Investor and podcaster Eric Weinstein recently argued that free speech is overrated. While supporting the idea of the First Amendment, he said that free speech alone was insufficient to combat bad ideas. As he put it, “This whole concept of the marketplace of ideas doesn’t actually work because marketplaces have market failures and very fit dangerous ideas can’t be simply rebutted by better ideas.” He called the notion that good ideas consistently beat out bad ideas in the marketplace of ideas a “liberal fantasy.” To truly drive bad ideas out of the public square, he says, we need to get back to “shunning” people with bad ideas.

There are two big problems with the notion of shunning people who hold the wrong ideas.

For one thing, the people who are shunned aren’t always the ones with dangerous or awful ideas. Far more often, they’re just the ones whose ideas are currently unpopular. In the 1950s, supporters of civil rights for black Americans were shunned and had their businesses blacklisted by the influential White Citizens’ Councils. In the 1960s, supporters of gay rights were shunned. In the madness of 2020, virtually anyone who didn’t vocally support Black Lives Matter and “Social Justice Fundamentalism” (Tim Urban’s excellent term for wokeism) risked their friendships, their social standing, and their livelihoods. Shunning is often done by those who wield cultural power; in such instances, it is a tool, not for punishing people with bad ideas, but for punishing people whose ideas are not currently in vogue. As blogger and gay rights activist Andrew Sullivan writes, “Got a text this morning from a friend of over thirty years informing me not to interact with him in any way if our paths cross in Provincetown this summer, as they usually do. Shunning and ostracism are integral to the LGBTQ+ movement.”

The second big problem with shunning is that, when we shun people, we rob them of the best opportunity to learn why their ideas are wrong. This is especially true of people who harbor bigotry towards a certain out-group, be it Jewish people or black Americans or Republicans. The most effective way to help these people let go of their prejudice is not to socially ostracize them, but to create conditions for them to meet and befriend those they are prejudiced against. 

Psychologists call this “intergroup contact theory” and it works extremely well. As Mónica Guzmán (senior fellow at Braver Angels, a national nonprofit that focuses on reducing prejudice between political groups) writes in her book I Never Thought of It That Way:

“Research keeps showing us that the more you mingle with people in your ‘otherized’ out-groups, the less prejudice you’ll feel against them. In fact, a study of 515 other studies found that chatting in person with someone from an out-group cut down prejudice 94 percent of the time.”

So if we can’t shun people out of their bad ideas, is there something else that can stop bad ideas from taking hold of our society? Yes. Contra Weinstein’s claim that the marketplace of ideas doesn’t work, the truth is that good ideas consistently beat out bad ideas.

Weinstein’s notion that good ideas cannot be relied on to rebut dangerous ideas would come as a surprise to Martin Luther King Jr. King didn’t build his movement by using cultural power to shun his enemies, or by using governmental power to limit their ability to speak against him. That would have been impossible, since the political and cultural power was concentrated in the hands of his enemies at the time. Instead, King used a weapon mightier than either of these: freedom of speech. He spoke up. He debated white supremacists and more ‘moderate’ whites who claimed to support his goals but said that King’s timing was wrong. He wrote books. He marched and protested. Over and over again, he and his fellows leveraged freedom of speech to rebut the dangerous ideas of Jim Crow and to change the hearts and minds of an entire generation.

Indeed, it was King’s opponents who had to resort to exerting social and governmental pressure when they could not rebut King’s arguments in the marketplace of ideas. During the Montgomery bus boycott, black drivers were arrested on trumped-up charges so that they wouldn’t be able to help with the boycott. In Stride Toward Freedom, King writes that White Citizens’ Councils “took open economic reprisals against whites who dared to protest their defiance of the law, and the aim of their boycotts was not merely to impress their victims but to destroy them if possible.” City governments sought injunctions to stop King and his supporters from engaging in lawful protest.

Both King’s reliance on free speech and his opponents’ reliance on intimidation and coercion reveal a central truth about the marketplace of ideas. In a free marketplace, good ideas beat out bad or dangerous ideas as a matter of course. As the great Enlightenment thinker John Milton wrote in Areopagitica:

“And though all the winds of doctrine were let loose to play upon the earth, so Truth be in the field, we do injuriously, by licensing and prohibiting to misdoubt her strength. Let her and Falsehood grapple; who ever knew Truth put to the worse, in a free and open encounter. Her confuting is the best and surest suppressing.”

Or to put it another way: when truth and falsehood are allowed to battle in a free and open marketplace of ideas, truth ultimately wins.

It’s in some ways not surprising that Weinstein is making his argument now. Weinstein recently noted that “X/Twitter has become unbelievably anti-Semitic.” He made his comments about the marketplace of ideas in the context of people who cheered Hamas’ brutal October 7, 2023 attack on Israeli civilians.

He also may have made his comments with the past several years in mind. Our society just dealt with a decade of the Great Awokening, during which all kinds of ridiculous ideas became ascendant. As social psychologist Jon Haidt wrote in 2022, “the past 10 years of American life have been uniquely stupid.” If we restrict our analysis to the short-term, it can certainly look like the marketplace of ideas has failed us.

But that’s a mistake. The virtue of philosophical liberalism (including epistemic liberalism, or the marketplace of ideas; political liberalism, or democracy; and economic liberalism, or capitalism) isn’t that it produces perfect outcomes in the short-term, but that it produces excellent outcomes in the long-term. 

Opposing the marketplace of ideas because the past 10 years our society has been gripped by some truly awful notions is like opposing democracy because a bad candidate won an election. It’s akin to opposing capitalism because Sam Bankman-Fried made a bunch of money before he was caught. 

If we want to judge the marketplace of ideas, the real question isn’t whether bad ideas can gain a foothold for a time. The real question is: in the long-term, does the marketplace of ideas consistently and reliably crowd out bad ideas and replace them with better ones? 

The answer to that question is unequivocally ‘yes.’ As Jonathan Rauch documents in Kindly Inquisitors, advocates for gay rights used free speech to poke holes in homophobic arguments and fight for the dignity of LGBT Americans. We’ve seen it with the civil rights movement. We’ve seen it with women’s suffrage. We’ve seen it in science and medicine, too: the reason that we now treat headaches with Advil rather than leeches, and the reason that we now know that the Earth orbits around the sun rather than vice versa, is because more true ideas crowded out less true ideas.

The marketplace of ideas is one of the great vehicles by which our society becomes better tomorrow than it is today. Contrary to Weinstein’s argument, the best way to rebut bad and dangerous ideas is with good ideas.

Many Americans now view the United Nations unfavorably, with only 52 percent expressing a positive opinion—a five-point decline since 2023. Public belief that the United States benefits from its membership in the UN is also waning.

Reflecting this growing dissatisfaction, Sen. Mike Lee (R-UT) has reintroduced his 2023 bill, the Disengaging Entirely from the United Nations Debacle (DEFUND) Act, at the first session of the 119th Congress. The bill calls for the termination of US membership “in the United Nations, and in any organ, specialized agency, commission, or other formally affiliated body of the United Nations.” Rep. Chip Roy (R-TX) has reintroduced the House version of the DEFUND Act.

International organizations like the United Nations are neither sacrosanct nor immune from criticism. However, the proposals by Sen. Lee and Rep. Roy would, if enacted, unintentionally harm America’s national security interests.

Proponents of the DEFUND Act cite a range of concerns, including claims that the UN undermines US sovereignty and that the US’s outsized funding of the UN wastes taxpayers’ money. There are many valid criticisms of the UN, both from member states and from UN staff within the organization past and present. 

