It is useful to have frequent reminders that people often resort to deception to peddle their beliefs. The book The 1619 Project Myth by Phillip W. Magness is highly valuable in that regard, as it devastates the historical accuracy of “The 1619 Project” published by The New York Times. 

That long magazine piece was the brainchild of one of its writers, Nikole Hannah-Jones, who used it to make her breathtaking claim that the true date of America’s founding was not 1776, but rather 1619, the year when the first slaves were landed in North America.

Why say that?

The answer is that, like so many “progressives,” Nikole Hannah-Jones wants to undermine the idea that the United States was founded to increase the people’s freedom and replace it with the notion that the nation’s founding was rooted in slavery and oppression. The American Revolution was fought, in her telling, to preserve slavery, which the colonists feared was going to be ended by the British government. Moreover, she and several of her co-authors maintained, the effects of slavery are still with us. What better way to get people to think of America as a terrible nation that’s in need of radical (or revolutionary) transformation?

Almost immediately after its publication, “The 1619 Project” came under fire from scholars (and not just those on the political right) who found its claims to be unsupported, implausible, and misleading. Among the first was economic historian Phillip W. Magness, now a Senior Fellow at The Independent Institute. He wrote several critical essays about different aspects of the Project, which he compiled into a book in 2020. Now, with more time to reflect on the issues and respond to recent spin-offs from the Project, he has put out a new version. It’s a demolition job of the first magnitude.

Magness writes, “Each new permutation of Hannah-Jones’s work has veered more heavily into political advocacy, taking greater liberties with evidence in the process.” But, faced with a mountain of counter-argument, the New York Times has only made one carefully hidden concession about the doubtful claims in it, while Hannah-Jones and her major contributing author, Professor Matthew Desmond, avoid serious confrontations with those who criticize their work and resort to ad hominem attacks.

The book is more than a point-by-point refutation of the claims in the Project. In it, readers also learn a lot about the history of capitalism in America that they probably would not find anywhere else. Here’s just one example.

While Hannah-Jones and her collaborators want to make people believe that slavery and capitalism were somehow in league in early America, that’s the opposite of the truth. Magness recounts the story of the Tappan brothers of New York City. They were successful merchants who opposed slavery. In 1834, they invited Rev. Samuel Cornish, a black American and abolitionist, to their Sunday worship service. That led to a mob attack on their business and homes, as pro-slavery New Yorkers called their gesture of solidarity an invitation to a slave revolt. Between mob violence and a boycott against them, the Tappans were nearly ruined. But, just when all seemed lost, Lewis Tappan came up with a brilliant plan to revive his business by offering to deal on credit with trusted associates in the abolitionist movement. The result was the New York Mercantile Agency, the forerunner of Dun & Bradstreet. Capitalism and slavery were friends? Nothing could be further from the truth.

Or consider the thesis, advanced by Prof. Desmond, that the American economy was extremely dependent on cotton produced by slavery — so dependent that it was really the driving force behind the nation’s early growth. Magness demonstrates that his claim is not remotely supported by the evidence, then turns the tables by informing the readers that one of the foremost advocates of slavery in antebellum America was one George Fitzhugh, who ranted against the ideas of Adam Smith and other free-market advocates. Fitzhugh declared that the South “must throw Adam Smith, Say, Ricardo & Co. in the fire.”

In short, the philosophy of capitalism was utterly incompatible with slavery, and the pro-slavery crowd knew it. Of course, you will hear none of that from Hannah-Jones or her supporters.

Another revealing spin-off from the 1619 Project is how it affected the American Historical Association (AHA). The president of the AHA, James Sweet, had the temerity to cast doubt on the truthfulness of the claims in a tweet, writing, “As journalism, it is powerful and effective, but is it history?” 

Sweet quickly learned that one is not permitted to ask questions about something so important to the left as this. Magness writes, “Incensed at even the mildest suggestion that politicization was undermining the integrity of historical scholarship, the activist wing of the history profession showed up at the AHA’s thread and began demanding Sweet’s cancellation.” So great was the uproar that Sweet felt the need to issue a groveling apology for having “caused harm” with his tweet. The activists did not bother to engage with Sweet and defend the 1619 Project — they just wanted to see him punished for his apostasy.

If there was ever the slightest doubt as to the political purpose of the 1619 Project, it was erased when Hannah-Jones, in the subsequent Hulu TV series based upon it, called for the nation to pay reparations for slavery. That idea has long been dismissed by scholars of all races as unjust and economically ruinous. Nevertheless, she blithely stated that reparations were needed to atone for our racist past and, to explain how we could pay for the trillions it would cost, told viewers that the government can afford anything it wants just by printing enough money. How do we know that? Because a few crank economists who subscribe to Modern Monetary Theory say so. Thus, the 1619 Project combines false history with ludicrous economics to promote the statist agenda.

It shouldn’t surprise anyone to learn that the American education establishment has been eager to embrace the 1619 Project and bring its materials into school and college classrooms. The leftists who say that the Project is just about teaching students some neglected aspects of American history are simply lying — the materials in it are deceptive rather than informative. 

Magness’s book will be of use to parents or officials who don’t want students to be indoctrinated with propaganda meant to sow hatred for the country and mislead students about capitalism.

The next time you hear anything positive about the 1619 Project, reach for Magness’s excellent book.

Federal Reserve Governor Christopher Waller recently offered his perspective on the Fed’s balance sheet, which still stands at over $6.6 trillion. According to Waller, the issue facing the central bank is not the size of the Fed’s balance sheet but the structure of its assets — especially their duration. It’s a compelling case, and it deserves a second look.

Waller claims that the Fed’s liabilities, which include currency, the Treasury General Account (TGA), and reserves held by depository institutions, are inherently safe. Currency pays no interest, has no maturity date, and is irredeemable, because the Fed has no contractual obligation to “convert” currency into any particular good. The TGA has no financial cost to the Fed, as the Fed pays no interest on its balance. Finally, reserves are the most liquid assets in the market, and the Fed can determine the total supply of reserves available by changing the interest rate it pays on them.

