The senators elected in fall 2026 won’t be able to avoid dealing with Social Security. The program is projected to hit a financial cliff before the end of 2032, forcing Congress to consider benefit reductions, higher taxes, or more borrowing.
The looming deadline exposes a deeper problem than arithmetic: Congress has spent decades selling Social Security as something it isn’t. Public misunderstanding of the program’s true nature is one of the biggest obstacles to reform.
Many Americans think Social Security works like a retirement account. In Cato polling conducted in August, about one in four said they believed they had a personal account within the system. That misconception didn’t arise by accident. Politicians routinely describe payroll taxes as “contributions,” speak of a “trust fund” as if it held real savings, and defend benefits as “earned.”
Social Security is not a savings program. It is a pay-as-you-go transfer system. Today’s workers’ payroll taxes fund today’s retirees’ benefits. There is no individual account accumulating a balance over time. Payroll taxes are taxes, neither deposits nor savings.
Its early history makes that clear. The first Social Security check went to Ida Fuller of Vermont, who would go on to collect nearly half a million in today’s dollars. That is about 1,000 times what she had paid in taxes. Fuller did nothing wrong; the system was built that way. From the start, Social Security transferred resources across generations and among workers with different earnings.
This distinction matters because it changes how Americans evaluate the program—and the choices ahead. When Social Security is framed as a retirement account, any benefit reduction sounds like unfair confiscation.
And when payroll taxes are described as “contributions,” it invites a contradiction: Americans are told that Social Security delivers earned benefits, yet are also encouraged to view the payroll tax cap as an inequity and calls to raise it as a matter of high earners paying “their fair share.”
When it’s understood as what it is—government-provided income insurance for old age—the trade-offs become clearer. Lifting the payroll tax cap becomes a decision to raise taxes on higher earners to fund redistribution. Higher payroll taxes across the board mean lower take-home pay for workers and weaker economic growth for all of us. Slower benefit growth results in less government spending that subsidizes lifestyle choices among retirees who are, on average, wealthier than the workers financing the system.
Americans, meanwhile, are clearer-eyed about the trade-offs than Congress gives them credit for—especially when presented with real numbers. In an October Cato survey, most respondents initially supported raising payroll taxes “as much as necessary” to shore up Social Security. But support collapsed once the question was framed in dollars. Most Americans are unwilling to pay what would be required to fix Social Security through higher payroll taxes alone.
The same survey shows widespread frustration with how Congress has handled Social Security. Sixty-two percent of respondents believe lawmakers have mostly broken their promises to workers, and 71 percent support creating a commission of independent, nonpartisan experts with authority to address the program’s funding shortfalls.
Americans don’t trust Congress with Social Security, and for good reason: they’ve been sold a comforting fiction for decades.
Honesty would also clarify what reform should look like. If Social Security is fundamentally a redistribution program meant to prevent poverty in old age, then Congress should stop pretending it is a contribution-based retirement account and design it accordingly. The most straightforward approach is a flat benefit: a uniform, anti-poverty payment for eligible seniors, phased in gradually for younger cohorts. It would protect those who need help while reducing subsidies to those who don’t.
This idea is gaining traction. Nearly half (48 percent) of Americans in the Cato survey support replacing Social Security with a flat-benefit system that raises benefits for lower earners and reduces them for higher earners. Support is strongest among younger workers who would be the ones to bear the brunt of the benefit change and who also stand to gain the most from limiting the program’s rising payroll tax burden.
Analysts across the policy spectrum have begun moving in the same direction.
Proposals by scholars of the American Enterprise Institute, the Manhattan Institute, and the Progressive Policy Institute differ in their approach but converge on a common insight: once you abandon the fiction that Social Security is a personal savings plan, a flatter, more transparent benefit structure makes sense.
A flat benefit would not eliminate difficult choices. Lawmakers would still have to decide how generous the benefit should be, how to finance it, and how to manage the transition fairly. But it would make it possible to protect vulnerable seniors from indiscriminate cuts by reducing spending on more affluent retirees instead. It would also make Social Security’s purpose and costs explicit: payroll taxes are taxes, and benefits are welfare spending. Congress will not be able to dodge Social Security’s fiscal reality much longer. It also shouldn’t dodge the truth.
If Congress wants to restore trust and stabilize the program, the first step is simple: stop pretending Social Security is something it never was.
The Federal Open Market Committee (FOMC) is expected to leave its interest rate target unchanged at 3.5 to 3.75 percent at this week’s January meeting. After a series of rate cuts in the second half of last year, and a continued push for further easing, a pause may feel anticlimactic. But the leading monetary policy rules suggest another cut would be a mistake.
The latest Monetary Rules Report from AIER’s Sound Money Project shows that the Fed’s current policy rate now sits below the range suggested by several well-known rules. Most of the rules point to an appropriate policy rate somewhere between 3.85 and 4.25 percent, depending on how one weighs inflation, employment, and overall spending in the economy. In that context, additional rate cuts would go beyond what current economic conditions justify.
Why Stop Here?
Chair Jerome Powell has described the Fed’s recent rate cuts as “risk-management” moves — steps taken to guard against the possibility that a cooling labor market could tip into something worse. That framing made sense last year, when unemployment was drifting upward and the outlook for growth was more uncertain.
Since then, the economic picture has changed. Despite a continued slowdown in job creation, the unemployment rate in December was only slightly higher than in the first half of the year. More importantly, real GDP grew much faster than expected in the third quarter of 2025, as total spending in the economy rebounded sharply. At the same time, inflation remains above the Fed’s two-percent target, and progress toward that goal has been uneven.
The risks that motivated rate cuts last year have not disappeared, but they no longer justify continued risk-management through easier monetary policy.
What the Rules Say
Monetary policy rules provide a consistent way to translate economic conditions into interest-rate guidance, helping policymakers avoid overreacting to the latest headline or political mood.
Rules based on inflation and unemployment — often referred to as Taylor Rules — suggest that the policy rate should be closer to 4 percent. This prescription is based on a few key factors. First, inflation remains stuck persistently above the Fed’s two-percent target. When inflation is above target, the Taylor Rule calls for higher interest rates to slow demand and reduce upward pressure on prices. Second, the unemployment rate remains close to levels typically associated with maximum employment. When the labor market is near maximum employment, the Taylor Rule suggests there is little need for lower interest rates to boost economic activity. Third, strong growth and productivity have led to an increase in estimates of the “natural” rate of interest — the interest rate that is expected to prevail when the economy is at full strength and inflation is stable. When the natural rate rises, the Taylor rule calls for a similar increase in the prescribed policy rate.
Rules that focus on overall spending in the economy — often described as nominal GDP (or NGDP) targeting rules — call for an even higher policy rate. Total spending by households, businesses, and governments grew briskly in the third quarter of last year — over 8 percent on an annualized basis — signaling that monetary conditions are not especially tight. When spending accelerates that quickly, cutting rates further risks adding fuel to demand at a time when inflation has not yet been fully contained.
What This Means for Monetary Policy
Coming out of the pandemic, monetary policy swung sharply — first, staying too loose as inflation surged, then tightening aggressively to regain control. Episodes like these highlight the danger of letting policy stray from the data. Rule-based benchmarks help guard against that risk by keeping policy anchored to observable economic conditions.
Right now, those benchmarks are sending a clear signal: there is no urgency to do more. If anything, they indicate that the next interest rate move — if there is one at all — should be up rather than down. While a reversal at this meeting is unlikely, the Fed’s internal debate should be about whether to regret the last 25-basis-point cut, not whether to cut even further.