Regarding sovereignty, Sen. Lee argues that the US has “ceded incrementally greater sovereignty to the United Nations under … illusory ‘customary international law.’” Yet the US Constitution provides a check: while the president may sign treaties, only the Senate can ratify them, ultimately determining whether the US is legally bound.

Indeed, the United States refused to join the League of Nations after World War I because the Senate declined to ratify the treaty. The US has a long history of withholding ratification from major international treaties. Notable examples include the Convention on the Rights of the Child (CRC), Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW), Kyoto Protocol (1997), Convention on the Rights of Persons with Disabilities (CRPD), Comprehensive Nuclear-Test-Ban Treaty (CTBT), and the Rome Statute of the International Criminal Court (ICC).

On the ICC specifically, the US has taken vigorous steps to defend its sovereignty. Not only did it decline to ratify the Rome Statute, but in 2002, Congress passed the American Service Members’ Protection Act, often referred to as the Hague Invasion Act. This law authorizes the president to use “all means necessary and appropriate” to secure the release of American or allied personnel detained by, or at the request of, the ICC. More recently, the US has moved to impose sanctions on the ICC.

Rep. Roy also argues that the billions of dollars the US contributes to the UN annually are squandered. Sen. Lee echoes this view, stating that “Americans’ hard-earned dollars have been funneled into initiatives that fly in the face of our values—enabling tyrants, betraying allies, and spreading bigotry.” He also emphasizes that most US contributions are voluntary and that Congress, holding the power of the purse, should decide how these funds are allocated—or not.

As with any collaborative enterprise or governance by committee, some initiatives will inevitably be less efficient than unilateral efforts. Still, a Government Accountability Office study of a UN peacekeeping mission in the Central African Republic found that if the US had acted alone, the mission would have cost $5.7 billion—compared to the UN’s $2.4 billion price tag. The US share of that mission’s cost was only $700 million.

The most compelling reason for the US to remain in the UN is the value of its permanent seat on the United Nations Security Council (UNSC)—a position that comes with veto power. The strategic importance of this role cannot be overstated.

Consider the Soviet boycott of the Security Council in 1950. In protest of the UN’s refusal to recognize the People’s Republic of China, the Soviet Union vacated its seat. During this boycott, North Korea invaded South Korea. With the Soviet Union absent, the Security Council passed resolutions condemning the invasion and authorized the first UN multinational military intervention. Recognizing the scale of its miscalculation, the Soviet Union never again boycotted the UNSC.

A similar situation could arise if the United States withdrew. Without our presence, we could not rely on allies to represent US interests in future crises. Abandoning international discourse would mean forfeiting influence when it matters most.

While Sen. Lee and Rep. Roy may be acting out of conviction, their push to withdraw the US from the UN would risk repeating Cold War-era missteps—and could undermine our national security at a time when global stability is anything but guaranteed.

California leads the nation in more ways than one — taxes, regulations, and, once again, gas prices. As of mid-May 2025, the average gasoline price in California is $4.85 per gallon, far above the national average of $3.26, according to GasBuddy and AAA.

And it’s getting worse. A March 2025 study by USC Professor Michael Mische forecasts California’s fuel prices could spike 75 percent to over $8 per gallon within the next year. That’s not hyperbole — that’s the trajectory unless policymakers reverse course.

The culprit? It’s not oil companies or global demand. It’s decades of state-level tax hikes, regulatory overreach, and misguided climate mandates that have warped the gasoline market in California. This is a man-made problem — a case study in government failure, not market failure.

What Really Drives Gas Prices

According to the US Energy Information Administration (EIA), gasoline prices are generally shaped by five components: crude oil prices, refining costs, distribution and marketing, taxes, and regulations. In California, taxes and regulatory costs alone account for more than $1.30 per gallon — nearly double the national average.

California has the highest gas tax in the country, at $0.678 per gallon, not including additional fees and environmental surcharges. Add in the Cap-and-Trade program, the Low Carbon Fuel Standard (LCFS), and boutique fuel blends that are required only in California, and it becomes clear why Californians pay more.

And things are deteriorating further. The Mische study warns that with refinery closures due to hostile permitting processes and low expected returns under California’s climate mandates, fuel supply in the state could drop by 20 percent by 2026, even as demand stays relatively stable. Fewer refineries and rigid fuel standards will mean tighter supply and higher prices.

Texas vs. California: A Tale of Two Fuel Markets

To see how bad California’s policies are, look no further than Texas. As of May 2025, Texas drivers pay about $3.00 per gallon, nearly two dollars less than Californians. Texas levies a combined state gasoline tax of just $0.20 per gallon, and its regulatory structure is streamlined and energy-friendly.

Texas refineries aren’t subject to California’s carbon credit system or forced to produce costly special-blend fuels. And because it allows for a more competitive and open fuel market, the state benefits from both lower wholesale prices and more efficient distribution. The difference is stark — and instructive.

The Fallacy of “Green” Fuel Mandates

Supporters of California’s approach claim high prices are a necessary cost for fighting climate change. But what if those policies aren’t actually working?

California’s greenhouse gas emissions have declined, but much of the reduction has come from cleaner electricity generation, not gasoline policies. Meanwhile, low-income and working-class Californians are being punished at the pump while driving older, less fuel-efficient vehicles.

This amounts to a regressive tax that hurts the very people politicians claim to protect. Worse, these rules don’t reduce global emissions — they just push energy production and refining out of the state and overseas, often to countries with weaker environmental standards.

The Economic Cost of Fragmented Fuel Policies

In my academic work, including a peer-reviewed paper and subsequent research (SSRN profile), I’ve documented how state-level fragmentation of fuel markets — through taxes, environmental programs, and infrastructure restrictions — creates costly inefficiencies that drive up prices.

These policies discourage new investment in refining and fuel transportation. They create artificial shortages. And they increase transaction costs that ultimately fall on consumers.

In short, California’s model is a textbook case of how overregulation and government micromanagement destroy affordability without delivering proportional benefits.

What Should Be Done Instead?

The answer isn’t new subsidies or “green” credits. It’s not banning gas-powered cars or rationing vehicle miles. The solution is to embrace free-market capitalism and the principles Milton Friedman championed: let prices reflect market conditions, not bureaucratic preferences.

That means:

• Repealing California’s Cap-and-Trade and LCFS programs.
• Standardizing fuel blends to match those used nationwide.
• Halting the gasoline tax increases scheduled under current law.
• Encouraging private investment in refining and fuel infrastructure.

The federal government could help by streamlining interstate pipeline permitting and revisiting federal environmental rules that duplicate or exacerbate state mandates. But the real change must come from Sacramento.

Conclusion: A Crisis of Policy, Not Price

California’s high gas prices aren’t the product of global volatility or greedy corporations. They’re the result of a long series of deliberate policy choices that make fuel harder to produce, harder to transport, and harder to afford.

When government picks winners and losers in energy markets, consumers lose. And when politicians mistake control for competence, they create systems that serve ideology rather than reality.

It’s time to abandon the myth that high gas prices are the price of progress. California has created a man-made fuel crisis — and only free-market reforms can solve it.

In a recent interview with Joe Rogan, Elon Musk said, “Social Security is the biggest Ponzi scheme of all time.” This was hardly an original comment. More than a few people from all walks of life have said this over the years.

But if Social Security is a Ponzi scheme, then we certainly shouldn’t promise not to touch it. We should eliminate it. But if it’s not a Ponzi scheme, then we should not even insinuate that it is.