The Fed’s recent financial performance, however, casts doubt on the claim that the Fed’s liabilities are inherently safe: the Fed has been making losses since 2022. During fiscal year 2024, the Fed earned $159 billion in interest income while its interest expense on depository institutions, which includes interest on reserves, amounted to $186 billion. As of July 24, 2025, the Fed has accumulated losses of $237 billion. 

If the Fed’s liabilities are so safe, why has the Fed suffered losses in recent years? 

Waller argues that the risks associated with the Fed’s current balance sheet come from the asset side. The Fed bought large quantities of long-term Treasuries and mortgage-backed securities during its crisis-era quantitative easing (QE) efforts beginning in 2009. It loaded up on even more long-term Treasuries following the onset of the pandemic in 2020. These purchases created a mismatch, since the Fed was essentially funding its short-term liabilities (reserves) with long-term assets. When inflation rose, the Fed had to pay a higher rate of interest on reserve balances in order to bring inflation back down. And, since the rate it paid on reserves exceeded the yield on its (mostly long-term) assets, it suffered losses. But Waller contends this is a problem with QE, not with the ample reserves framework. Had the Fed managed the duration of its assets to more closely match the duration of its liabilities, he claims, it would be in a better financial position today.

In any event, Waller maintains that the Fed cannot go back: “there are external forces that have boosted the size of our balance sheet that are not under the control of the Federal Reserve.” Demand for currency has increased from around $800 billion in 2007 to $2.3 trillion at the end of 2024. The TGA has also increased, from $5 billion in 2007 to between $650 billion and $950 billion in 2024, owing to the Treasury’s 2015 decision to begin holding an estimated week’s worth of federal payments in the TGA. “An important point that applies to both currency and the TGA,” Waller says, “is that the Federal Reserve does not have control over the size of these liabilities and hasn’t been responsible for their sharp increases.”

Together, they represent about $3 trillion of our $6.7 trillion balance sheet, or roughly 10 percent of nominal gross domestic product. So, the size of the Fed’s balance sheet, which is now about 22 percent of nominal GDP, is nearly half accounted for by these two liabilities that are not under the Fed’s control. Those who argue that the Fed could go back to 2007, when its total balance sheet was 6 percent of GDP, fail to recognize that these two factors make it impossible.

Waller added that banking regulations have also “led to a large shift in demand for high-quality liquid assets,” including reserves. Taken together, he says these external forces imply that the balance sheet must be bigger than it was back in 2007.

Waller goes on to say that a larger balance sheet improves the safety of the financial system. 

In his opinion, the balance sheet should not only be larger to account for the rise in 1) the demand for currency, 2) the TGA, and 3) the demand for reserves related to regulatory requirements. It should also be larger so that banks can hold reserves beyond those needed to meet their liquidity requirements.

Waller believes an ample-reserves regime where the Fed pays interest on reserves “ensures that there are enough reserves in the banking system to avoid” a “sell-off in Treasury securities, helping to stabilize the financial system without any harm to banks or their customers.” He also believes an ample-reserves regime need not cost the taxpayers any money, so long as the Fed funds its reserves with short-term Treasuries.

As I noted earlier, whether the Fed or banks hold the Treasury securities, the Treasury is paying interest on its debt. And, if the Fed is holding the Treasury securities, then the interest payment from the Treasury to the Fed on the Treasury bills is matched with an interest payment from the Fed to banks on their reserves. So, paying interest on reserves is not creating any additional expense to the Treasury.

Waller compares reserves to clean drinking water: if something is essential and safe, why make it scarce if it can be made abundant at no cost?

In essence, Waller argues that the Fed cannot go back to a small balance sheet and should not go back to a scarce-reserves system. His back-of-the-envelope calculations put the minimum viable balance sheet at $5.8 trillion today, which is around 87 percent of the Fed’s current balance sheet.

Waller makes a strong case. But four counterpoints are worth noting.

First, Waller conflates the Fed’s decision to meet currency demand with not being able to control the supply of currency in circulation. It is true that the Fed cannot control the supply of currency in circulation if it is committed to meeting currency demand. But regardless of its merits, the commitment to meeting currency demand is still a policy choice. If it were not committed to meeting currency demand, it could control the supply of currency in circulation.

Moreover, at least part of the rise in the demand for currency since 2007 is due to the fact that those dollars purchase fewer goods than they did back in 2007. And they purchase fewer goods than they did back in 2007 because the Fed allowed (perhaps unintentionally) the money supply to grow faster than money demand. All else equal, slower reserve growth in 2020 and 2021 would have resulted in less inflation — and a smaller rise in the (nominal) demand for currency. Hence, by controlling reserves, the Fed exhibits some control over currency, as well.

Second, ample reserves present a risk, albeit a small one. While reserves may be ‘backed’ by US Treasuries, the two are not perfect substitutes, as they have different durations. This creates an interest risk that is affected by the size of the Fed’s balance sheet. This risk emerges precisely because the ample reserves regime enables massive balance sheet expansions, which are then exposed to shifting rate environments.

Third, to avoid a knife-edge equilibrium where a random shock might cause the operating regime to switch from ample to scarce reserves, the Fed must include a premium on the interest it pays on reserves. The Fed has been hesitant to approach the minimum viable level to keep reserves ample, suggesting it will ultimately pay a premium sufficient to maintain a sizable buffer. Waller is presumably aware of this hesitancy: after all, he dissented on the slowdown in balance sheet run off back in March. If the requisite premium is sufficiently large, the interest the Fed receives on Treasuries of similar duration will be less than the interest it pays on reserves. Hence, the Fed would have to choose to take losses on the transfers from Treasury to depository institutions or hold riskier assets to make up the difference.