That does not mean the Fed should ignore downside risks. Weak job growth, consumer spending increasingly driven by high-income households, and open questions about how long the AI investment boom will last are all legitimate concerns that should be monitored. At the same time, new jobless claims are near historical lows, growth forecasts are strongly positive, and the stock market is at record highs. Ultimately, monetary policy should not be driven by headlines in either direction. The Fed’s mandate is to promote maximum employment and stable prices. If unemployment rises, inflation falls convincingly toward target, or growth slows, the case for continued easing would strengthen. Absent those developments, further rate cuts are difficult to justify.
Looking Ahead
In the years immediately following the pandemic, monetary policy drifted away from the guidance offered by the leading monetary rules. Over the past year, the Federal Reserve has largely worked its way back toward those benchmarks, bringing the stance of policy closer to what prevailing economic conditions would suggest. That course correction has helped restore some measure of predictability and discipline to monetary policy.
The challenge at the start of 2026 is to maintain that discipline. Markets increasingly expect further rate cuts and there is political pressure to deliver on those expectations. But the greater risk now is repeating a familiar mistake: allowing policy to once again drift away from the signals embedded in the data. Absent clear signs of economic weakness, further easing risks undoing the discipline that has brought policy back on track.
Late last year, YouTube announced plans to reinstate accounts that had been banned at the behest of the Biden Administration for posting alleged COVID-19 misinformation. The announcement likely came as a relief to groups like the Children’s Health Defense Fund, a group associated with Robert Kennedy Jr.; and to Senator Ron Johnson; both of whom were punished by the social media giant for posting videos that ran contrary to the Biden administration’s official policy on the COVID-19 vaccine and on COVID-19 treatments.
This is a good move. But we should remember, it wasn’t just YouTube that decided to punish speech disapproved by the prior administration.
A report by the United States House of Representatives’ Committee on the Judiciary and Select Subcommittee on the Weaponization of the Federal Government contains damning evidence that the Biden Administration leaned on social media companies to censor anti-vaccine content during the COVID-19 pandemic. The report details how Facebook, Amazon, and YouTube all shadowbanned or removed content that was critical of the administration’s official stance on the vaccines, the origin of the virus, and more.
The administration’s actions were reckless, and endangered more than just our societal freedom of speech.
For one thing, while it might be tempting to think that the Biden Administration only censored crackpots and conspiracy theorists, the truth is far worse. The report details how the Biden administration leaned on Facebook to censor the “lab leak” theory of COVID-19’s origins, a theory that’s now seen as highly plausible. It similarly asked Facebook to censor “negative information on or opinions about the vaccine,” and internal emails from Facebook report that ““The Surgeon General wants us to remove true information about side effects.”
Prominent scientists who opposed the administration’s position on lockdowns, including Dr. Jay Bhattacharya (current head of the National Institutes of Health) were blacklisted by social media platforms. At the administration’s behest, videos featuring Bhattacharya were removed from YouTube.
All of this did immense damage to our truth-seeking apparatus, during a time when finding the truth could not have been more important. When Facebook dragged its feet on censoring certain content, President Biden publicly accused them of “killing people.” But the same accusation could be made against the Biden Administration itself: by censoring scientific debate during a once-in-a-lifetime pandemic, the administration virtually guaranteed that its response would be worse than if prominent critics were allowed to voice their concerns.
Some proponents of censorship argue that the more important an issue is, the more justification there is for censorship. This makes a superficial kind of sense: after all, nobody wants hucksters selling snake oil to take advantage of sick people by claiming that they’re curing cancer. But more often, the inverse is true: the higher the stakes of a given issue, the more essential it is that experts on all sides be allowed to voice their concerns freely. By preventing this robust scientific debate, the Biden administration ensured that the policies it implemented (including lockdowns and vaccine mandates) were worse than if prominent critics had been given a seat at the table.
The Biden Administration’s actions also took a sledgehammer to institutional trust in America, which has fallen to concerning levels. The decline of institutional trust worries critics across the political spectrum, from progressives concerned that our society is becoming anti-science to conservatives like Yuval Levin, for a simple reason: our society works better when we trust our institutions and when, in turn, they show themselves to be trustworthy.
By politicizing the scientific debate about the COVID-19 pandemic, the Biden Administration did profound damage to institutional trust. A study by Pew finds that in April 2020, 87 percent of Americans “had confidence in scientists to act in the public’s best interests.” By late 2023, that number had fallen to 73 percent. By summer of 2024, the Centers for Disease Control and Prevention had only a 33 percent approval rating among Republicans. Many on the left chalk this trend up to Republicans being anti-science, but the House Judiciary report tells a different story: many on the right lost trust in an institution that they justifiably saw as having been shamelessly politicized.
Trust in news has plummeted as well. In 2019, 18 percent of Americans had a “great deal” or “quite a lot” of faith in television news. By 2024, that number had fallen to 12 percent. In 2019, 23 percent of respondents had a “great deal” or “quite a lot” of faith in newspapers; by 2024, that number was just 18 percent. There are multiple reasons for this decline in trust, but it’s hard to see evidence of the administration jawboning companies into censoring so-called “misinformation” on COVID-19 and not conclude that many Americans are simply tired of feeling lied to by the news.
The other problem created by the administration has to do with what economist Robert Higgs calls the “ratchet effect.” Here’s how Michael Matulef describes the phenomenon:
The ratchet effect theory, as popularized by Robert Higgs in his book Crisis and Leviathan, refers to the tendency of governments to respond to crises by implementing new policies, regulations, and laws that significantly enhance their powers. These measures are typically presented as temporary solutions to address specific problems. However, in history, these measures often outlast their intended purpose and become a permanent part of the legal landscape.
One danger of the Biden Administration’s actions is that they can become precedents for future administrations to further erode free speech protections in future crises. The Biden administration inured people to having their freedom of speech censored in the name of public health, which makes it that much more likely that we’ll be equally willing to shrug off future abuses. When it comes to free speech, we the people can feel like the proverbial frog sitting in a pot of increasingly hot water, and it should concern all of us whenever an administration decides to increase the temperature by a few degrees.
When we’re discussing freedom of speech, First Amendment defenders can be strident about the principles involved; as more than one First Amendment absolutist has argued, even if there were no practical benefit to free speech beyond letting people speak freely, it would still be worth defending.
That’s true, but we shouldn’t let ourselves forget that the First Amendment is also a profoundly practical tool for building a good society. When governments censor their people, they do profound damage to the truth-seeking apparatus and risk people’s lives and livelihoods with poorly-thought-out policies. They damage the institutional trust that keeps society functioning. No matter what we think of the arguments made by lockdown resistors and COVID-19 vaccine skeptics, we should be appalled that our government tried to censor them.
David Beito argues that Franklin Delano Roosevelt was a self-serving politician who cared very little for the civil liberties of Americans. In FDR: A New Political Life, Beito challenges historians who explain away Roosevelt’s horrid record on civil rights as politically strategic (in the case of black Americans) or as an exception (in the case of Japanese internment).
Instead, Beito contends that FDR’s glib view of civil liberties was core to his worldview. Additionally, Beito emphasizes that Roosevelt’s economic policies were ineffective and at times counterproductive, and that his reliance on top-down solutions to the Great Depression violated the economic liberties of Americans. In short, FDR was the worst president on individual liberty since Woodrow Wilson, and he might have been even worse.