Long ago, con artists like Charles Ponzi figured out that they could use new investor money to pay handsome dividends to earlier investors. This would attract new investors, but it needed an ever-growing list of new investors to keep going. When the newest set of investors became too small to make all the required dividend payments, the jig was up, and the con artist would take all the money and disappear.  

Here are some key attributes of all Ponzi schemes:

1.    Participation is voluntary.
2.   The con artist benefits from the money that victims lose.
3.   Most who invest in a Ponzi scheme lose everything they invested. 

But with Social Security:

1.   Participation is not voluntary.
2.   Those who created it don’t benefit financially from harm to those in the program.
3.   Unless they die young, those in the program don’t lose everything they paid in.

Social Security is simply not a Ponzi scheme. Those who claim that it is are likely alluding to the fact that when there are many contributors relative to the number of beneficiaries, beneficiaries can get better terms than when there are few contributors relative to beneficiaries. In the 1940s, for example, there were about 42 workers for every beneficiary. That ratio has fallen steadily over the years. Now there are about 2.6 workers for every beneficiary. 

This is why the Social Security payroll tax has been increased 20 times since Social Security was created. It is also why the rate of return for all but the poorest contributors fell steadily over the twentieth century. 

Younger people are not getting as good a deal as older ones, but that’s because the American population’s age distribution has changed over time. The baby boomer generation obviously presents an extraordinary challenge to the program. But the Social Security program doesn’t manipulate the population’s demographic profile.

In one important way, however, those who are cynical about Social Security are right. It takes an act of Congress to change the program in a substantive way. Politicians eager to secure votes by backing changes that made the program more generous to current voters were jeopardizing its long-term viability — an impact that would only become clear to everyone else long after their political careers were over. 

But that problem is not a product of the program itself; it is a product of self-serving behavior on the part of politicians. Unfortunately, a long list of ad hoc changes to Social Security made by politicians over the years has, in one way, made the program worse than a Ponzi scheme.

Because participation is not voluntary, Social Security effectively coerces citizens into participating in a program that is cheating future generations. To ensure that politicians will keep getting votes cast by those alive today, it is increasingly cheating the unborn as baby boomers move through the system. Even though a trust fund was built up to deal with this baby boomer problem, it is filled with special securities that must be presented to the Treasury for redemption, which the Treasury can only do by issuing new debt dollar for dollar.  

So, what looked like prudent savings turns out to be merely a way station to the issuance of new debt that will ultimately be paid by future generations. That new debt is on top of future unfunded liabilities. According to the most recent data from the Financial Report of the United States, as of 2024 the unfunded liability for Social Security over the next 75 years is now over a staggering 25.4 trillion dollars. 

These additional layers of complexity that help hide the harm Social Security is doing to future generations can excuse uneducated voters, but it cannot excuse the politicians who created them.

Most people believe that Social Security was created with the best of intentions, but over the years it has become an apt example of the aphorism “the road to hell is paved with good intentions.” Ponzi schemes are certainly not rooted in good intentions, but at least they are not devised to fleece unborn children.

Trade negotiations are often mischaracterized as adversarial contests akin to warfare or chess. (The latter is increasingly invoked in varying degrees: 3d, 4d, and nth degree). Headlines speak of countries “battling” over tariffs or “outmaneuvering” each other in the global marketplace. But while those analogies may be emotionally satisfying and undergird ideological fervor, they fundamentally misunderstand and distort the nature of trade itself. 

Unlike war, trade is not about conquest; it’s about cooperation under constraints. While no analogies are perfect, within the gaming milieu, a better model is to be found in contract bridge, where strategy, communication, and shared outcomes dominate the pursuit of mutual gain.

First and foremost, trade does not inherently require government interference. In its most natural form, trade arises spontaneously — sua sponte — as individuals, firms, and even nations engage in voluntary exchange to pursue their own interests, each party judging for itself whether a given transaction is mutually beneficial. The complexity and strategic posturing captured in-game analogies only enters the picture when states either seize the authority to control trade from private actors or when a population willingly delegates that authority to a political entity. It is in this shift — from decentralized decision-making to centralized negotiation — that trade becomes the province of diplomats, regulators, and strategists, subject to tariffs, quotas, and geopolitical calculation rather than pure market coordination. Once trade becomes a matter of policy rather than private action, the dynamics necessarily change — requiring negotiation, coordination, and a high tolerance for ambiguity.

Bridge, like trade, requires signaling, risk management, and long-term thinking. Played in partnerships, success in bridge is only achievable when players work together to interpret incomplete information, anticipate reactions, and align their strategies toward a common objective. No matter how skilled one player is, they cannot win alone. In trade negotiations, simply trying to extract concessions by brute force is likely to fail, either immediately or in time. Agreements must be structured to hold, function, and deliver net benefits to both sides. Even in a zero-sum context on specific issues (like market access or rules of origin), the broader objective is always positive-sum: increase the flow of goods, reduce frictions, and enhance economic welfare broadly.

That stands in contrast to the chess or poker metaphors often used. Chess is zero-sum and strictly competitive; a gain for one side is necessarily a loss for the other. There is no scope for joint benefit and no reason to cooperate. That model may describe military conflict or geopolitical jockeying, but it fundamentally misunderstands trade negotiations, where voluntary exchange and mutual advantage are foundational principles. Contract bridge also captures the asymmetry and complexity of trade negotiations. Optimally, countries enter trade talks not to dominate but to discover overlapping interests and convert them into stable, enforceable agreements.

In duplicate bridge, multiple pairs play the same hands, and the goal is not to dominate an opponent in the traditional sense but to perform better given the same initial constraints. That, far more than chess, reflects the state in which individuals and countries naturally approach trade from different economic positions–some rich in capital, others in labor, natural resources, or some other endowment — and must optimize within their comparative advantage. What matters is not the elimination or defeat of one’s counterpart but how effectively outcomes can be coordinated within existing constraints.

Moreover, bridge teaches that communication matters as much as brute strategy. Players develop conventions, systems of bids, and responses that allow them to navigate ambiguity and avoid costly miscalculations. The same is true in trade diplomacy. Seemingly minor miscommunications — over the meaning of a safeguard clause or the scope of an exemption — can derail entire rounds of talks, add uncertainty, and delay the planning of millions of individuals and firms. Building trust and institutional memory through repeated interactions and adherence to norms becomes more valuable than any short-term tactical gain. This is why trade deals often take years and why the best of them provide structure, continuity, and an expectation of fair play.

The most effective and mutually beneficial trade occurs when individuals and organizations are free to decide — without costly, politically biased interference — with whom they will engage in commerce in other nations, and on what terms those exchanges will take place. Not all trade negotiations are smooth, and not all outcomes are evenly distributed. As in a bridge, one side may end up better off in a particular hand. But that doesn’t make trade a zero-sum game — it makes it a process of navigating imperfection and complexity. Protectionist rhetoric often stems from mistaking momentary imbalance for systemic exploitation, ignoring the broader welfare gains, consumer benefits, and efficiency improvements that trade fosters. When one country imposes tariffs, the result isn’t a “win” — it’s a distortion that invites retaliation, raises prices, and constrains long-run productivity growth.

In bridge, a poor hand played wisely can still yield results if both players are aligned. In trade, a nation with structural challenges can still benefit if negotiations are anchored in realism, mutual respect, and the search for shared advantage. Reframing trade negotiations not as battlefields but as strategic partnerships helps clarify what’s at stake — and what’s possible.

Trade is not war. It’s bridge, and that understanding would lead us to play better ‘hands.’