Finally, there’s an overlooked institutional cost. In an ample reserves regime, banks don’t need to borrow from each other. With ample liquidity in the system, the overnight interbank lending market dries up. This removes the incentive for banks to monitor one another — a critical feature of a healthy financial system. In a scarce reserves environment, interbank lending encourages peer oversight, embedding valuable information in market pricing. Ample reserves dilute this mechanism.

Waller’s analogy is thoughtful but problematic. Clean water is safe — until it floods the system and undermines the very structures it was meant to support.

In recent years, a chorus of complaints has emerged from Millennial and Gen-Z interns and junior analysts about the allegedly intolerable conditions at top investment banks. The grievances — ranging from long hours and high stress to inconsistent team dynamics and alleged workplace “toxicity” — have generated headlines and sparked conversations about labor conditions and culture in high finance. But beneath the noise lies a deeper misunderstanding about the nature of elite private institutions, the purpose of internships, and the reality of competition in a modern, highly-financialized economy.

Investment banking, private equity, venture capital, and high-end consulting are not ordinary jobs. They are the apex of professional competitiveness, where firms with multi-billion-dollar deal flow and balance sheet risk hire a microscopic fraction of total applicants to execute transactions under extreme time pressure and regulatory scrutiny. 

Internships at such firms are not “jobs” in the conventional sense — they are auditions for a place in the top 0.1 percent of white-collar finance, and they are designed as such. Grueling hours, constantly shifting expectations, and demanding supervisors are not anomalies; they are features, not bugs. If a 22-year-old intern finds the pressure overwhelming or the environment unwelcoming, it likely isn’t a condemnation of the firm or industry — it’s a signal that the fit is poor. Internships are a discovery process, and self-selection out of a high-pressure field is not failure — it’s a market process in action. (Despite the framing in many articles, no intern is ever forced to work 100 hours. A demanding schedule may be expected, but departure is always an option.)

Needless to say, complaints that arise from medical incidents, stress-induced hospitalizations, and burnout should not be dismissed out of hand. But one must simultaneously acknowledge that medical emergencies occur in every workplace — from teaching hospitals to retail stores to tech startups. Additionally, American society is increasingly burdened by chronic stress, poor diet, inadequate sleep, and widespread pharmaceutical dependence. Blaming the workplace of high finance for an intern’s breakdown ignores the broader public health context in which even sedentary, mid-level office workers experience panic attacks and ER visits. Investment banks, hedge funds, and consulting firms offer some of the highest compensation and fastest career progression in the private sector. It’s no surprise that the environments they foster demand more stamina and discipline than average.

Another frequent complaint involves inconsistencies in expectations across teams, uneven treatment of interns, or a lack of clear feedback. 

These expectations are, in many ways, cultural shock for recent graduates of US universities, where the past two decades have produced increasingly egalitarian/equity-conscious, feedback driven, psychologically-buffered academic environments. 

On campus, everyone is a “winner,” everyone gets a voice, and the rubric is transparent. But in the workplace — especially in the financial pressure cooker — favoritism exists, supervisors vary in quality and temperament, and feedback is often indirect, delayed, or brutally candid. The myth of the “fair” workplace is just that: a myth. Capital markets themselves are relentlessly unfair, favoring the prepared, the lucky, and sometimes the connected. The industry unapologetically reflects that ethos.

Firms are already making strides to improve mental health support, mitigate burnout, and attract a more diverse workforce. But let’s not confuse evolution with capitulation. High standards, asymmetric rewards, and elite gatekeeping have always defined Wall Street and the top tier of other industries. That’s precisely why compensation packages (even bonuses) routinely reach into seven figures for top performers. The cost of admission is steep, and many will decide — rightly — that the price is far too high. That’s neither a tragedy nor an indication that something is wrong. It’s simply how filtering works in a sector tasked with allocating hundreds of trillions of dollars of capital globally. The upside is enormous, and the demands are as well.

President Trump’s tariffs appear to be pushing prices higher. Inflation picked up in June, according to new data from the Bureau of Economic Analysis. The Personal Consumption Expenditures Price Index (PCEPI), which is the Federal Reserve’s preferred measure of inflation, grew at an annualized rate of 3.4 percent last month, up from 2.0 percent in May. It has averaged 2.5 percent over the last three months and 2.6 percent over the last year.

Core inflation, which excludes volatile food and energy prices but also places more weight on housing services prices, was a bit lower. According to the BEA, core PCEPI grew 3.1 percent in June, up from 2.6 percent in the preceding month. It has averaged 2.6 percent over the last three months and 2.8 percent over the last year.

The uptick in inflation observed in June is largely due to newly-imposed tariffs by the Trump administration. Tariffs on foreign-produced goods get passed through to consumers, and enable domestic producers to charge higher prices for close substitutes. Consistent with this view, the BEA reports that the recent rise in prices was especially pronounced for goods. 

Goods prices grew at an annualized rate of 4.8 percent in June, compared with 0.9 percent in the prior month. Durable goods prices, including prices for motor vehicles and parts, furnishings and durable household equipment, recreational goods and vehicles, as well as other durable goods, grew at an annualized rate of 5.7 percent (up from 0.3 percent in the prior month). Non-durable goods prices, including prices for food and beverages purchased for off-premises consumption, clothing and footwear, gasoline and other energy goods, as well as other non-durable goods, grew 4.3 percent (up from 1.2 percent).

Services prices, in contrast, grew just 2.8 percent (annualized) in June — only slightly higher than the 2.5 percent rise observed in May.

All else equal, higher tariffs cause a one-time rise in the level of prices and, hence, a temporary increase in the rate of inflation. Once tariffs have passed through, the rate of inflation will return to its longer run trend — though the level of prices will remain permanently elevated.

As my colleague Bryan Cutsinger has recently argued, the Federal Reserve should look through tariff-induced price hikes when setting monetary policy. That doesn’t mean, however, the Fed should leave its federal funds rate target unchanged:

[…] when productivity prospects dim — as they often do in the face of trade uncertainty: higher input costs, reduced access to more efficient foreign suppliers, and resource misallocation driven by protectionist policies — investment demand falls, dragging the neutral rate down with it.