Beito begins by recounting Roosevelt’s actions as Assistant Secretary of the Navy under Wilson. FDR “gave unquestioning support” to Wilson’s attack on free speech and expression during the conflict and demonstrated no “strong ideological commitments to the Bill of Rights.” During the notorious white violence against black Americans during the “Red Summer” of 1919, Roosevelt did nothing as white sailors attacked black streetcar passengers. The violence spread to 26 cities and when the NAACP demanded that the sailors and marines be arrested, FDR and the rest of the Wilson administration initially did nothing. Writing to a Harvard classmate, FDR joked, “With your experience in handling Africans in Arkansas, I think you had better come here and take charge of the police force.”
In addition to his lack of a response to the racial violence of 1919, Roosevelt also played an active role in the Newport Sex Scandal. There were reports that there were “perverts” at the Newport Naval base and Ervin Arnold, a chief petty officer, began an investigation using entrapment as a tool to root out homosexual activity. Lacking funds, Arnold’s violation of the sailors’ dignity and civil liberties might have ended, but Roosevelt “almost single-handedly saved the investigation” by pushing his superiors to create Section A (nicknamed the Newport Sex Squad) to continue looking into the matter.
Roosevelt believed that “homosexuality was immoral and he would expend every effort to ferret out offenders.” Section A used “heavy-handed tactics” that “soon backfired” and led to “public backlash.” FDR ultimately had to testify and defend the methods of the investigation. On the stand, he “denied any knowledge that his investigators had engaged in same-sex acts to obtain evidence.” To which the judge skeptically inquired, “How did you think evidence of unnatural crimes could be obtained?” Humiliated, Roosevelt responded simply, “I didn’t think.”
Beito uses FDR’s time in the Wilson administration to demonstrate that his indifference to the plight of black Americans and his support for mass internment of Japanese Americans were not aberrations but rather the fulfillment of Roosevelt’s worldview. He did not care about American civil liberties. The Senate Committee of Naval Affairs issued a stunning rebuke of FDR following its investigation of the Newport scandal. It asserted that Roosevelt’s office had violated “the moral code of the American citizen, and the rights of every American boy who enlisted in the Navy to fight for his country.” Further, it found FDR “morally responsible” for entrapment and the other “immoral acts” and came to the conclusion that he “must have known” the methods that were being used by the investigation.
Beito also demonstrates how Roosevelt came of age and was influenced by an intellectual climate that was sympathetic to central planning and social control. His later penchant for top-down economic solutions was a product of “the spread of progressive ideas all around him.” Drawing on the work of historian Daniel T. Rodgers, Beito explains that much of this progressivism was coming from Germany where Bismarck’s emphasis on “paternalism and military-style efficiency” had captured the imaginations of American students who studied abroad. They brought back with them “German-inspired policies” such as “compulsory insurance, public housing, and zoning.” For his part, Roosevelt praised Germany because it had moved “beyond the liberty of the individual to do as he pleased with his own property and found it was necessary to check this liberty for the benefit of the freedom of the whole people.” Far from being the pragmatist that most historians cast Roosevelt as, Beito argues that he bathed in progressive waters and concluded early in his political career that American society needed to be “centered on cooperation rather than excessive competition.”
Beito shows that FDR harbored racist views of both Jews and Japanese Americans and infers that these contributed to the president’s poor treatment of both groups. The story of Japanese internment is well documented, and Roosevelt is beginning to get the blame that he deserves for that gross violation of justice. Beito’s discussion of FDR’s treatment of potential Jewish refugees, however, is newer and demonstrates a further dimension of his bigotry. As Nazi atrocities against German Jews began to surface in the mid-1930s, Roosevelt did nothing to help them migrate to the United States. Following Kristallnacht, his State Department rejected the United Kingdom’s willingness “to donate the unused capacity of its quota so the US could admit sixty thousand more German Jews.”
Further, FDR rejected calls from Secretary of Labor Frances Perkins “to admit the maximum combined quota for the next three years (82,000 in all).” Most tragically, when the German liner, the SS St. Louis, arrived off the coast of Florida carrying over 900 Jewish refugees, the administration not only did not admit them, the Coast Guard ensured that none of the refugees would be able to swim to freedom. Even after evidence of mass genocide in Europe reached Roosevelt, “the administration’s stance toward refugees showed no sign of shifting.” Beito concludes that “while FDR and his advisors certainly viewed the Nazis as international gangsters, the plight of the Jews was never a priority.”
For those focused on FDR’s economic policy, Beito agrees that the New Deal was ineffective and even counterproductive for bringing about economic recovery. He condemns the National Recovery Administration, the Federal Housing Administration, the Wagner Act, and the Agricultural Adjustment Administration for harming black Americans. Beito argues that Roosevelt created massive amounts of uncertainty that prevented economic recovery and did so by embracing a corporatism that emulated fascist Italy and Nazi Germany. Even in areas where FDR is sometimes praised, such as his emphasis in encouraging more international trade, Beito demonstrates how progress sometimes came in spite of the president rather than because of him. In fact, Beito details how Roosevelt undermined the efforts of Cordell Hull to expand trade and reduce tariffs.
Finally, Beito challenges the narrative that FDR was a great wartime leader. In contrast, he depicts Roosevelt as prolonging the war with his insistence on “unconditional surrender.” Beito argues that the rigidity of these terms led the Nazis and the Japanese to fight on when they might have laid down their arms. He concludes that “after the US entered the war, the president’s rigid stand for unconditional surrender worsened the destructive nature of the conflict.”
In making his case against FDR, Beito marshals evidence from his numerous publications, including his previous book The New Deal’s War on the Bill of Rights. The result is a magnificently researched narrative that also serves as an introduction to numerous topics that Beito has long studied, including mutual aid societies, self-help organizations, the tax revolt of the 1920s, and more.
In a sense, FDR: A New Political Life feels like the crescendo of all the work that came before it. The book is a damning portrayal of America’s thirty-second president.
Beito ultimately concludes that “FDR was a failed president primarily because he repeatedly put his considerable abilities at the service of far less laudable goals, including a ruthless preoccupation with personal and political advancement, self-defeating economic policies, and the erection of a vast and unaccountable centralized federal bureaucracy.” This short biography is worth the read, even for those who are well acquainted with Roosevelt’s shortcomings. Beito has produced the most accessible and comprehensive critical account of FDR to date.
Many of the worst policies have bipartisan support.
On January 9, President Trump announced on Truth Social that he was “calling for a one year cap on credit card interest rates of 10 percent” starting January 20.
When asked what the consequences would be if credit card companies didn’t comply, the president replied: “Then they are in violation of the law. Very severe things.” There is, in fact, no such law, but there are moves to change that.
Q: On the credit card rate cap, what if the credit card companies don’t respond?
Trump: Then they are in violation of the law. Very severe things.
(There is no such law. A president vomiting ideas on social media doesn’t make them law.) pic.twitter.com/vMCWjP5hEE
— Republicans against Trump (@RpsAgainstTrump) January 12, 2026
A bill was introduced in the Senate last April by Sen. Bernie Sanders which “temporarily caps credit card interest rates at 10 percent.” On January 13, Rep. Maxine Waters threw her support behind President Trump’s proposal: “Let’s do it,” she said during a House Financial Services Committee hearing, “Let’s cap interest rates.”
Let’s not.
Prices are Not the Problem
All price controls are based on the idea that the price is the problem to be solved. It is not. It is merely the symptom of some underlying issue in supply and demand for whatever good, service, or asset is under discussion. This is the same for minimum wages – which are price floors – or caps on credit card fees, which are price ceilings, just like rent controls.
An interest rate is a price like any other. Specifically, it is the rental price of capital, and it is set by the supply of and demand for capital: where demand is high relative to supply, the price will be high, and where it is low, the price will be low, ceteris paribus.