The Great Depression formally began in August 1929, two months before Black Tuesday. Initially, the economic downturn that began late that Summer gave no signs that it was the start of what was to become – and, so far, remain – the greatest economic calamity in United States history. 

Just a decade earlier there occurred another severe downturn, described by Milton Friedman and Anna Schwartz as “one of the most rapid declines on record.” The 1920-1921 downturn witnessed a fall in industrial production, from its peak in January 1920 to its trough 14 months later, of 33 percent. In contrast, in the first 14 months of the Great Depression industrial production fell by ‘only’ 24 percent.

Yet despite its severity, the 1920-21 downturn is today largely forgotten. Indeed, the financial writer James Grant calls that downturn the “forgotten depression” – reasonably so because that deep downturn was quickly followed by a rapid and full recovery. The Great Depression, in contrast, is of course anything but forgotten. Despite a formal recovery in 1933, the US economy remained mired in severe depression until at least the US entered WWII.

Why did the Great Depression, unlike earlier downturns, become unprecedentedly bad? And why did it last so long?

The best answer to the first question was supplied by Friedman and Schwartz, who documented the Federal Reserve’s disastrous policy of allowing the money supply to contract by more than 30 percent between 1929 and 1933. Calling it “the Great Contraction,” Friedman and Schwartz identify this collapse of the money supply as the chief cause of the US economy sinking so very deeply into depression in the early 1930s.

Regime Uncertainty

The answer to the second question is less well-known than the Friedman-Schwartz answer to the first question, but it is no less compelling. That answer was given by Robert Higgs in his research into what he calls “regime uncertainty,” which Higgs defines as “the likelihood that investors’ private property rights in their capital and the income it yields will be attenuated by further government action.” Franklin Roosevelt’s and the other New Dealers’ hostility to free markets fueled both rhetoric and regulations that scared investors. Unlike the downturn of 1920-1921, which Grant described as “America’s last governmentally unmedicated depression,” during the Great Depression, the sick patient was aggressively treated by quack physicians. Both Herbert Hoover and, especially, FDR oversaw a hyperactive, highly intrusive government. Would contractual obligations be upheld? Would tax rates become so high, and regulatory burdens so heavy, as to drain potential profits from risky investments? Would property rights be respected? When investors are haunted by such concerns, they remain on the sidelines.

Higgs marshals data and other evidence to make a case that investors were indeed haunted by such concerns throughout the 1930s. They remained on the sidelines, thus preventing recovery. (Higgs also argues that recovery didn’t come until after WWII. But that’s a tale for another time.)

As noted above, Higgs’s account of the reality and role of regime uncertainty is compelling. But it raises this question: If investors are put off by uncertainty stirred up by government, might they also be put off by the uncertainty that naturally inheres in an entrepreneurial market economy?

Investors care about the expected returns on their investments, p x R – where p is the probability of reaping a return of R. Investors shouldn’t care about what particular events cause p to rise or fall. As Higgs documents, p might be reduced by government intervention. But p might be reduced also by economic occurrences such as increasingly rapid technological innovation that renders investments in specific forms of capital goods obsolete. A 25 percent chance of an investment losing 40 percent of its value next year due to government intervention is no worse for investors than a 25 percent chance of an investment losing 40 percent of its value next year due to an unanticipated technological innovation. At first glance, it appears as if the latter prospect should stifle investment spending no less than does the former.

Mainstream neoclassical economics essentially assumes this problem away by refusing to incorporate entrepreneurship into its analysis. With no entrepreneurship, there’s no genuine innovation. And with no innovation, there’s no real change generated within markets. The future isn’t perfectly predictable, but it’s sufficiently discernible to allow market participants to reliably estimate the probabilities of each of the various possible outcomes. In a neoclassical economy, there is regime risk, but no regime uncertainty. Able to attach probability estimates to all possible outcomes, market participants can fully plan for the future.

Market Uncertainty

Yet, of course, entrepreneurship not only exists in real-world markets; it’s an essential feature of modern capitalism. And because entrepreneurs unleash real change – change that’s unforeseeable – entrepreneurs unleash real uncertainty. Why is it the case, then, that the uncertainty that’s necessarily part of free, open, entrepreneurial markets does not discourage investment while the uncertainty that is necessarily part of a hyperactive interventionist state does discourage investment?

Part of the answer is that market uncertainty might well spook some investors in the same way as does regime uncertainty. Yet if even a small number of investors remain confident that consumers will embrace the entrepreneur’s better mousetrap, he gets the funding — and humanity gets a better mousetrap (sorry, mice!).

Is market uncertainty more likely than regime uncertainty to leave at least some investors sufficiently unfazed that funding will continue to flow to entrepreneurs and businesses that put it to productive, pro-growth uses? Seems so.

Market uncertainty is uncertainty about how private economic actors – consumers, business executives, entrepreneurs, and investors – will spend their own money. In contrast, regime uncertainty is uncertainty about how government officials will spend other people’s money. The relevance of this distinction is found in the fact that the range of actions that a person will plausibly take is significantly narrowed by tightly tying that person’s material well-being to the actions that he decides to take. These actions thus become more predictable than they would absent such a tie. To use an extreme example, I might get great satisfaction by publicly proclaiming a belief that magic crystals outperform modern medicine at curing people of injuries. But if my child is seriously injured in an automobile accident, I’m likely to bring my child to a hospital rather than to a new-age healer. And you, as an outside observer familiar with human nature, will predict my response with great confidence.

Being human themselves, as well as being participants in the market, investors can with some confidence distinguish opportunities that have plausible prospects of being successful (the parent’s use of modern medicine) from prospects that are implausible (the parent’s use of magic healing crystals). Choosing only among plausible investment opportunities, investors thereby reduce their exposure to market uncertainty. The five-to-ten-year future created by genuine consumer and entrepreneurial choice, while open-ended, isn’t wholly unpredictable.

Much more difficult is the attempt to predict the actions of people whose personal, material self-interests are not very much affected by the decisions they make. Modern government officials do not put their own personal material welfare at risk when making decisions that affect millions of strangers. And so government officials sincerely committed to an ideological agenda hostile to markets can pursue that agenda largely on other people’s dimes – as, for example, Donald Trump and Peter Navarro are doing today with their agenda of protectionism.

And if the climate of public opinion also features hostility toward commerce and creative destruction, even the constraints posed by the need for reelection become a positive inducement to destructive assaults on free-market activities. The range of government interventions that might undermine the security of property and contract rights is thus very wide, bounded not by the relatively tight constraints imposed by private interests but, instead, only by the imaginations of ideologically motivated officials and voters.

Not only is the range of potential government interventions that threaten the value of private investments wider than is the range of market activities that threaten the value of private investments, but the duration of destructive government interventions is longer. No one likes to discover that he made a mistake. But recognition of mistakes is faster among market participants than among government officials. The reason is that the more quickly market participants recognize their errors, the more they save of their own money. The entrepreneur who was confident that consumers would have a high demand for anchovy-flavored breakfast cereal will be embarrassed to learn of his error, but even more eager to reverse course from that error.

In stark contrast to private market actors, government officials are not only less likely to recognize their errors quickly but also, even when such recognition dawns on them, less likely to act quickly to correct these errors. After all, continuing with erroneous policies generally costs the government officials responsible for those policies personally very little. But also at work is an even more perverse incentive: government officials – again, spending other people’s money – often have incentives to double down on their errors.