In order for monetary policy to remain on track, the Fed must adjust its policy rate when the neutral rate changes. For example, if tariffs are pulling the neutral rate lower, then the appropriate course of action is for the Fed to cut its policy rate. 

If the Fed leaves its federal funds rate target unchanged as tariffs pull the neutral rate down, monetary policy will passively tighten.

And yet, that is precisely what the Fed did at this week’s meeting. The Federal Open Market Committee voted 9-2 to hold the federal funds rate target in the 4.25 to 4.5 percent range.

Back in June, the median FOMC member projected the longer run federal funds rate at 3.0 percent. That suggests monetary policy was already quite restrictive. Hence, the Fed has not merely allowed monetary policy to tighten passively. It has done so from a position where monetary policy was already tight.

Prior to the meeting, Fed Governor Christopher Waller — one of two FOMC members to dissent from Wednesday’s decision — explained why he thought the FOMC should begin cutting rates. “While I sometimes hear the view that policy is only modestly restrictive,” he said, “this is not my definition of ‘modestly.’”

In fact, the distance that must be traveled to reach a neutral policy setting weighs heavily on my judgment that the time has come to resume moving in that direction. In June, a majority of FOMC participants believed it would be appropriate to reduce our policy rate at least two times in 2025, and there are four meetings left. I also believe — and I hope the case I have made is convincing — that the risks to the economy are weighted toward cutting sooner rather than later. If the slowing of economic and employment growth were to accelerate and warrant moving toward a more neutral setting more quickly, then waiting until September or even later in the year would risk us falling behind the curve of appropriate policy. However, if we cut our target range in July and subsequent employment and inflation data point toward fewer cuts, we would have the option of holding policy steady for one or more meetings.

Alas, a majority of voting FOMC members ignored Waller’s warning. 

With the decision made, we must now hope the Committee comes around to Waller’s view by September — and that their decision in September is not too little, too late.

The idea that people have an unalienable right to pursue their own happiness is a very radical idea. Prior to the eighteenth century, almost no one in the world believed it. Even today, only a small sliver of humankind agrees with it. 

Equally radical is the idea that the only purpose of government is to protect that right. We can quibble about some of the details, but the central idea is unequivocal. If you and I both have the right to pursue our own happiness, it would be wrong for a government to impose burdens on you just to make me happier. 

Critics of this political philosophy invariably note that some of the authors of the Declaration of Independence owned slaves. But remember, just about everyone else in the world at the time thought that there was no such thing as an individual right. In recognizing that some people had rights, the founders opened a door that would inevitably extend to everyone else.

Their declaration of the right to representation and self-governance initially applied to the free, property-owning men of thirteen North American colonies. Thanks to their foresight, we’ve been extending the right to pursue happiness to more Americans ever since. 

A Radical Declaration: All Men Are Created Equal

The Declaration of Independence was written at a time when the world was undergoing two major changes — both of which made the Declaration possible. 

One major change was intellectual: a radical shift in thinking about the relationship of human beings to one another. Today it is called The Enlightenment or the Age of Reason. In place of domination by the Church or the State (empire or monarchy), Enlightenment thinking held that human beings were independent moral entities who should deal with each other on the basis of reason, persuasion, and voluntary exchange. 

Stephen Pinker has devoted an entire book to the idea that The Enlightenment is the reason why we are not living at the subsistence level today — grubbing around in the forest for roots and berries, as our ancestors lived for several hundred thousand years. 

The other major change was economic. 

Prior to the eighteenth century, most people in most places could probably not have survived under the political arrangement envisioned by the Declaration of Independence. 

Our distant ancestors were hunter-gatherers who lived in small groups. They existed at the subsistence level, and they were continually at war with other tribes. In hunting and gathering and in making war, they relied on cooperative action, in which individuals subordinated their short-term self-interest to the long-term welfare of the group.

Think about a troop of soldiers on a military mission. If each one pursued his own happiness, the mission would never be achieved.

Our distant ancestors, like that military troop, were at war with other tribes and at war with nature. Since they had no markets and no government (at least as we know those institutions today) they relied very heavily on cultural norms to enforce cooperative activities. 

Cultural rites and rituals celebrated self-sacrifice — heroism in battle, risk-taking in the pursuit of large game, diligence in gathering food and other cooperative duties. People were encouraged to think of the entire tribe as extended kin. Other tribal inhabitants were seen as family, not parties to exchange. Outsiders were enemies. 

In time, the tribal life that dominated human existence for over 200,000 years began to give way to the marketplace. 

People began to view strangers in other communities as trading partners rather than military adversaries. Specialization and trade began to link people who lived in distant places. Tribes grew into cities, and specialization and trade replaced kinship relations in local communities as well. 

One recent paper, though writing of more recent market developments, summarizes trade’s pro-social benefits by noting that: “increased market access fostered universalism, tolerance, and generalized trust.” When we are supported in predictable patterns of cooperating with strangers, we extend trust and willingness to transact beyond our tribal and kin-based ties.

In the communities populated by our distant ancestors, an individual could do the most good for others around him by sacrificing his own self-interest to the whole group. In an interconnected marketplace, an individual could do the most good for the most others by pursuing his own self-interest, providing something others wanted to buy.

It may be no coincidence that the Declaration of Independence was published in the same year as Adam Smith’s The Wealth of Nations. By 1776, the best minds in the western world believed individuals had a right to pursue their own happiness and government should ensure they respected the rights of others. The two big changes — a change in how people thought and a change in how they made a living — fused into a political arrangement that had never existed before: classical liberalism.