If a market interest rate is high, reflecting high demand for capital relative to the supply of it, setting a legal maximum rate below it will neither expand the supply of nor reduce the demand for credit. Quite the opposite. If demand was high relative to supply at a rate of, say, 10 percent, it is only likely to increase if a legal maximum of 5 percent is introduced. On the other side, those supplying credit at 10 percent are likely to supply less of it at 5 percent.
Price controls, whether they are caps on credit card interest rates, rent controls, or minimum wages, only exacerbate the problems they are intended to solve because they treat the symptoms rather than the causes.
The Consequences of Credit Card Price Controls
If we know what a cap on credit card interest rates wouldn’t do, do we know what it would do?
A cap on credit card interest rates would, like any price ceiling, increase demand and reduce supply. It would prevent people who have to pay above the legal maximum rate to access credit from doing so.
Interest rates differ from most other prices — of shoes or haircuts — in that different people pay different amounts for the same thing: a $10,000 loan. One borrower might pay 8 percent interest, while another pays 14 percent or 20 percent, even though all receive the same $10,000 upfront.
These differences reflect, among other things, the riskiness of the loan. Someone with a good credit history or a decent amount of collateral will pay less to borrow a given amount over a given period than someone without these. The consequences of an interest rate cap will, then, be different for different people.
Someone whose credit history or collateral means that it makes sense to lend to them at a rate of, say, four percent, will still be able to borrow if the legal cap is set above that, at, say, 10 percent. But someone without this credit history or collateral and who it only makes sense to lend to at a rate of, say, 15 percent, will be excluded from the market for credit. These folks will not get access to cheaper credit by legislative fiat; they just won’t get access to credit at all.
If credit will dry up for riskier borrowers, it doesn’t follow that their demand for it will: they may still need it to meet unexpected costs, for example. And, frozen out of legitimate credit markets, they may turn to illegitimate ones. As economist Paul Samuelson wrote in 1989, interest rate caps “result in drying up legitimate funds to the poor who need it most and will send them into the hands of the illegal loan sharks.” It is precisely the lower-income borrowers these caps are intended to help who will be hit hardest by them.
The only alternative is that the cost of providing credit to these borrowers is recouped elsewhere through higher fees. As Iain Murray notes, this will be “either to merchants who will pass on their higher fees to consumers…or to the consumers in the cost of card fees. If consumers have to pay more in fees, that will almost certainly price some people out of the market.”
Once again, it is precisely the lower-income borrowers this measure is intended to help who will be hit hardest by it.
Several studies of similar state policies support this. “One study looked at the effect of the 36 percent interest rate cap in Illinois and found, as economic theory predicts, that both the availability of small-dollar loans and the status of consumers’ financial well-being had decreased in the two years after the enactment of the restriction,” Nicholas Anthony writes. “Most notably, the number of loans that were issued to the financially vulnerable fell by 44 percent in the six months after the rate cap was enacted.”
Another study in South Dakota found that the enactment of a 36 percent interest rate cap drove payday lenders out of business. A study by the Mercatus Center found that “Arkansas’s binding 17 percent interest rate cap imposes a substantial cost on the state’s residents, who drive to neighboring states to take out small-dollar installment loans.” Another study found, similarly, that “many small loans made to residents of border counties in North Carolina actually originate in South Carolina” as residents of the former travel to the latter to circumvent their home state’s interest rate cap. Indeed, in Georgia and North Carolina, where payday loans have been banned since 2004 and 2005 respectively, researchers found that “Compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same.”
The Real Problems
This is not to deny that there are problems.
As Thomas Savidge noted in December 2024, “A recent survey of Americans shows that the average household’s credit card balance is $9,706, just $1,416 below the record high in 2008. In addition, 40 percent of households now rely on credit cards to pay bills.” With a 40-year high spike in inflation only slightly behind us, this isn’t surprising.
But the problems, in that case, are supply side ones of energy and housing, for example, which force prices up with excessive taxes, fees, and regulations, or of lax monetary policy. Once again, credit card interest rate caps are treating the symptom, not the problem. On the campaign trail, candidate Trump blasted Kamala Harris’ “Soviet-style” plans for price controls. He was right then, and is, like Bernie Sanders and Maxine Waters, wrong now.
As of December 31, 2025, data for 11 of the 24 components of the Business Conditions Monthly have not yet been published. The timing of their release remains uncertain.
Recent inflation data present a cautiously encouraging picture, though timing differences across measures matter for interpretation. December’s CPI showed underlying price pressures continuing to cool, with core CPI rising just 0.2 percent month over month and 2.6 percent year over year, matching a four-year low after earlier readings were distorted by shutdown-related data gaps and seasonal effects. Shelter costs rebounded modestly and remained the largest contributor to monthly inflation, but outside housing, price increases were notably restrained, with core CPI excluding shelter rising only 0.1 percent and core goods prices flat, reinforcing evidence that tariff pass-through to consumers has been milder and may already have peaked. The Fed’s preferred gauge, core PCE — which reflects October and November conditions rather than December — told a similar, if slightly firmer, story: monthly core PCE inflation slowed into November, annualized measures eased further, and year-over-year inflation held near the upper two-percent range. Beneath the headline, services prices continued to exert some upward pressure, particularly in “supercore” categories, while market-based prices remained comparatively subdued. Taken together, the CPI and PCE data suggest that the disinflation process is intact but uneven, with housing and certain service categories slowing more gradually than goods. For households, this means inflation is increasingly less about broad price acceleration and more about a still-elevated price level, which continues to weigh on perceptions of affordability even as the overall pace of price growth moderates.
Recent labor market data point to a continued cooling in employment conditions, though without clear signs of a sharp deterioration. Job openings fell to 7.15 million in November, the lowest level in more than a year, and hiring slowed further, signaling that employers remain cautious about expanding headcount even as they largely avoid outright layoffs. The decline in vacancies — especially in leisure and hospitality, health care, transportation, and warehousing — has brought the ratio of openings to unemployed workers down to 0.9, its lowest level since early 2021 and a stark contrast to the overheated conditions of 2022. At the same time, layoffs eased to a six-month low, voluntary quits picked up modestly in select sectors, and December data from ADP showed private payrolls rising again after a brief contraction, consistent with a labor market that is softening but still functioning. Announced job cuts fell sharply in December, while hiring plans improved, offering tentative reassurance after a year marked by elevated layoffs and historically weak hiring intentions.
Survey-based indicators from the Institute for Supply Management reinforced this mixed picture, with services employment accelerating to its strongest pace in nearly a year even as manufacturing headcounts continued to contract. Overall, the employment landscape heading into 2026 appears characterized by slower hiring, reduced labor market tightness, and growing caution among employers: conditions that suggest diminishing momentum rather than an outright downturn, but one that remains sensitive to shifts in growth, policy, and confidence.
Conditions in the goods-producing sector remain soft, with manufacturing continuing to lag the broader economy despite some tentative signs of stabilization. ISM data showed factory activity contracting in December by the most since 2024, underscoring persistent weakness in output and demand, while S&P Global’s flash January survey indicated that manufacturing activity improved only marginally and remained near its weakest level since mid-2024. New orders at manufacturers returned to modest growth in January after a brief contraction, suggesting demand may be bottoming but not yet rebounding convincingly. Employment conditions in manufacturing remain under pressure, with headcounts still shrinking, albeit at a slower pace, as firms remain reluctant to add workers amid elevated costs and policy uncertainty. Pricing pressures eased somewhat, but both input costs and prices received remain inconsistent with a rapid return to price stability. Overall, manufacturing appears to be moving off its lows but remains constrained by weak demand, cautious hiring, and lingering cost pressures.