For politicians to admit failure as quickly as failure is admitted by market actors is for politicians to expose themselves as ordinary human beings and, thus, as individuals different from the secular saviors they were portrayed to be on the campaign trail. Able for a time – hopefully, at least to the next election – to paper over with other people’s money the ill consequences of misguided polices, too many politicians persist with bad policies or even to pursue these policies more intensely. When such policies threaten the security of property and contract rights – as in practice many do – investors rationally predict that these destructive policies will be kept in place indefinitely and perhaps even expanded. In such a political environment, private investment is naturally unattractive.

Uncertainty is an inherent part of economic activity. And both modern governments and modern markets intensify it. But only the uncertainty unleashed by governments results in a net decline in productive investment. It did so in the 1930s and will do so in the future if government’s discretionary power isn’t reined in.

Introduction

Global trade can be a hot-button topic. Whether we have free or fair trade and issues like national security, jobs, and economic development are recurring touchpoints of debate. But what about the value of the US dollar? Tariffs figure prominently in trade policy, but the relationship between international trade and currency values has been less discussed. Currencies play a crucial role in every transaction.

The relative obscurity of how trade policy and currency interact may partially be due to the complexity of that relationship. The value of currency influences the exchange of goods, services, and capital. Policymakers and businesses should understand this dynamic because it directly impacts economic stability and competitiveness. Contrary to export-focused easy money advocates who want the value of their currency to decline to make exports more attractive, a sound money strategy of keeping the value of one’s currency strong and stable offers the best conditions for long-term trade arrangements. Indeed, free trade and free markets promote sound money, as countries compete for business and investment.

Real Trade and Currency

At its core, trade involves exchanging goods for goods. This is true of international trade too – French wine for American corn, German cars for American computers. As David Ricardo famously argued, nations benefit from specializing in and trading goods they can produce at a comparative advantage. Having a comparative advantage means being the lowest opportunity cost producer of some good (you give up the least to produce it).

Currencies facilitate transactions, and the value of currency directly impacts the terms of exchange. This trade principle extends to capital goods like tractors and semiconductor manufacturing equipment, and to international financial exchanges, such as German companies investing in US stocks or real estate. When we consider capital investments, the exchange picture broadens. Yes, Germans could trade cars for American computers, but they could also trade cars for American stocks and bonds.

Currencies are a good that can be bought and sold like any other good. We often think of the price of the currency in terms of another currency (e.g. how many dollars does it cost to purchase a euro?), but currencies can also be priced in terms of goods (e.g. how many euros can I “buy” with an iPhone X?). This means that currency values (prices) are subject to the forces of supply and demand in the market.

Unlike most other goods, fiat currency is virtually costless to produce and is issued exclusively by central banks. This is why a tremendous amount of energy (and ink) has gone into studying central banks and how they can cause inflation or hyperinflation by rapidly increasing the supply of a currency and thereby driving down its price (purchasing power) in terms of everything else.

But if we assume the central bank exercises restraint and maintains a stable supply of currency, the demand side drives most of the day-to-day volatility of currencies. Currency traders and policymakers want to know: Who wants the currency? Why do they want the currency? How much do they want the currency?

Ever since the creation of the Bretton Woods system in 1944, the relative strength or value of the US dollar has rested on high international demand for dollars as a means of settling transactions. This has made the dollar the global “reserve currency.” Rather than using their domestic currencies, France and Saudi Arabia, for example, might simply buy and sell goods (in this case, oil) with dollars. This creates a complicated global system of exchange as countries run surpluses and deficits of dollars.

Saudi Arabia trades tremendous quantities of oil for dollars (garnering the label “petrodollars”). They use some of those dollars (a relatively small fraction) to buy goods and services from the US and other countries. They use the rest of their dollars in capital investment – hence their enormous sovereign wealth fund – the Public Investment Fund – with assets worth nearly a trillion dollars.

Large importers of oil, like China, need billions of dollars to purchase oil from countries like Saudi Arabia. This partially explains why China runs such a large current account surplus with the US. Rather than buying billions of dollars of US goods, China needs those dollars to buy oil. The easiest way to acquire those dollars is to sell huge quantities of goods to the US.

In recent years, there has been some talk of de-dollarization by BRICS countries – Brazil, Russia, India, China, and South Africa, and many other potential bloc members. The challenge they face, however, is that Saudi Arabia has little interest in acquiring billions of Chinese yuan or Russian rubles, because these currencies are less widely accepted. Saudis would need to convert those currencies into dollars if they wanted to invest in US companies or real estate. This would require finding others with a strong interest in acquiring yuan or rubles.

When trading goods denominated in different currencies, however, the smooth functioning of this trade depends on stable and predictable currency exchange rates. Wild swings in the value of currencies can create windfalls or big losses for companies that sell their goods for foreign currency. Exchange rates (the price of one currency in terms of another) operate under two primary systems: fixed exchange rates and flexible exchange rates.

These two systems have tradeoffs. Both have facilitated periods of rapid global economic growth and international trade. The first big explosion in global trade occurred under the classical gold standard from roughly 1871-1913. This period saw long-term stable exchange rates, as most major currencies were valued in terms of a set quantity of gold. The second major period of globalization, following the collapse of the Bretton Woods system, occurred under flexible exchange rates.

Exchange Rates: Flexible vs. Fixed

A country can fix its exchange rate by pegging its currency to another currency. Under this arrangement, the central bank agrees to redeem domestic currency for a fixed amount of foreign currency and redeem foreign currency for a fixed amount of domestic currency. To do this, central banks must carefully manage reserves of both currencies. As they have limited control over their foreign currency holdings, most central bank policy focuses on managing the issuance and supply of their domestic currency, as well as its policy interest rate.

Some countries (Ecuador, El Salvador, and Panama, among others) have “dollarized,” meaning they have abandoned their own domestic currency in favor of using the dollar. Dollarization eliminates the need for an exchange rate. The low cost of digital stablecoins denominated in dollars will make it easier for more countries to dollarize in the future.

Robert Mundell, a Nobel laureate in economics, pointed out that the choice of exchange rate regime can have far-reaching consequences for a country’s economy. He emphasized the trade-offs between stability and flexibility in exchange rate management and wrote about optimal currency blocs. Under a flexible regime, the exchange rate fluctuates. Under a fixed regime, prices and interest rates fluctuate.

On the other hand, large swings in capital investment can create currency crises for smaller countries, especially those that rely heavily on one or two major industries. The Baht crisis in Thailand in 1997, which spread to the rest of Asia, and the Peso crisis in 1994-1995 are two prime examples of instability and crisis that can develop under a flexible exchange standard. These countries had fixed exchange rates and massive inflows of capital that their central banks attempted to sterilize, instead of allowing prices and interest rates to adjust.

In effect, central banks tried to subsidize general foreign investment by not adjusting interest rates and domestic currency supply to match capital inflows. Major imbalances grew, creating various asset bubbles, until foreign investors became worried about the financial strength and prospects of the country and began rapidly withdrawing their capital. Central banks in Thailand, Mexico, and elsewhere had insufficient resources to maintain their official exchange rate in the face of rapid withdrawals.

With flexible exchange rates, currency values fluctuate based on market forces, such as trade flows and capital movements. This system, advocated by another Nobel laureate, Milton Friedman, dominates today. Friedman argued that flexible exchange rates embody a true free market in currencies. He believed that allowing market forces to determine currency values would lead to more efficient allocation of resources and greater economic stability. In theory, central banks will need to intervene far less in foreign exchange markets under a flexible exchange rate regime than if they are maintaining a fixed exchange rate.