The Pursuit of the Pursuit of Happiness: 

The Constitution that embodied the spirit of the Declaration of Independence placed restrictions on the federal government, but placed no such constraints on state and local governments. Rights guaranteed under federal law were increasingly seen as appropriate under state and local governments as well, after the Civil War. The Supreme Court and evolving popular opinion rapidly expanded the ideals of the Declaration to more residents of the nation. The rights of Black men to vote, and later of all women to vote, were eventually recognized.

Even so, as we approach the Declaration’s 250th birthday, it is helpful to think about which subsequent policy shifts were consistent with its underlying vision, and which were not. 

Where have we lived up to its ideals, and where have we failed? 

When Government Blocks Your Pursuit of Happiness

When it comes to the role of government in protecting our pursuit of happiness, history is a public policy roller coaster. 

In 1905, the Supreme Court struck down a state law that prohibited bakery workers from working more than 60 hours a week. The law protected established bakers by suppressing competition from bakers who were willing to work longer hours, mostly ethnic immigrants, including Italians, Jews, and German immigrant Joseph Lochner, the plaintiff. Incumbent businesses were using the state government to block people’s productive pursuits, operating like a medieval guild. 

​Between 1897 and 1937, in what is known as the Lochner era, the Supreme Court struck down 184 laws. For the most part, these were laws that limited people’s freedom of contract — usually for some obvious special interest reason. Clearly, the Lochner era rulings were consistent with the classical liberal concept of the proper role of government. They reversed special-interest public policies that trace their roots all the way back to the early settlements in this country.  

The political pressures of the Great Depression ended the Lochner era, and special interests regained their power. Today, even if the backers of a public policy admit that it has no defensible public purpose, that it robs the many for the benefit of the few, and that it makes almost everyone worse off — the courts will not step in to stop it. 

During the twentieth century, economic studies show that the Interstate Commerce Commission largely served as a cartel agent for the railroads and then for the trucking industry. The Civil Aeronautics Board served as a cartel agent for the airlines. The Federal Communications Commission served the interests of the broadcasters. Through price supports, quotas and other devices, the federal government helped farmers restrict output and sell at higher prices. All of these interventions were to the detriment of consumers. 

Beginning in the Jimmy Carter era, deregulation helped undo some of the special-interest harm — much of it stemming from the administration of Franklin Roosevelt. And we are lucky that the Roosevelt era wasn’t even worse. 

Had he not been stopped by the Supreme Court, Roosevelt was willing to allow every industry in the country to limit output and fix prices through the National Industrial Recovery Act — mercantilism on steroids. 

Today, nearly 30 percent  of all jobs require a government license, and economists across the political spectrum often agree that these requirements serve as barriers to entry. City after city has regulated low-income housing out of existence. Teachers’ unions are successfully blocking escape routes for disadvantaged children almost everywhere. Government continues to select who may pursue happiness.

Reclaiming the Promise of the Declaration 

Political change is hard. But acknowledging the meaning of the Declaration and honoring its creators should not be hard. 

In 1776, few people anywhere in the world believed anyone had an essential right to life, liberty or the pursuit of happiness, that his government was bound to honor. Fewer still were ready to die for that belief. 

When the founders first asserted the existence of individual rights — while it’s true they didn’t include everyone they should have — they were challenging what everyone else thought, and at great cost. For this, even as we acknowledge their failings, we owe them a great deal of gratitude. In opening the door for themselves, the founding fathers ultimately opened it for everyone else. 

To honor the real spirit of the Declaration, a public policy inventory is long overdue. So much of our government actions neither protect individual rights nor promote the general welfare. We could honor the Declaration by scuttling them. 

Any practicing Catholic will tell you that Pope Leo XIV answers to a higher power, but none would say that higher power is the Internal Revenue Service. Yet, as Tax Notes’ Robert Goulder notes, the Holy Father will likely still need to file income taxes. 

This debate highlights the importance of tax simplicity. If a government must levy taxes, the system should be straightforward enough for the average citizen to understand. If a government taxes income, it must be a simple flat rate. Even better would be to eliminate income taxes altogether. 

As reported by The Washington Post back in May, the US requires all citizens (including those living abroad like Pope Leo XIV) to file an annual tax return. Most Americans residing overseas can exclude up to $130,000 in foreign-earned income from US income taxes. This doesn’t apply, however, to Pope Leo, because that income is earned working for a foreign government: the Vatican. 

Although the pope does not have an official salary, the Vatican covers his housing, food, travel, and health care; it also provides a monthly stipend for personal expenses. 

Figuring out what he must report will be the daunting task of his accountants. Fortunately, the Holy Father is not on the hook for Illinois personal income taxes because he has not earned income in the state since 2014 (the last year he resided there). 

If he pays income taxes to a foreign government, however, it can be used to subtract his federal income tax bill by claiming the foreign tax credit. The pope likely utilized this credit during his time in Peru, where he became a naturalized citizen in 2015. Questions also arise about the specific tax forms he must file. 

Declining a salary and giving the earnings to charity, however, does not mean Pope Leo escapes the IRS. Goulder explains, “For US tax purposes, a decision to decline salary may not be sufficient to prevent the earnings from being treated as gross income.” 

The Holy Father is hardly alone in facing the headache of tax compliance. In 2024, 66 percent of Americans said that they believed the US Tax Code was “Overly Complex,” and for good reason. The Tax Code is 6,871 pages long. When adding on the federal tax regulations and official tax guidance, the total exceeds 75,000 pages. In 2024, Americans collectively spent 6.5 billion hours preparing and filing their taxes. This came at the cost of losing over $280 billion in foregone income and $133 billion in out-of-pocket costs.

Still, these complications are not likely to cause the Church to call for a crusade against the IRS. The Catholic Church acknowledges the legitimacy of civil authority while recognizing God as the ultimate authority. When questioned by the Pharisees about taxes, Jesus responded, “Then repay to Caesar what belongs to Caesar and to God what belongs to God” (appearing in Matthew 22:21, Mark 12:17, and Luke 20:25; also referenced in Romans 13:7). 