In contrast, the services sector ended the year on notably stronger footing even as early-2026 data point to a more measured pace of expansion. The ISM services index jumped to 54.4 in December, its highest reading in more than a year, driven by robust gains in new orders, business activity, exports, and the strongest growth in services employment since February. Demand was broad-based across key industries such as retail, finance, accommodation and food services, and health care, although commentary continued to reflect unease around tariffs, pricing pressures, and uncertainty. At the same time, S&P Global’s flash January data showed services growth slowing to its weakest pace since April, with new business and hiring close to stall speed as firms weighed high costs and softer demand. While input and output price measures eased modestly, they remain elevated, suggesting inflationary pressures in services are diminishing only gradually. Taken together, services activity has provided an important source of resilience for the economy, but momentum appears to be moderating as the sector enters the new year.
US consumer sentiment improved meaningfully in January, rising to a five-month high as households became more optimistic about both the broader economy and their personal finances. The University of Michigan’s sentiment index climbed to 56.4, its largest monthly gain since June with improvements evident across income, age, education, and political groups. Despite the rebound, overall sentiment remains more than 20 percent below year-ago levels, reflecting continued strain from elevated prices and concerns about a cooling labor market. Inflation expectations eased modestly, with consumers anticipating four percent price increases over the next year and lower long-term inflation than previously reported, even as high prices continue to weigh on purchasing power. At the same time, improved buying conditions for durable goods and stronger views of personal finances suggest households remain willing to spend, helping sustain economic momentum despite lingering affordability pressures.
That cautiously improving tone is echoed on the business side, where small business sentiment strengthened again in December as inflation pressures and labor frictions continued to ease. The NFIB small business optimism index rose to 99.5, driven primarily by a sharp improvement in expectations for future business conditions and a notable decline in uncertainty to its lowest level since mid-2024. Inflation receded as a top concern, with both actual and planned price increases moderating, reinforcing the broader picture of cooling cost pressures seen elsewhere in the economy. Labor conditions were more mixed: hiring plans softened modestly, but job openings remained elevated and fewer owners cited labor quality as their primary problem, suggesting improved balance rather than outright weakness. Offsetting these gains, expectations for real sales growth and capital spending edged lower, leaving the overall outlook one of improving confidence tempered by caution around demand and expansion heading into the new year.
Questions about affordability and consumer strain during the holiday season were partly answered by the January 14 retail sales report, which showed US consumers continuing to spend with notable resilience into the year-end. Retail sales rose 0.6 percent in November, the strongest monthly gain since July, led by a rebound in auto purchases and broad-based strength across most retail categories despite lingering concerns about prices and job security. Excluding autos, sales still climbed a solid 0.5 percent, and the control group measure that feeds directly into GDP posted another firm gain, pointing to continued momentum in goods spending at the end of the year. Holiday promotions, record online sales, and the use of Buy Now Pay Later options helped sustain demand, particularly as higher income households continued to anchor overall consumption while lower income consumers remained more price sensitive. Spending at restaurants and bars also rebounded, suggesting that services consumption retained some momentum alongside goods. While the figures are not adjusted for inflation and therefore partly reflect price effects, recent CPI data indicating that tariff-related price pass-through has likely peaked may help support real goods demand going forward. Taken together, the data reinforce a picture of a still-active but increasingly bifurcated consumer, one capable of sustaining near-term growth even as affordability pressures remain a meaningful constraint for many households.
Also posting a larger-than-expected gain at the end of 2025 was US industrial production, which rose 0.4 percent in December, though the details of the report were less uniformly strong. The bulk of the increase came from a surge in utilities output, alongside gains in nondurable goods and transit equipment, rather than from core investment-heavy manufacturing segments. While overall manufacturing output also surprised to the upside, production of consumer durables and information-processing equipment declined, highlighting continued softness in areas most closely tied to household demand and technological investment. Capacity utilization improved modestly but remains consistent with a manufacturing sector operating below historical norms. Taken together, the data point to stabilization in industrial activity, but a manufacturing recovery that is proceeding slowly and unevenly beneath the headline strength.
Economic activity improved modestly across most of the United States in recent weeks, according to the Federal Reserve’s Beige Book, marking a clear step up from the largely stagnant conditions reported in prior cycles. Growth was described as “slight to modest” in a majority of districts, reflecting a post-shutdown normalization rather than a broad acceleration. Labor market conditions remained stable but subdued, with employment levels largely unchanged and wage growth moderating toward what contacts described as more “normal” rates. Price pressures were generally moderate, though an increasing number of firms reported beginning to pass through tariff-related costs as pre-tariff inventories were exhausted and margin pressures intensified. These findings are consistent with policymakers’ view that the labor market has cooled but remains on solid footing, even as inflation continues to run above the Federal Reserve’s target. Against this backdrop, and following three rate cuts late in 2025, officials appear inclined to proceed cautiously on further easing.
At the district level, anecdotes reinforced this mixed but steady picture of the economy. Some regions reported early signs of improvement in manufacturing demand, particularly tied to data center construction and infrastructure-related investment, while others noted flat activity in transportation and persistent affordability challenges for households. Tariffs featured prominently in business commentary, with firms across multiple districts describing higher input costs, compressed margins, and selective price increases passed on to customers. Labor dynamics were generally balanced, with temporary hiring picking up in some areas and displaced workers often reabsorbed quickly, though large-scale hiring remained limited. Several contacts highlighted the growing use of automation and artificial intelligence to boost productivity, albeit with minimal near-term impact on employment levels. Overall, the Beige Book portrays an economy regaining modest momentum, constrained by cost pressures and policy uncertainty but not exhibiting signs of acute stress.
Several near-term tailwinds are supporting economic momentum, though they are accompanied by growing policy-related uncertainty. Markets continue to price in at least one Federal Reserve rate cut later this year, reflecting a mix of moderating inflation, softer payroll growth, and a still-low unemployment rate, all of which help sustain financial conditions that are not overtly restrictive. Fiscal policy is turning notably stimulative, with new tax deductions and adjusted withholding tables set to deliver a sizable boost to household cash flow and business investment in early 2026. At the same time, regulatory easing and credit loosening, ranging from lower capital requirements for banks to renewed support for mortgage markets, are likely to spur lending and risk-taking. Together, these forces create a powerful short-run growth impulse, reinforcing consumer spending, capital expenditure, and asset prices. However, uncertainty surrounding the Supreme Court’s ruling on Federal Reserve governance has introduced a new risk channel, as any perceived erosion of central bank independence could quickly destabilize rate expectations and financial markets.
Counterbalancing these tailwinds are structural and policy-driven headwinds that complicate the outlook. Trade policy remains a meaningful drag, as evidence shows that US importers and households are absorbing most of the cost of higher tariffs, particularly on consumer goods, autos, and capital equipment, rather than benefiting from offsetting price concessions from foreign exporters. Tariff-inclusive import prices have risen nearly in lockstep with imposed duties, squeezing margins and raising domestic cost pressures even as headline inflation cools. These effects vary by trading partner, but overall they suggest tariffs are acting more like a tax on US firms and consumers than as a lever for foreign burden-sharing. More broadly, concerns about rising public debt, elevated asset valuations, and an increasingly accommodative alignment of fiscal, monetary, and credit policy raise longer-term risks to financial stability. For now, growth is being pulled forward by stimulus and easing conditions, but the durability of that expansion depends on whether today’s policy tailwinds eventually give way to inflation, market imbalances, or institutional strain.
