting business. In this case also, Storm was also charged with conspiracy to commit money laundering, because the privacy tool that he developed was alleged to have been used by nefarious actors. In the end, the jury’s lack of unanimous agreement meant the money laundering charge did not stick. 

In the respective cases against both Rodriguez and Storm, prosecutors decided that money laundering (or conspiracy to launder) was a charge worth stacking against them to make the overall activities they were involved with appear to be of greater severity. And in both cases again, the charge that they were ultimately found guilty of (unlicensed money transmitting) doesn’t pass any reasonable smell test given that both Samourai Wallet and Tornado Cash were “non-custodial.” Neither service ever took custody of the coins to begin with, so they could not have “transmitted” funds, legally or otherwise. This was also the conclusion of lawyers at the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). 

Why Anti–Money Laundering Now Touches Everything

Money laundering is a topic that often comes up in financial matters of all kinds. Over recent years, especially since the birth and growth of Bitcoin and other cryptocurrencies, anti-money laundering (AML) efforts have expanded substantially by governments, central and commercial banks, and by intergovernmental organizations such as the OECD’s Financial Action Task Force (FATF). In fact, under the present climate, law-abiding individuals can hardly interact with a financial institution of any kind anywhere in the world without having to answer questions about source of funds, take repeated selfies from various angles, and upload photos of government-issued documents, and more — even when dealing with small amounts of money. 

As a result of AML, financial institutions across the internet find that they hold treasure troves of sensitive user data that serves as a high value target for hackers to be exploited and sold on Darknet marketplaces. 

In short, regulators have built a giant industry that imposes high costs onto private sector actors and taxpayers without much discussion of costs versus benefits. As such, the subject matter of AML efforts demands a revisit. 

Blind Spots and Perverse Incentives

The term ‘money laundering’ was coined after the Watergate scandal of the 1970s, yet it was not formalized into law with any federal offense until the Money Laundering Control Act of 1986. 

These days, law enforcement and regulatory agencies such as the Financial Crimes Enforcement Network (FinCEN) and Financial Action Task Force (FATF) typically use the term alongside other terms that imply an obvious victim needing protection: ‘terrorist financing’, ‘human trafficking’. This is meant to provoke a strong reaction against money laundering as a practice. One problem with the association of money laundering with these other terms that obviously justify a strong response to prevent them is that money laundering does not, in itself, always have a clear victim. As such (at least from a classically liberal point of view), it is not clear that money laundering’s illegality is justified — at least not in every case. 

To understand this, consider that the Money Laundering Control Act of 1986 emphasizes that money laundering involves the transacting with and concealing of criminally derived property. While this may seem reasonable on the face of it, it should be stressed that nearly everyone can think of something that is illegal that (from their own moral code) should not be. 

So, for example, libertarians typically criticize America’s Drug War, arguing that recreational drug use is generally a victimless crime. If someone sells a small amount of marijuana for a $50 banknote, then pretends that it was derived from the sale of ice cream, that could be considered money laundering – even though there is no victim. Both buyer and seller are happy. Whether law enforcement would typically charge someone of money laundering in a minor case like this or whether it would hold up in court is besides the point. Money laundering can – at least in some cases – be a victimless crime and even be said to protect life and property, despite its illegality. 

No sensible person wants to live in a world in which a Leviathan state is omniscient and omnipotent, capable of cracking down on every minor infraction. (It is noteworthy that Switzerland became a global hub for financial privacy because persecuted Calvinists there knew very well the importance of that privacy to their freedom and safety).

Next, it is important to consider some problems with the AML machine, as it is in practice. Four points made by authors Norbert Michel and David Burton at the Heritage Foundation are worth noting. 

First, the vast majority of money laundering investigations, indictments, and convictions on the federal level in the United States are by the IRS, not the FBI. This strongly suggests that its primary use case is to maximize tax revenues, not to protect victims (as repeatedly mentioning money laundering alongside terrorist financing and human trafficking suggests that it does). 

Second, it is impossible to demonstrate any effectiveness of anti-money laundering efforts as a tool to crack down on more serious crimes since law enforcement typically charges alleged offenders with money laundering and non-money-laundering crimes simultaneously. Michel and Burton write that this practice “[makes] it difficult to tell whether law enforcement discovered a drug crime because of money laundering or vice versa.”

Third, no matter how you splice the numbers, the cost to taxpayers to convict a person for money laundering is several million dollars each, and sometimes in the hundreds of millions – and none of this even includes the hundreds of billions of dollars in compliance costs to the private sector every year. 

And fourth, tax evasion is often cited as a justification for AML. But as Burton and Michel argue, crimes in one country are often not considered crimes in other countries and therefore do not justify data sharing between governments (as AML legislation requires) under the principle of dual criminality. Tax evasion is, in some countries, a civil violation (not a criminal one). So to use tax evasion as a justification for AML data sharing is about as misguided as using “speaking out against one’s government, peaceful political or labor organizing, gambling, [or] homosexual behavior.” 

Consider just one example that demonstrates how AML has run amok outside the United States. In New Zealand, like in many parts of the world, someone accused of a crime maintains the legal right to attorney-client privilege. That privilege does not apply, however, in cases of suspected money laundering. So, if you commit a series of violent murders in New Zealand, you have full right to a proper legal defense, but if your attorney suspects you may be involved with money laundering, he is required to submit a Suspicious Activity Report (SAR) about you – and thereby do exactly the opposite of what attorneys exist to do in the first place. This reveals backwards governance priorities of policymakers. 

And lastly, the elephant in the room. While AML efforts globally impose enormous costs onto taxpayers, private businesses, and the economy more broadly, it should be noted that the primary offenders are some of the world’s largest banks. Add to that, many activities conducted by government agencies themselves or by private actors on behalf of these agencies certainly rhyme with money laundering.

To cite just one example, recent discoveries of Jeffrey Epstein’s activities from 1979 onwards reveal that while he worked for Bear Stearns, he was responsible for concealing the true sources of funds for illegal arms deals on behalf of intelligence agencies of various governments. So while the AML regime is promoted as one that hinders crime, it seems ineffective at hindering crimes committed by the politically powerful.

AML is a Regulatory Attempt to Erode Privacy and Property Rights

The first “Crypto Wars” of the 1990s established the legal precedent that computer source code is protected speech under the First Amendment. What remains of the ongoing Biden-era Operation Chokepoint 2.0 lawfare threatens that precedent. Additionally, the privacy protections intended by the Fourth Amendment are under fire nearly everywhere in the world when it comes to financial privacy. In the United States, the chief enemies to it are the Bank Secrecy Act, the Foreign Account Tax Compliance Act (FATCA), PATRIOT Act, the Money Laundering Control Act, and Chokepoint 2.0 — all regulatory attempts at weakening property rights in one way or another. 

There are ways in which anti-money laundering laws can be rationally justified from different perspectives. But given that AML creates a new class of victims for exposure to frequent data breaches, given that it is not clear just how effective AML is at revealing more serious (non-money-laundering) crimes, given the enormous cost to taxpayers and to the private sector, given that money laundering can be a victimless crime, and given that it is a tool of choice for prosecutors to shut down founders and developers who provide much-desired financial privacy to cryptocurrency users, it is time to call AML out for what it is: an enormously wasteful scheme and abuse of power.