That said, “Caesar” is not above criticism. The Tax Code needs to be simplified. In 2025, one in four Americans feared they would make a mistake filing their income taxes, which would likely result in an audit. These fears are valid. Research shows that low-income taxpayers claiming the Earned Income Tax Credit are disproportionately audited compared to the average taxpayer. 

Enacting a flat income tax rate and eliminating loopholes would help ease those concerns. A flat tax rate is easier for taxpayers to understand and keeps government accountable. Carving out exceptions for specific cases (such as Pope Leo XIV’s) within the current framework is likely to invite fraud and manipulation.

Moreover, no income tax is better than a flat income tax rate. Taxing income (when money is earned) penalizes work, investment, savings, and hiring, which harms economic opportunity and overall quality of life. 

Alternatively, taxing consumption (taxing when money is spent) is less distortionary. Doing so shifts when people spend without discouraging them from earning and investing. 

In 2024, the federal government took 84 percent of all 2024 revenue directly from individual income taxes and payroll taxes (in other words, directly from the paychecks of hardworking Americans) — yet still ran a $1.83 trillion deficit. Calls for higher taxes belie the fact that the government’s budget problems stem from spending and overregulation, not a lack of revenue. 

“Caesar” cannot manage and fund everything. 

Simplifying the Tax Code will make life for Pope Leo and millions of Americans much easier going forward. The petty Caesars at the IRS should take note.

Despite mounting pressure from President Trump to cut rates, the Federal Open Market Committee (FOMC) voted yesterday to hold the target range for its policy rate constant at 4.25 to 4.5 percent, where it has remained since December 2024. Notably, two members of the committee — Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller — dissented, favoring a 25-basis point cut. It was the first time that two Board members have dissented since 1993.

Fed Chair Jerome Powell’s comments at the post-meeting press conference largely echoed his earlier statements this year. He reaffirmed the Committee’s view that the economy remains strong, with the labor market at or near maximum employment, while acknowledging that inflation remains slightly above the Fed’s 2 percent target.

Pointing to newly released GDP data, Powell noted that while the economy grew at an annualized rate of three percent in the second quarter, averaging that figure with the weaker first quarter suggests that growth has slowed overall. The economy is now on track to expand by just 1.2 percent in 2025, down from 2.5 percent in 2024. Powell attributed the slowdown to weaker consumer spending growth but emphasized that business investment is running ahead of last year’s pace.

The labor market remains in balance, according to Powell, who noted that the unemployment rate remains low — around 4.1 percent — and has fluctuated only minimally over the past year. At the same time, wage growth, while moderating, continues to outpace inflation. In short, the Committee appears satisfied with progress on the employment side of the Federal Reserve’s dual mandate.

Powell acknowledged that although inflation has moderated substantially over the past three years, it remains above the Fed’s 2 percent target. He noted that data from both the Consumer Price Index and the Personal Consumption Expenditures Price Index show that the overall price level rose by 2.5 percent over the past 12 months, driven in part by higher prices on tariffed goods. While short-term inflation expectations have risen in response to recent tariff developments, Powell emphasized that longer-term expectations remain well anchored around the Fed’s target.

He also cautioned that it is still too early to determine the full effect of the tariffs on the economy. The Committee’s baseline view, he reiterated, is that the inflationary effect is likely to be short-lived: the tariffs will cause a one-time upward shift in the price level, not a sustained increase in inflation. Nonetheless, Powell noted that if the effects prove more persistent than expected, the Committee may need to reassess its baseline.

The Fed’s obligation, Powell emphasized, is to ensure that long-run inflation expectations remain anchored at its 2 percent target and to prevent one-time increases in the price level from turning into sustained inflation. He argued that the Fed is well-positioned to adopt a wait-and-see approach to the inflationary effects of the tariffs — a view I have recently criticized as reflecting a fundamental misunderstanding of how monetary policy works. Nonetheless, Powell maintained that the Fed’s current policy stance is appropriate given the ongoing inflation risk.

Interestingly, Powell also signaled that the Committee remains attentive to risks on the employment side of its mandate — presumably those arising from an overly restrictive policy stance. This marks a subtle shift from recent press conferences, where he emphasized that the Fed would, if necessary, prioritize price stability, rightly arguing that it is a precondition for a strong labor market.

Looking ahead, the Fed is expected to conclude its framework review by the end of the summer — potentially signaling a return to its pre-2020 inflation-targeting regime. The FOMC will meet again in September. Markets currently assign about a 45 percent chance to a 25-basis-point rate cut, though that probability is likely to shift in the coming weeks amid economic uncertainty and ongoing political pressure.

Political Philosophy: The Basics, by Bas van der Vossen, published in October 2024 by Routledge, is an accessible introduction to the core questions of political philosophy and how to reason about them. This brief book is divided into six chapters (seven, if you include the introduction), covering how political philosophy is practiced, key topics in political philosophy such as political obligation, freedom and equality, the social contract, and justice, and concludes with an argument against political activism for those studying political philosophy. The book is written for the beginning philosopher, political science student, or the interested political amateur or early graduate student. Its brevity (around 120 pages) well suits it to the task, as it can be finished within two to three hours of reading.

The reader will be rewarded with a clear, engaging, and well-structured introduction to political philosophy. The clarity of the book is brought about by the centering of key arguments and their premises in each chapter. Socrates, for example, argues that since he was raised by the city and stayed within the city, he is obliged to follow the city’s laws, including accepting the death sentence imposed on him. This argument is followed by amended premises that allow for the possibility of disobeying an unjust law.

Van der Vossen opens the door for us to work through the tensions of these arguments by examining their explanatory power, plausibility, and fit to the evidence surrounding the political phenomena under investigation. As we go through this process, we will try to discern what is true and develop theories built upon true premises, valid structures, and sound arguments. He calls this process reflective equilibrium and accepts that any given theory, even after undergoing this process, will be somewhat dissatisfying but better than it was before the process began. Is this another way of packaging Plato’s dialectical reasoning with a splash of Aristotelian logic for flavor? 