A major question under any exchange rate regime is what mechanism(s) correct trade imbalances. An old idea called the price-specie flow mechanism, initially elaborated by David Hume in the eighteenth century, best illustrates how trade imbalances can self-correct. Although this model was originally developed to describe trade under an international gold standard where national currencies were tied to a fixed quantity of gold, its principles generally apply in a world of fiat currencies, too.

Price-Specie Flow Mechanism

Imagine that two countries only traded with each other for goods and services. Country A imported $100 billion more in goods than Country B (so it ran a $100 billion trade deficit). That means at the end of the trading period, A would have $100 billion more in goods and services on net, and B would have $100 billion more of A’s currency.

The logical thing for country B to do with all that extra currency from country A would be to buy more goods from A. But suppose the merchants and businesses in B were not interested in increasing their purchases from A. A’s currency doesn’t do them much good. But A’s gold is worth something to them. They will want to redeem their holdings of A’s currency for gold, which they can spend domestically in country B.

Redeeming A’s currency for gold has several effects, all of which apply pressure to reverse the $100 billion trade imbalance between A and B. First, as people in country B redeem their excess currency from A for gold, gold will flow from country A to country B. As A’s gold reserves shrink, the quantity of A’s currency must also shrink because it is tied to (redeemable for) gold.

If the supply of A’s currency didn’t contract, people would increasingly redeem the overly abundant currency for the increasingly scarce (and therefore increasingly valuable) gold. This phenomenon has occurred repeatedly throughout history, nearly always resulting in a country like A suspending the gold redeemability of its currency (i.e. leaving the gold standard).

But if Country A reduces the quantity of its currency to prevent such an imbalance between currency and gold, it will see its prices fall, both in terms of its domestic currency and in terms of gold. Goods in A become cheaper. The reverse occurs in B. As more gold flows into B, their domestic currency should expand, which causes prices in B to rise.

With falling prices in A and rising prices in B, firms and individuals will, if allowed, shift their purchases. They will reduce their imports from B and increase the buying or making of goods in A. Similarly, firms and individuals in B will shift towards buying more (cheaper) goods from A and buying or making fewer goods domestically.

A’s exports to B consequently increase, while A’s imports from B decrease, thereby reversing the trade imbalance from the previous period. Like a rubber band that provides ever more resistance as you stretch it, the greater the trade imbalance, the greater the flows of gold, and the greater the change in prices to reverse the imbalance.

This basic logic holds true as we introduce more countries. Those that export more (on net) than they import will see gold flow into their country causing their domestic prices to rise. Net importing countries, on the other hand, will see gold flow out of their countries causing their domestic prices to fall. Nor does adding capital investment and capital flows change the underlying logic of the price-specie flow mechanism.

It does, however, add an additional channel of reversal: interest rates. It is beyond this Explainer’s scope to outline how gold outflows in a fractional reserve banking system cause interest rates to rise. What matters is that they do rise. Similarly, countries with large inflows of gold should see their interest rates fall. These interest rates are yet another price signal for investment to reverse trade imbalances.

Trade imbalances that lead to currency accumulation should affect the value of that currency (its purchasing power) as well as domestic prices and interest rates, in a way that returns the system to balance. But central bankers can introduce friction into the system and dampen the price signals created by trade imbalances.

During World War I, most countries suspended gold redeemability for their currency so that they were free to artificially create more currency and credit to fund their war efforts. The result, by the end of the war, was significant inflation. Some countries, like France, devalued their currencies in terms of gold. Other countries, like England, returned to their old valuation. But they had created too much currency, which led to significant redemptions for gold and subsequent gold outflows.

Rather than allowing gold inflows to lower interest rates, putting upward pressure on domestic prices, central bankers in France and the US “sterilized” gold inflows in the 1920s by storing them, rather than using them.

This is not something that a competitive profit-seeking bank would have done. But central bankers governing in the “public interest” chose to do so. As a result, massive trade and capital imbalances built up after World War I, contributing to the collapse of the international monetary system and the global depression of the 1930s.

The Current Account and Capital Account

Many people misunderstand trade imbalances because they do not know the difference between the current account and the capital account. For decades, the “trade deficit” has been touted as a serious problem, or at least a symptom of dysfunction, in the US economy. But people rarely talk about how the trade “deficit” only exists in the current account which tracks the trade of goods and services between countries. The capital account, which tracks investment flows between countries, rarely receives a mention.

Yet these accounts mirror each other. A trade deficit in the current account implies a capital account surplus, and vice versa. Even though the US has experienced current account deficits for decades, it has also experienced corresponding capital account surpluses for decades. These accounts must balance, except for tiny discrepancies arising from foreigners increasing or decreasing their overall holdings of dollars.

The United States has run a trade deficit in its current account for over thirty years. Every year Americans buy more goods and services from foreigners than foreigners buy from Americans. In the 1990s, this deficit was $100 billion to $300 billion a year. In the 2000s, the deficit continued to rise, reaching a remarkable $1.1 trillion in 2024.

What’s also remarkable (and relatively unnoticed) is that the US has run a capital account surplus in the same amounts – including the eye-popping $1.1 trillion surplus in 2024. These numbers simply mean that foreigners want to invest in US assets – including manufacturing – much more than Americans want to invest in foreign markets.

It also means Americans are more interested in buying goods and services from the rest of the world than foreigners are interested in buying US goods. A strong international demand for dollars in general also makes foreigners more eager to sell to Americans and less eager to buy from them. None of this means that Americans are somehow becoming poorer or more indebted to foreigners.

Conclusion

Understanding the nuances of the relationship between international trade and currency can help us avoid pushing inconsistent or counterproductive policies. For example, we cannot increase the capital account surplus and reduce the current account deficit simultaneously. Whether using fixed or flexible exchange rates, or the historical lens of the gold standard, currency values play a vital role in shaping trade flows and investment decisions.

Just as it would be foolhardy for government officials and agencies to attempt to manipulate the terms of domestic trade between different kinds of goods, federal policy attempting to control the terms of trade between countries, whether through tariffs or manipulation of the money supply and interest rates, will lead to distortions and problems.

Abundant energy, low taxes, and regulatory reforms can increase real output in the US, resulting in lower prices and, conversely, a stronger dollar. This stronger dollar will appreciate against other currencies. Suppose, for example, that US output doubles without an increase in the supply of dollars. These lower prices will make US goods more attractive to foreign buyers, but buyers will need dollars to buy US goods.

As foreign demand for dollars rises, the price (value) of the dollar will also rise. This means it will take more euros or yen to buy a dollar, and that dollar buys more goods than before the productivity boom. So, yes, it may take more euros or yen or pesos to buy a dollar than in the past, but each dollar will go much further, which means that the domestic price of US goods will fall. The presumed cost savings leading to the productivity and output growth in the United States will offset the seeming pricing disadvantages of trading in a relatively more “expensive” country.

A stronger dollar also allows Americans to buy more goods and services than before, as the dollar buys more foreign currency. This benefits Americans as consumers. But when the US economy produces goods in increasingly efficient ways without creating more dollars, trade and exports can remain strong and support robust domestic economic growth.

Constrained monetary policy on the part of central banks is crucial for developing efficient trade between nations. Central banks should prioritize maintaining the purchasing power of their currencies over time. This benefits consumers, savers, and a nation’s global trade position. While concerns exist about the impact of a strong currency on exports, these are often offset by cheaper imports. More importantly, a stable currency creates confidence and encourages long-term investment, which in turn fosters long-term prosperity.

We rarely hear positive things about plastic. Headlines overflow with alarming statistics on microplastic contamination and unsettling images of ocean pollution. Yet plastic has quietly played an essential role in reducing poverty, improving global living standards, and even saving lives. How could toxic, Earth-choking plastics possibly combat poverty around the world?