It would be remiss not to mention the astounding run in precious metals over the past thirty days, with both gold and silver posting historic gains amid mounting economic and policy uncertainty. Gold has surged to the cusp of $5,000 an ounce, driven by a powerful mix of falling real yields, fading confidence in fiat currencies, concerns over Federal Reserve independence, and sustained international central bank purchases. The rally reflects a classic “debasement trade,” as investors seek protection from expansive fiscal policy, rising debt burdens, and the perception that monetary restraint is giving way to political pressure. Silver has moved even more dramatically, breaking above $100 an ounce for the first time as haven demand collided with a structurally tight supply backdrop and speculative fervor across global retail markets. Its dual role as both an industrial input and financial asset has amplified volatility, particularly amid trade tensions, geopolitical strain, and shifting expectations around tariffs and monetary policy. Together, the moves in gold and silver underscore a broader erosion of confidence in traditional anchors — currencies, bonds, and institutions — adding a distinct financial market tailwind to the narrative of heightened uncertainty shaping the current economic environment.
Recent economic indicators point to continued forward motion, but one increasingly driven by policy stimulus and financial conditions rather than broad-based organic strength. Consumer spending and services activity remain firm, helped by tax relief, easing credit, and moderating inflation, even as goods production, hiring, and capital investment advance more slowly. Price pressures are cooling, yet elevated living costs and tariff pass-through continue to constrain real purchasing power and business margins. At the same time, questions surrounding trade policy, debt accumulation, and the independence of monetary institutions have emerged as new, more prominent sources of risk. The sharp rallies in gold and silver serve as a market-level signal of that unease, reflecting not recession fear, but growing skepticism about the durability and tradeoffs of today’s policy mix.
President Trump has accepted the Nobel Peace Prize that was awarded to Venezuela’s opposition leader, María Corina Machado. Unlike Machado, however, he does not accept the central lessons that can be gleaned from five decades of Venezuelan misrule. There are three.
Lesson 1: Past prosperity is no guarantee of future prosperity.
In 1970, Venezuela was the wealthiest country in Latin America. Sitting atop the world’s largest proven oil reserve, it churned out more than 3.5 million barrels of oil a day. Using GDP per person as a metric, its citizens earned 2.7 times as much as the rest of Latin America — about the same as the average Finnish, Japanese, and Italian citizen.
This prosperity bought Venezuelans better health, longer life, and more creature comforts — especially fancy foreign cars that poured into the country as oil poured out. And it wasn’t just the wealthy that benefited. Venezuela’s poverty rate was about a third of what it was in the rest of Latin America.
The zenith was around 1977. Thanks to the global oil crisis of a few years earlier, crude prices had quadrupled. Amidst the boom, President Carlos Andrés Pérez made the fateful decision to nationalize the country’s oil industry, hoping to use its wealth to fund economic development and poverty relief. Instead, by combining public and private interests, the decision proved a boon for corruption, eventually turning the country into a petrostate.
Almost immediately, incomes began to fall. By 1999, average Venezuelans were earning less than 90 percent of what they had three decades earlier. But the worst was yet to come.
Which brings us to the second lesson.
Lesson 2: Policy matters.
Oil was not the only explanation for Venezuela’s 1970s prosperity. The government spent and taxed modestly. It left most industry in private hands. Inflation was low. And international trade was almost entirely free of tariffs and regulatory barriers to trade.
In 1970, Venezuela scored a little less than 7 on the Fraser Institute’s 10-point Economic Freedom of the World index, making it the 13th most economically free country in the world, just ahead of Japan.
But as the rest of the world liberalized in the 1980s and 1990s, Venezuela went in the opposite direction. The government ramped up transfers and subsidies and began to acquire more assets. Property rights grew less secure. Inflation reached 26 percent in 1980 and over 50 percent in 1995. By 2000, Venezuela had slipped to 116th in economic freedom.
In 1999, as the economy faltered, a frustrated electorate turned to an outsider, Hugo Chávez. Chávez had risen to fame seven years earlier when he led an unsuccessful coup d’état against the democratically elected government (ironically led by Andrés Pérez, who had returned as president in 1989).
Though left-of-center, he did not begin as a radical. Instead, he positioned himself as a populist reformer who could steer a “Third Way” between socialism and capitalism. But he grew more radical after a failed coup attempt against him in 2002. By 2005 he had fully embraced the socialist label, recasting his movement as “Socialism of the 21st Century.”
It wasn’t just branding. He nearly doubled transfers and subsidies and more than doubled government investment. He tightened control over the government-owned oil company and nationalized other industries, including steel, iron, mining, cement, farming, food distribution, grocery chains, hotels, telecommunications, and banking. The government stopped respecting and protecting private property. Annual inflation bounced around from 20 to 60 per cent. At the time of his death in 2013, Venezuela’s overall economic freedom was close to 3 on the 10-point scale, making it the least economically free country in the world.
But as the government took, nature gave. The country’s massive Orinoco Oil Belt continued to churn out about 2.5 million barrels of oil every day. As a result, GDP per person recovered.
Many Western observers, from Senator Bernie Sanders to director Oliver Stone, saw this as a sign that socialism works. But the reality is that Venezuela’s oil-fueled boom had only managed to bring incomes back to 1970s levels. Moreover, careful econometric analyses comparing Venezuela’s performance to that of other similarly situated countries, found that Venezuela consistently under-performed.
Chávez died in 2013, leaving the country in the hands of his Vice President, Nicolás Maduro. Maduro clung fast to Chávez’s policies, but as global oil prices plummeted, Socialism of the 21st Century began to look a lot like socialism in the 20th century: incomes collapsed, poverty exploded, and inflation became hyper (reaching over one million percent in 2018).
Maduro responded predictably, imposing price controls that produced massive shortages of household necessities. About a quarter of the population fled the country.
But the cost was not merely economic. Which brings us to the final lesson.
Lesson 3: Economic and Personal Freedom are Deeply Intertwined.
Socialism is typically imposed at the point of a gun. But notwithstanding his attempted 1992 coup, Chávez had come to power through free and mostly fair elections. This seems to have been one reason why Western observers were so taken in by the regime. Writing in her 2007 book, The Shock Doctrine, Naomi Klein claimed that Venezuelan “citizens had renewed their faith in the power of democracy to improve their lives.”
But if she had looked closer, she would have seen the early signs of Venezuela’s anti-democratic turn. The Human Freedom Index, co-published by the Fraser Institute and the Cato Institute, builds on the Economic Freedom of the World index by adding 7 additional areas of personal freedom. As the figure below shows, the regime cracked down on personal freedoms just as it limited economic freedoms. By the time Klein wrote her book, Venezuela had already severely restricted freedom of expression, freedom of religion, freedom of association, freedom of movement, and the rule of law.
This, unfortunately, is common. As we see in the final figure, most regimes that restrict economic freedom also tend to restrict personal freedom. It is easy to imagine why. People value their economic liberties, so regimes that seek to severely repress these liberties often cling to power by suppressing dissent. And because socialist regimes own the means of production — including media production like radio, print, and TV outlets — they have a handy tool at their disposal for suppression.
What now?
As the Cato Institute’s Marcos Falcone recently explained, one Venezuelan who seems to have internalized these lessons is María Corina Machado. As a decades-long leader of the opposition, she has consistently championed both personal and economic liberty. She traces much of the country’s corruption, mismanagement, and stagnation to its 1976 nationalization of the oil industry.
And she is wildly popular. In the unified opposition primary of 2024, she ran on a platform of complete oil privatization and won 90 percent of the vote. Maduro refused to let her run in the general election, so she backed Edmundo González Urrutia and he is estimated to have won 70 percent of the vote. But Maduro refused to recognize the result and clung to power.