Of course, van der Vossen is not committed to the classical rationalism of Plato and Aristotle. He is much more at home in the world of modern liberalism. When mentioning theorists, he is most comfortable with Locke, Hobbes, Rousseau, Hume, Mill, Wollstonecraft, Nozick, and Rawls.

Van der Vossen fails to mention Rousseau’s antipathy to private property, and he questions whether improvements to the wealthiest, which do not harm the poorest, would truly be rejected behind Rawls’s veil of ignorance. His analyses seem sympathetic to Rousseau’s general will and Rawls’ use of the veil of ignorance. Still, he seems to conclude that something very close to classical liberalism emerges if these concepts are correctly applied.

A firm grasp of the mechanisms and logic of the classical and modern liberal project is not a paltry prize. Francis Fukuyama argued three decades ago that liberalism was the final ideology to emerge in history, and this book appears to take Fukuyama at his word. Yet, our world continues to be filled with illiberal realities. Tribalism has been resilient in Africa, Southeast Asia, and the Middle East, and nationalisms of all varieties are asserting themselves globally. Similarly, religious faith plays a prominent role in ordering the world community. The persistence of communalism, exclusionary biases, and metaphysical and ontological claims receive insufficient attention in a book dealing with the basics of political philosophy.

These topics certainly make things messier. The biblical Israelites were given property occupied by other people. Their god instructed them to remove them, and after defeating them, “devote them to complete destruction.” That seems clearly unjust.

But how many foundings occur in similarly messy circumstances, and with similarly lofty claims? God is also the source of commands to be just and humble. Is not the variety of human claims about the correct order of the world the impetus to philosophize?

The final chapter of this work addresses whether a political philosopher should be an activist. Van der Vossen, to his credit, argues that the philosopher should be more like a scientist and avoid polluting experiments with personal biases. If one is to understand political reality, one should have sufficient reflective distance to not be blind to the nature of that reality because of one’s biases. This reflective distance is challenging to achieve, but van der Vossen believes that the political philosopher should be committed to cultivating that openness to reality.

Did van der Vossen succeed on his terms? The liberal tradition he represents in this book may be the best political order. In that case, political philosophy may be about reasoning in a liberal democracy. Whether it is the case or not, the basics of political philosophy should encompass more than just moral or immoral actions from a liberal perspective, but rather a deeper examination of the reality of politics. This would mean including thinkers such as the Prophets, Thucydides, Augustine, Aquinas, Machiavelli, Spinoza, Tocqueville, Marx, Darwin, Nietzsche, Heidegger, and others.

Similarly, one could find fault in this effort for not reaching beyond the horizons of the Western tradition or wrestling with the critical theory so often dismissive of our liberal heritage. Nevertheless, the book is an excellent introduction to the dominant mode of reasoning that students and laypeople would likely encounter in policy circles in the United States and the European Union.

When asked last month at the European Central Bank’s annual forum in Portugal whether the Fed would have cut interest rates if not for the tariffs, Fed Chair Jerome Powell affirmed that was indeed the case. He explained that the Fed chose to pause its rate-cutting cycle in light of the tariffs’ magnitude, opting to wait and see how the trade-policy uncertainty would affect the economy before adjusting policy further.

While such an approach may seem prudent amid the uncertainty surrounding trade policy, it reflects a fundamental misunderstanding of how monetary policy works. If tariffs end up reducing productivity, they will also depress the neutral rate of interest — that is, the rate consistent with full employment and stable prices. And if the neutral rate falls while the Fed holds its policy rate steady, the central bank has, in effect, tightened monetary policy despite taking no overt action.

With the Federal Open Market Committee (FOMC) expected to hold rates steady at today’s meeting, it’s worth asking why the Fed cannot afford a wait-and-see approach — and why it shouldn’t attempt to offset tariff-induced price pressures in the first place.

The neutral interest rate depends in part on investment demand, which itself is closely tied to productivity growth. When firms expect productivity to rise, they’re more willing to invest in new capital projects, raising the demand for loanable funds and, with it, the neutral rate. But when productivity prospects dim — as they often do in the face of trade uncertainty: higher input costs, reduced access to more efficient foreign suppliers, and resource misallocation driven by protectionist policies — investment demand falls, dragging the neutral rate down with it.

In order for monetary policy to remain on track, the Fed must adjust its policy rate when the neutral rate changes. For example, if tariffs are pulling the neutral rate lower, then the appropriate course of action is for the Fed to cut its policy rate. By contrast, if the Fed holds the policy rate constant, as it has since December, and the neutral rate is indeed falling, then the Fed is passively tightening monetary policy. In short, the Fed’s wait-and-see approach is anything but.

To see why, suppose the neutral rate falls from 4 percent to 2 percent but the Fed holds its policy rate constant at 4 percent. In that case, the real — that is, inflation-adjusted — interest rate will exceed the neutral rate, making monetary policy contractionary. This occurs even though the Fed has, in some sense, “done nothing.” But holding rates steady amid a falling neutral rate is a policy choice, and one with real consequences — namely, slower growth.

One way to assess whether monetary policy is appropriately calibrated is to compare the current policy rate to a benchmark of where it ought to be. A commonly used benchmark is the Taylor Rule, named after economist John Taylor. The rule incorporates the current inflation rate, the Fed’s inflation target, the output gap, and an estimate of the neutral interest rate to generate a recommended policy rate.

The Federal Reserve Bank of Atlanta publishes a range of Taylor Rule estimates that incorporate different measures of inflation, output gaps, and neutral interest rates. Notably, two of the three versions currently suggest that the federal funds rate is too high — implying that monetary policy is contractionary, even though the Fed hasn’t raised rates in several months.