In recent articles titled “In Praise of Plastics” and “Plastics Are Greener Than They Seem” The Economist highlights how plastic reduces transportation weight and cost. For example, a one-liter plastic bottle weighs just five percent of its glass equivalent — making it 20 times lighter and far easier to transport! While the original articles mainly focused on efficiency, my point is that lighter packaging doesn’t just cut costs — it dramatically increases the global poor’s access to basic goods.

Plastic-packaged food lasts much longer — a huge win for the poorest one billion people. Airtight plastic containers keep everyday staples like maize flour, rice, and cooking oil fresher, more affordable, and easier to store. Moreover, plastic packaging enables food to travel longer distances and reach remote areas more easily. This is especially important in poor regions, where road infrastructure is lacking and refrigeration is rare.

In healthcare, plastic syringes and protective gear like gloves and masks have made a big difference. Single-use plastic equipment helps reduce infection rates and has played a huge role in vaccine distribution. Plastic medical equipment is vital to protecting the world’s most vulnerable from disease and death.

A specific but woefully overlooked example is the role plastic has played in halving annual global malaria deaths. In 2000, malaria killed almost a million people worldwide.  But disposable plastic syringes ensured safe malaria treatment while preventing transmissions due to contaminated needles. Mosquito nets, often made from plastic fibers, provided physical barriers against malaria-carrying mosquitoes. Another brilliant plastic product, insecticide-treated plastic sheeting (ITPS), is used in house construction and refuge shelters, and kills mosquitoes upon contact. Over the past 25 years, these plastic products have significantly reduced malaria infection rates worldwide, especially in Africa, and have cut annual malaria deaths by half.

Here’s what the big picture looks like over the past 25 years: as plastic production has surged worldwide, malaria death rates have fallen, and poverty has sharply declined. According to The Economist, global plastic production doubled between 2000 and 2021, rising from 234 million tons to nearly 460 million. Over that same period, extreme poverty (defined as living on less than $2.15 per day) dropped from about 28 percent of the global population to just 8.5 percent, according to World Bank data. The IMF projects that poverty rates will further decline to around seven percent by the end of 2025.

The connection between rising plastic use, falling poverty, and declining malaria deaths is striking. Could plastic be the unsung hero in the fight against poverty and disease? And if it is, we must also confront a difficult question: is plastic pollution an acceptable, or even inevitable trade-off for reducing human suffering?

The economic way of thinking requires acknowledging trade-offs. In a world of scarcity, there are no perfect solutions. Solving one problem often creates or exacerbates another. Plastic contamination is undoubtedly alarming. As I write these words, I cannot escape the unsettling thought that microscopic fragments of plastic might be circulating through my brain at this very moment. But what is the alternative? If we were to stop using plastic tomorrow, global supply chains would collapse, food wouldn’t reach the people who need it in remote areas, and millions would lose access to life-saving medical supplies. Are we willing to accept this increase in human suffering to live in a plastic-free world? I am not.

The role of plastic in poverty reduction is immense. Plastic allows the poor to improve their health, and access food and other goods easier. For the poorest billion on this planet, the benefits of plastic vastly outweigh its environmental drawbacks.

We must, of course, try to manage plastic waste in a responsible way. Our current recycling rates are at about nine percent, which is still too low. Other important priorities associated with plastic use are innovations in recycling technology, improved waste collection infrastructure, and safer landfill management. Last but not least, we should try to use less plastic whenever it is redundant or unnecessary.

Global demand for plastic will continue to rise while global poverty rates will continue to decline. Perhaps accepting both trends is the best compromise humanity can realistically achieve at this moment: tomorrow’s world is going to be one with less poverty and more plastic.

Milton Friedman famously recognized that policy change only happens in crises:

Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable. 

Perhaps “rational” planning and decision-making would be better, but we are obliged to make do with the political system we have. And the chronic dysfunction of that political system has brought us to the point where the US “air traffic control” (ATC) system is one critical incident short of crisis.

The problem is stark: the US — the home of high-tech capitalism and the busiest airspace in the world — has an antiquated, expensive, slow, and dangerous system for directing the paths of aircraft. Considering the alternative arrangements of nations most “like” the US — Canada, France, Germany, and the UK — it is clear that the US could do better.

First, consider the total cost of the ATC system, divided by the number of flight hours. Even given the enormous number of flights in the US, our cost per hour is the highest among the five nations.

Next, consider the average delay per flight (the number of flights that are on time, or other measures, all show this same effect):

The US has three times the average delay of Canada, and double that of the UK. The average delay difference can be misleading, however, since delays compound in a given day, and can propagate across the system. The three worst airports for delays, in the summer of 2022, were Kennedy, LaGuardia, and Newark, all in the New York area. Sixty percent of flights to those airports did not arrive “on time” (the average tardy time for those flights was 100 minutes, a remarkably bad level of performance).

Many of the busiest parts of the ATC system in the US use paper strips to keep track of flights, and more than half of the computer systems are so antiquated that they still use software and hardware that requires changing floppy disks to manage traffic. But the failure to update and modernize is only a symptom of the real problem: bureaucratic structure on permanent ground stop.

Alternative Organizational Structures

Two dimensions, on a broad scale, determine how nimble and responsive an ATC system can be. The first is the choice of whether the actual flight direction services will be provided by a government-appointed set of bureaucrats, or by an independent organization that can make its own decisions. The second is whether the provider of ATC services will regulate itself, or have an independent oversight authority.

Of our five example countries, the two worst-performing air systems — US and France — have created a completely bureaucratized and insulated system of provision, and then vested regulatory authority in that same agency. It’s hard to believe that anyone who thought about it for more than five minutes would vest such power and importance in an agency that is completely protected from electoral and market forces, and then ask that agency to evaluate itself, but that’s where we are.

Consider each of the three alternatives, Canada, Germany, and the UK.

Canada’s ATC system is run by Nav Canada, a private, non-profit corporation established in 1996. Unlike the UK model, Nav Canada has no government ownership. It is funded entirely by service fees, and its governance includes stakeholders such as airlines, unions, and the government (in a non-voting observer role). Nav Canada is often cited as a global model for ATC reform due to its high levels of efficiency, successful implementation of new technologies, and customer-focused management. Its not-for-profit status reduces the risk of underinvestment for short-term profit, but its independent status reduces the risk of underinvestment for short-term budgetary concerns, also.

Germany’s ATC is handled by DFS Deutsche Flugsicherung GmbH, a government-owned but independently corporatized entity created in 1993. DFS operates independently from Germany’s transport ministry and is financed by user fees. Its legal status as a private company wholly owned by the state allows DFS managerial autonomy while preserving public accountability. DFS has made significant investments in automation and cross-border cooperation through the EU’s Single European Sky initiative. However, labor disputes and capacity constraints at busy hubs remain challenges. Still, since regulatory authority and provision are separated, the conflict of interest that vexes the US system is avoided.

The UK pioneered ATC privatization with the partial privatization of National Air Traffic Services (NATS) in 2001. NATS operates as a public-private partnership: 49 percent is owned by UK airlines, five percent by staff, and 46 percent by the government. This model aims to balance efficiency with public oversight. NATS is funded by user fees and has demonstrated strong performance in modernization and cost control. The fact that the major ownership stake lies with the airlines means that the pressures to reduce waste and delays can actually be felt by the organization.