Now, apparently, President Trump is in charge. But like Maduro before him, Trump refuses to recognize the results of the last election. He claims that Machado lacks the “respect” and “support” to lead. Polls, meanwhile, indicate that she is favored by more than 70 percent of the country. While accepting her re-gifted Nobel Prize, Mr. Trump has decided to give the reins to Maduro’s Vice President, the socialist Delcy Rodriguez, calling her a “terrific person” and predicting a great Venezuelan renaissance.
As for privatization, Trump instead says “we’re going to keep the oil.” He claims that Rodriquez will be “turning over” up to 50 million barrels to the US, the proceeds of which will be “controlled by me, as President of the United States of America.”
Meanwhile, he is strong-arming US oil companies to invest in the country, telling them that if they want to recover their property that was seized by President Andrés Pérez in 1976, they’d better cooperate in rebuilding Venezuela’s infrastructure. For their part, the companies have been reluctant to do so, citing the country’s poor track record of protecting private property.
Like Andrés Pérez, Chávez, and Maduro, Trump seems to imagine that the right central plan will unlock the country’s vast oil wealth. But history teaches a different lesson.
Does the administration think its supporters don’t understand economics?
I would hope not, but some of their policies and proposals make one wonder. On Tuesday, President Trump revived the idea of a $2,000 tariff “dividend” check. Although the politics make sense, the administration assumes people don’t understand basic economic theory. President Trump has painted tariffs as making the American economy more competitive and more productive while simultaneously extracting money from foreigners who pay the Treasury.
If that’s what was happening, economists would be cheering the tariffs. Unfortunately, President Trump’s understanding of tariffs is just as faulty as his understanding of how much revenue the tariffs have raised. High tariffs don’t make the American economy more competitive. They make it less competitive, because it becomes harder and more costly to build and manufacture. Nor do high tariffs increase production — just the opposite. US manufacturing output has declined over the past year.
And the notion that foreigners bear the burden of paying tariff taxes to the Treasury misses the fact that they turn around and collect more dollars from American businesses and consumers who pay higher prices for imported goods. The great irony of Trump’s proposal is that he is simply giving people back their own money — the extra $120 they spent on coffee or tea or bananas, or the extra $90 they paid for beef or the extra $100 they paid for clothing or the extra $200 they paid for toys or electronics since “Liberation Day.”
The worst thing about this whole situation is not that Americans have already paid for the tariff checks. It’s that besides paying for it, they have had to live with a less efficient and less productive economy. At the same time, the US reputation and status on the global stage, when it came to trade, has been greatly diminished. Many of our trading partners have begun looking for more reliable trading partners.
Despite a handful of big “commitments” of foreign investment, largely made to placate or bribe President Trump until he has moved on to the next shiny object, most companies and countries have been making plans to restructure their supply chains and trading arrangements in light of the US being a much less attractive trading partner. Not only that, but the US trade deficit has ballooned during Trump’s first year.
But back to the topic of tariff checks.
Who doesn’t want to receive a $2,000 check (or maybe several checks if kids receive them too)? I would certainly appreciate getting one! The problem, though, can be seen in the tagline: “When everyone is special, no one is.” Everyone getting more dollars without more production doesn’t actually make our country wealthier. Real benefit comes from higher production in the economy.
Millions of Americans were happy to receive COVID-19 stimulus checks. But ask yourself, “Would I want those checks and the subsequent high inflation, or would I have preferred prices to remain low and stable?” Most thoughtful people would say the latter, because the stimulus checks were temporary and quickly spent. The higher prices, however, are here to stay — and our children and grandchildren will have to live with higher prices too.
So let’s not kid ourselves. Trump’s tariff dividend check idea is a destructive short-run play for popular support. It won’t solve anyone’s financial problems. It won’t boost employment. And it won’t fix any of the inefficiencies created by his high-tariff regime. If anything, it will stoke inflation and fuel the fire of class warfare since he has proposed that some people get checks and others will not, based on their income. Nor can the executive branch unilaterally send “tariff dividend” checks to the American people without appropriation from Congress.
If Trump wants to make the American economy great again, he should stop pursuing gimmicks and ad hoc investment commitments. He should replace the current hodgepodge of tariffs with a low, flat rate that doesn’t raise the cost of doing business in the US much and still allows an abundant flow of trade across our borders. He might raise more tariff revenue under such a regime.Finally, the administration should redouble its efforts to implement deep institutional reforms – such as streamlining and reducing regulations around nuclear power, mining, drug R&D, and dozens of other industries – that will allow Americans greater scope and opportunity to improve their lives without relying on checks from Washington.
In the opening week of 2026, several scholars at the Heritage Foundation published a special report titled “Saving America by Saving the Family: A Foundation for the Next 250 Years.” This 168-page document covers myriad policies that negatively impact the American family and proposes solutions to those problems. Some, largely the solutions that propose repealing and reforming existing systems, can help families. But the calls to subsidize traditional family life will come with a host of unintended consequences.
The nation is indeed facing a demographic crisis, and some of Heritage’s proposals deserve praise, while others deserve criticism. One proposed reform is mentioned but given barely any attention: a return to sound money.
Helping the American family (broadly understood) is a laudable goal, but the patterns of later and fewer marriages, later and less-frequent reproduction, and a host of other family pathologies are themselves the result of a mountain of interventions. The American family must be saved from government, not by government.
America’s Demographic Squeeze: Fewer Births, More Dependents
The demographic decline facing the US is less sudden than often claimed, but no less consequential. As the Heritage report notes, fertility has remained below replacement rates for years, ensuring that natural population growth is weak. In the absence of sustained immigration, population growth is likely to become population contraction.
Simultaneously, the retirement of the Baby Boomer generation is steadily increasing the share of the population outside of the labor force, raising the dependency burden borne by working-age Americans and taxpayers.
These trends are already becoming visible. Slower growth or even shrinkage in the working-age population, absent significant immigration, constrains labor supply and limit economic growth potential. Meanwhile, Social Security and Medicare (the two largest expenditures in the federal budget) face rising expenditures precisely as the tax base supporting them grows more slowly. Additionally, the rise of the welfare state has greatly hampered family formation, especially among low-income families.
These changes underscore the need to remove institutional barriers to family formation and reform policies that underlie present challenges.
Remove Barriers Before Adding Benefits
Several laudable elements in the Heritage report shouldn’t be overlooked. First, it acknowledges that many policies favor traditional families. While there are indeed over 1,000 forms of federal privilege granted to married couples, these have been in place throughout the period when both marriage and fertility rates are falling. This raises the question: Why are these so-called “pro-family” or “pro-natal” policies failing to achieve their stated goals? Perhaps it’s because other measures on the books outweigh them, and actually short-circuit family formation.
The report’s authors call for a repeal of multiple policies that have been shown to deter and delay marriage, alter planned fertility, and even divorce patterns. Among them are “credits designed specifically to benefit poor single mothers,” and the structure and incentives from the Earned Income Tax Credit, which “strongly favors single parenthood over marriage.” The report also demands the elimination of “needless occupational licensure laws” that block young and lower-income earners from the labor force, undermining the early wealth-building that encourages marriage. Further, it seeks the easing of local zoning and construction regulations that make home affordability more difficult for younger, poorer households.
Heritage’s report frames the Israeli case as a model for what must be done to increase marriage and fertility rates. But the main reasons cited for (slightly) above-replacement fertility rates in Israel are religiosity, nationalism, and “Jewish communal life in exile,” all of which are summarized later as “culture, faith, and national purpose to family formation.” These specific pressures can’t, and shouldn’t, be replicated in modern, pluralistic societies. Further, the report rightfully admits, “While other nations have tried to reverse declining birthrates through financially generous family policies, none has succeeded in restoring fertility to replacement levels. This demonstrates that government spending alone does not ensure demographic success.”