To be sure, estimating the neutral rate is notoriously difficult, since it is not directly observable. But the weight of evidence suggests that, regardless of Powell’s intentions, the Fed’s inaction is having a contractionary effect.

At a more fundamental level, the Fed should not be responding to tariffs, even if they push prices higher. The reason is straightforward: while the Fed can influence the demand side of the economy, it has little control over the supply side — where tariffs primarily operate. Responding to supply-driven price fluctuations risks compounding the problem rather than solving it, especially if tighter policy suppresses demand in an already constrained economy.

The Federal Open Market Committee will likely hold its policy rate steady at today’s meeting. But if trade policy is indeed exerting a drag on productivity and investment, then standing pat will amount to passive tightening. In short, when the neutral rate falls, doing nothing is not a neutral act — it’s a contractionary one.

A few centuries ago, Europe was the beating heart of global innovation. From the Enlightenment’s embrace of reason to the Industrial Revolution’s transformative power, it was a hub of bold thinkers, inventors, and entrepreneurs pushing boundaries. 

Today, that spirit has faded. Europe no longer leads technological innovation — not due to a lack of talent or scientific exploration, but because of a deeper issue: an overly restrictive regulatory environment. While the US advances rapidly in AI, biotech, and space, and China heavily invests in deep tech, Europe remains tangled in bureaucracy, risk aversion, and a rigid application of the precautionary principle — prioritizing control over creativity and caution over progress.

Europe’s Innovation Crisis: How the Precautionary Principle Is Paralyzing Europe 

Over the past two decades, Europe has rebranded itself—from the birthplace of industrial revolutions and scientific breakthroughs to the world’s regulatory superpower. The so-called Brussels Effect — Europe’s ability to shape global standards through its regulatory power — has given the EU influence. But at home, it has stifled the very innovation it once championed.

At the heart of this approach is the precautionary principle — the idea that new technologies must be proven completely safe before use. Though well-intentioned, it often stalls progress. Innovation becomes seen as a threat, and entrepreneurs face the near-impossible burden of proving zero risk. Instead of managing risk, European regulators demand its total elimination, halting experimentation before it even starts. 

Contrast this with the United States, where a culture of permissionless innovation prevails. There, innovators are generally free to experiment unless they demonstrably cause harm. This difference in mindset explains why the US leads in AI, biotech, quantum computing, and space technology — and why Europe is falling behind.

Take the EU’s 2024 AI Act. While praised for its ethical goals, the legislation imposes strict risk classifications and high compliance costs that only large corporations can navigate. Startups, lacking legal teams and capital, are left behind. As a result, Europe sees fewer AI startups, diminished innovation, and a talent exodus to the US and China, where one-third of AI experts at American universities come from Europe. And when it comes to leading the development of AI models, the gap is even wider. In 2022, 54 percent of the creators of major AI models were American, while Germany — Europe’s top performer — had just three percent. 

This isn’t limited to AI. In biotechnology, Europe’s approval process for genetically modified organisms is among the slowest and most restrictive in the world. Experimental energy technologies are bogged down in red tape. Startups in high-risk, high-reward industries are routinely denied capital, not just because of investor caution, but because an overregulated financial system is conditioned to avoid anything uncertain. Rigid labor laws add further friction — hiring is inflexible, firing is expensive, and adaptation becomes difficult. 

Europe’s Innovation Exodus: The High Cost of Playing It Safe

The cumulative impact of Europe’s regulatory overreach is increasingly hard to ignore: talent, capital, and innovation are steadily flowing out of the continent. Europe has become a place where ideas are born but rarely scaled. Nearly one-third of European startups that achieve unicorn status eventually relocate abroad — most often to the United States — in search of more supportive ecosystems and easier access to capital.

The numbers underscore the magnitude of the issue. The US dominates the global unicorn landscape, hosting over 55 percent of all unicorns and 75 percent of total unicorn valuation. In contrast, the EU accounts for less than 10 percent of unicorns and just 3 percent of global value. A key reason is the disparity in venture capital: European VC investment fell from $100 billion in 2021 to just $45 billion in 2023, while US startups raised $170 billion. As a share of GDP, US venture capital reached 0.21 percent in 2023, five times higher than the EU’s 0.04 percent.

In deep tech, the gap is striking. Seven of the top ten quantum computing firms are American, and none are European-headquartered. In AI, more than 80 percent of global investment flows to firms in the US and China, while Europe receives just seven percent. This investment gap is reinforced by weaker R&D spending. Europe invests only 2.2 percent of its GDP in R&D compared to 3.4 percent in the US and 5 percent in South Korea. 

The warning signs are already clear. 

Since 2015, Europe’s productivity growth has averaged just 0.7 percent per year — less than half the US rate and barely one-ninth of China’s. In 1995, US and EU productivity were roughly equal. Today, Europe lags by nearly 20 percent — a gap that threatens its long-term competitiveness and economic growth.

Europe is running out of time. With an aging population and shrinking workforce, it cannot afford to rest on past achievements. Without bold structural reform, the continent risks becoming a museum of past glories rather than a factory of future breakthroughs. 

But decline is not destiny. Europe can still reclaim its innovative edge — if it’s willing to abandon the comfort of overregulation and embrace a new era of economic freedom and market dynamism. That means accepting risk and uncertainty, unleashing permissionless innovation, expanding access to venture capital, and reforming rigid labor and bankruptcy laws that stifle entrepreneurial ambition.

The US leads because it rewards bold ideas and tolerates failure. Europe’s culture, by contrast, punishes risk and drives talent away. The solution is not tighter control, but greater freedom. 

As Milton Friedman famously explained: 

The great achievements of civilization have come not from government bureaus but from individuals pursuing their own interests. Wherever masses have escaped grinding poverty, it’s been through capitalism and largely free trade. History shows clearly there’s no better way to improve the lot of ordinary people than the productive energy unleashed by the free-enterprise system.

Until Europe learns to trust its innovators and entrepreneurs, it will remain sidelined in the global innovation race.