Opportunity Crisis

It’s hard to see all this as an opportunity, but that’s just what it is. As of May 10, experts estimate the overall US air traffic system is operating with a staffing shortage of more than three thousand controllers nationwide. Accelerated retirements, mandatory overtime, and substantially increased flight delays are the norm. Worse, there are genuine concerns that there will be a significant, and entirely avoidable, collision in the air or on the ground as a consequence. 

Of course, the staffing crisis is particularly acute in the Northeast, one of the busiest and most congested airspaces in the world. And leading the way is Newark airport (EWR), which we might label crisis central. Ubelievably, during peak evening hours, only one fully certified controller and one trainee have been made responsible for managing up to 180 takeoffs and landings. The normal staffing level is fifteen, not two.

Newark is not the only problem area. The Philadelphia airspace has a staffing shortage of at least 15, and Boston is short at least 40 full-time controllers. Since training takes at least a year, this shortage is going to be with us for a while.

If we do not follow Canada’s lead, and privatize now, there is another obvious, “off the shelf” solution: convert to a non-profit run by the airlines and airports, funded by landing fees. While it’s true that passengers want lower prices for tickets, the non-price costs of delays and frustrating uncertainties about arrival times are creating a real opportunity and activating demand. We are at least three thousand controllers short already, so there is not better time to convince passengers to pay up and carriers to make the switch. It will be much harder to hire the new controllers, train them, and then try to convert the system to a non-governmental corporation.

The new entity would still be regulated by the FAA, just as now, but privatization would prevent the conflict of interest in the current system, where the FAA is both provider and self-regulator.

Robert Poole of Reason wrote a blueprint for privatization in 1996, and the outlines of that proposal still apply today. President Trump has announced at least a framework of support for the proposal, and it is time to move forward as quickly as possible. Rather than using half-measures to mitigate the current crisis, we should take the opportunity to implement a permanent solution.

Read on: Pilot Shortage: A Story of Stalled Supply and Rising Demand

A debate is raging over housing policy. Many state lawmakers have proposed overriding local growth controls — land-use regulations on housing, such as restrictive zoning requirements — in order to let the free market solve the housing crunch. For example, starter home acts preempting large minimum lot regulations were proposed in Arizona, Minnesota, Texas, North Carolina, and New Hampshire this year.

By letting landowners build more homes on their property, these reforms should increase the supply of homes and reduce their cost.

This strategy has a lot of supporting evidence behind it. But it’s facing fierce pushback from local government officials and homeowners who don’t want development near their neighborhoods. Opponents’ rallying cry has been “local control!” Yes, overriding local rules does reduce local government power, but is that always a bad thing?

The Limits of Local Control

No one wants unlimited local control. The United States fought a Civil War partly over whether local control trumps natural and constitutional rights. Few Americans today would support repealing the Thirteenth Amendment and letting state and local governments decide whether to legalize slavery.

Private property rights are natural and constitutional rights just like the right to liberty in one’s person, recognized throughout recorded history. From the Eighth Commandment’s injunction, “Thou shalt not steal,” to the Magna Carta’s protections for “freeholders,” to the protections for private property in the United States Constitution’s Fifth Amendment, the right to acquire, possess, and use property, including land, has been a fundamental element of the Western ethical and constitutional tradition. 

Private rights over land use aren’t unqualified. If you use your land in a way that imposes significant, direct harm on others, the common law has always recognized a tort of nuisance. A complex body of law has developed to allocate, for example, rights to water that flows over one’s land, especially in arid regions.

Zoning: A Useful but Dangerous Invention

So what about zoning? In my AIER white paper, “Unbundling Zoning,” I review the origins of zoning and its pluses and minuses. Opponents of state housing supply legislation appear to be making a claim something like this: it doesn’t matter what the tradeoffs of zoning are, local governments have an unlimited right to use it. Is that plausible?

Imagine a local rule that bans a landowner from building on his property. Now imagine the town seizing that land instead without paying for it. Both actions could deprive the landowner of the value of his land. If you think the first is always okay, why not the second? The logic isn’t so different.

Consider a real example from my town in New Hampshire. A family bought a five and a half acre lot with an eye to subdividing it when they got close to retirement and building a house on it. It was a big part of their nest egg.

But in 2023, the town planning board proposed (PDF) increasing the minimum lot size where they live from two to three acres, making it illegal for them to subdivide. This move would have drastically reduced the value of their land and their nest egg. In New Hampshire towns, zoning amendments typically require an affirmative public vote, so a group of us got together and campaigned against the amendment, narrowly defeating it.

What would have been the difference between regulating away the use of half of their lot, along with most of its economic value, and simply expropriating it for town government and forcing it to remain vacant? The outcomes of both policies would have been exactly the same. The latter would have clearly violated the Fifth Amendment, but it’s not clear whether the former would have done so under current precedent (the Supreme Court’s regulatory takings jurisprudence is notoriously murky).

Growth-control zoning thus not only takes away from private owners many possible uses of their land, but it also inevitably takes away much of the value of undeveloped land. If you think that’s always justified, then it’s not clear how you could oppose the direct expropriation of land without compensation. And if you oppose expropriation, it’s not clear how you could support growth-control zoning, at least not without serious constraints on abuse.

Local Government Power Is Not Authentic Local Autonomy

Local governments are not voluntary, and they are not private associations. In the United States, they do not enjoy sovereignty and are creatures of state government (that is just as true for “home rule” states as for “Dillon rule” states, a distinction that is frequently overblown). State governments delegated them their zoning power, which in most states they did not have until the mid-1920s. Furthermore, growth-control zoning with strict residential density limits is even more recent, dating back at the earliest to the 1960s.

Growth-control zoning, then, is not an “organic” or “authentic” instrument of landowners in a town and does not approximate a private contract. It is a political tool used by some for their own ends, chiefly rent-seeking (stopping new homes from being built raises the value of existing ones under rising demand for housing), and suffers from the familiar problems of “tyranny of the majority” that we see with other government programs.

The near-term solution for the excesses of growth-control zoning is to place limits on it. Doing so places more power in the hands of individual landowners and thus represents an authentic decentralization of power. Nothing should prevent landowners from making private covenants with each other that limit their development rights. (A few progressive states are in fact overturning homeowners’ association rules, which is also a mistake.)

The long-term solution for growth-control zoning is to “unbundle” zoning by allowing private communities to opt out, allowing neighborhoods or streets to choose to allow more uses, and requiring compensation for major regulatory takings. These measures would truly represent a bottom-up kind of “local control,” not a mere reinforcement of municipal government power.

Real Local Control

In general, local government autonomy makes the most sense when citizens have meaningful choices among jurisdictions, creating a beneficial kind of competition that forces local governments to be efficient. Local autonomy over taxes and spending for local services, for example, makes a lot of sense. 

Local autonomy makes the least sense for regulatory policies over matters that cross local borders. Localities shouldn’t be able to regulate the transportation of firearms, for example, because it would be impossible for a traveler to comply with all the rules of the different jurisdictions along his route. Growth-control zoning has such external effects: the more one locality restricts housing, the more development gets pushed into nearby localities, perhaps incentivizing them to start restricting development too. Moreover, when the government takes the value of your land, choice and competition don’t help you: if you sell out and move away, you’ve still lost the value of your land.

The Bottom Line

Local control isn’t meaningless, but neither is it a blank check. When it comes to growth-control zoning that limits the supply of housing, states are right to step in to place limits on what localities can do to take away the rights of their own landowners and push development onto other localities. 

The ultimate standard of real local autonomy is whether it protects and promotes the ability of individuals to pursue their goals.