Turning to Eastern Europe, the report looks to Hungary for policy solutions, interventions, and expenditures that have a more positive track record in increasing marriage and fertility. Indeed, Budapest began offering eligible brides interest-free loans, equating to over $30,000 for saying “I do” back in 2019. Moreover, the debt may be forgiven if the couple had three or more children. The report belies an important fact, however: the increase in the marriage rate is largely due to formerly cohabiting couples tying the knot. One would expect that once this initial wave of marriages has passed, the impact would be negated by other factors. In fact, just four years after the policy was introduced, the marriage rate began to fall back toward EU norms. The high cost of taxpayer-subsidized loans for cohabiting couples to make it official has had only temporary effects, and may prove, in the long run, to have produced marriages that are more apt to divorce, especially when the money runs out.
The Heritage Report correctly marks some of the causes of family disintegration: marriage penalties embedded in both welfare and fiscal interventions, especially for low-income households. The authors rightly call for their repeal. At the same time, the models they point to as ideal national cases for cultural and policy reform either can’t be replicated or are short on results. Worse still, the report’s greatest shortcoming is found in a drive-by mention of the single, foundational intervention that may actually be undermining all of traditional family life.
The Best “Pro-Family” Policy Is Price Stability
Buried within the report is a brief aside discussing the pressure a fiat monetary system and the resulting inflation has placed on families. The authors state:
High inflation can not only devastate the economy but also make it harder for families to form and grow. The US abandoned the gold standard in 1971, and the lack of convertibility of dollars to gold since then has facilitated reckless money printing and irresponsible federal spending, leading to bouts of high inflation in the 1970s, early 1980s, and the 2020s. Families rely on the dollar as a store of wealth, so the Federal Reserve must restore sound money and price stability. While many monetary rules have been proposed, the system with a proven record track record of success and stable prices is full convertibility to gold.
This passage, and its recommendation to return to full convertibility, are worth their weight in gold.
A few economists have pointed to the connection between increasing real prices in healthcare, education, and housing as key contributors to delays in marriage and lowered fertility rates.
Outside factors like regulatory pressure and geopolitical forces have doubtless contributed to rising real prices in these categories. But among these, the ongoing loss of purchasing power due to the loose money policies of the Federal Reserve and its member banks has received too little attention.
Even less attention is paid to the rise of what some have called the inflation culture. The Heritage report hints at this reality, but chalks it up to a loss of religiosity. But the decay of religious and civic life in the West has an undetected, underlying culprit. Because of the redistributive and impoverishing effects of easy money, a once-entrepreneurial and optimistic American culture has given way to a litany of social pathologies:
Short-termism or fatalism (“in the long run, we’re all dead”)
Reliance on credit and leverage to get ahead
Long-term debts functioning as barriers to family formation
A culture of “total work” that discounts family life and delays life milestones
The two-income trap contributing to absent parents
Hustle culture or “grindset” among young adults, to the exclusion of strong relationships
All are impacting family formation and family cohesion. All have their roots in the demoralization of persistent, slow-burning inflation, eating away the value of money. Younger generations hoping to live comfortably can reasonably ask: ‘Who has time for marriage and family?’ The answer: a lot fewer people than in generations past.
The damage done to the American family is likely reversible, but the Heritage Foundation’s report misses the root cause: inflation may be the most corrosive anti-family force of all. Policymakers who want to revive marriage rates and fertility should examine existing, counterproductive incentives, including new money creation and Congressional overspending. What they shouldn’t do is continue layering new interventions onto old ones, creating more bureaucracy and higher costs — but fewer weddings and babies.
I could see it in my octogenarian grandpa’s eyes, as he thought what I said was ludicrous. Surely money in a bank account in my name is my money? Surely positive balance in that account can always be transformed into sandwiches, gasoline, or rent payments? The bank works for me, right? It’s theirduty to facilitate my spending.
No, I tried to convince him; bank deposits are not yours, practically or legally. Banks can freeze your account and stop your payments at any time, for any reason. Thus, bank deposits fail any rudimentary sniff test of “money,” yet everyone treats them as synonymous with the freest, simplest monetary media they’ve ever seen. It just always works, right?
Just days later, Revolut, the European fintech institution that has taken the world of money and banking by storm, froze my account. The access point to my own funds that I’ve been using daily for probably a decade simply stopped working.
Was Revolut spying on me in grandpa’s living room, waiting for the most ironic moment to flex this godlike power?
When Your Money Isn’t Yours
You never think it’s going to happen to you — or at all. I should know better than most. For years, I’ve written and spoken about the nature of our modern, permissioned fiat money. And even so, I’m receiving a painful lesson in how modern banks really, really work. money in a bank account isn’t yours, nor even, really, money at all (a neutral bearer asset under your exclusive control). We know that fiat fails as a monetary system, because its redistributive inflationary consequences and terrible impact on asset prices assure its value falls over time. But what is so absurd is how the overregulated banking system doubly fails, by simply canceling our ability to pay, when we least expect it.
“What Did You Do?”
It’s the most obvious — and wrong! — question. Banks on the hook for unworkable regulations don’t need a reasonable excuse to block your funds. Asking why assumes that banks only ever freeze accounts or stop payments with proper cause. Besides, you never really know the specific reasons why financial institutions block someone’s access — you can only guess.
In my case, I received a payment for services rendered, as I have a hundred times. But one client — or their bank — mysteriously tried to claw back the funds. The complaints received by Revolut on behalf of this other bank — Germany’s Allianz, mediated via Apple Pay — made them freeze my account and start a review, provisionally. The end date seven days out. When I submitted documents and the standard range of DarkWeb-worthy identification details, accompanied by well-chosen words of discontent, this date suddenly shifted another three days into the future.
How Regulatory “Protection” Became the New Fragility
Adding insult to endless injury is the knowledge that anti-money laundering (AML) regulations and fraud protection efforts that justify bank powers and interventions like this are almost entirely misdirected. AML compliance costs banks tens of billions every year. Yet their record for “protecting” customers and preventing legitimate financial fraud is roughly zero.
Experts estimate that criminal proceeds prevented through banks benevolently spying on their customers amounts to fractions of a percent of dirty money flows — at a cost, financially and in inconvenience, well above what it’s worth.
With an oversized state and regulations that grow faster than anyone can read them, we have become too collectively comfortable with the dark triad of banks, digital surveillance, and government anti-money laundering powers. Bitcoin founder Satoshi Nakamoto wrote,
Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.
Most didn’t listen. I did, but I still fell prey to this nonsensical monetary arrangement. The only reason I can cover my expenses this month — rent, groceries, pension contribution — is precisely because I have access to unstoppable digital money that nobody else controls.
Is Ownership a Myth?
A bank account, says fellow bitcoiner and Swede, Knut Svanholm, is a two-of-three multisig security arrangement between you, the bank, and the state. Together, they are always in control (and possession!) of your funds. You access it at their mercy.
Nothing about this debacle makes any sense, and I can’t wait for the monstrosity that is fiat money, banking, and financial regulations to collapse — under their own contradiction, to paraphrase the Marxists. Or merely through the exit of us ordinary people who finally have enough.
Even if I ultimately get my fiat funds back, I’ll probably never bank with Revolut again — and be increasingly suspicious of every other bank. For how do I live with an AML-shaped sword of Damocles forever hanging over my head?
