The US constitutional system of checks and balances, designed to stop any individual or institution from accumulating excessive power, has been compromised. Over time, Congress has delegated significant authority to the executive branch, including the power to appoint agency heads, execute policy-directing executive orders, act unilaterally on diplomatic and military matters, control the federal bureaucracy, and exert broad authority over trade relations.

Under the Trump administration, the Unitary Executive doctrine has expanded. This theory holds that the US Constitution gives the president complete control over the executive branch and thus can fire agency heads or inspectors general at will. This weakens agency independence and internal checks such as whistleblowers, leaving agencies such as the SEC or EPA open to politicization. The Supreme Court’s ruling in Trump v. US confirmed absolute immunity for official acts, further shielding presidential actions from accountability. While interpretations of the Unitary Executive doctrine may vary, its expansion has greatly increased executive power.

Political developments have only increased this erosion. Legislators, fearful of primary challenges, and CEOs, wary of presidential retribution, have both weakened institutional independence. As a result, sweeping policy and regulatory changes now face fewer obstacles. James Madison’s vision in the Federalist Papers that “ambition must be made to counteract ambition” to protect democracy appears increasingly distant.

This trend toward expanded executive authority extends well beyond a single administration. President Obama’s 2012 implementation of the Deferred Action for Childhood Arrivals (DACA) program through executive action effectively achieved aspects of the DREAM Act that Congress had not passed. More recently, President Biden’s executive actions to forgive federal student loan debt were struck down by the Supreme Court in Biden v. Nebraska. In response, the Biden administration pursued alternative loan-forgiveness measures through the Saving on a Valuable Education plan and income-driven repayment adjustments. Presidents, regardless of party, push policy goals despite legal constraints.

With constitutional limitations weakened, what can effectively check an empowered executive branch? The answer may lie not in constitutional design or judicial rulings, but in free markets.

The Market as an Independent Check

Unlike other institutions, free markets cannot be intimidated or threatened to produce desired outcomes. They operate without regard for political rhetoric or loyalty, simply aggregating the continuous decisions of millions of interdependent economic agents, consumers, employers, workers, and investors, into prices and other economic indicators. Markets work on large numbers of decentralized decisions, allowing policies to be assessed purely on their economic merits.

While measures like the unemployment rate, consumer price index, interest rates, and GDP may seem abstract, they represent real kitchen-table issues that directly affect people’s lives. These macroeconomic indicators reveal today what eventually will be the tangible consequences of policy decisions. Meanwhile, the stock market acts as an early warning system, providing a clear signal that reflects both the immediate impacts on corporate profits and the expected long-term effects on profit growth. Together, these approaches connect the slower, tangible effects of economic issues with the market’s forward-looking signals, providing a more complete picture of policy impact.

Immediate and Unfiltered Feedback

Voters see the policy effects directly through changes in their 401ks or portfolio values, while companies react by increasing cash balances, delaying hiring, or raising prices due to new tariffs. Even as political rhetoric uses euphemisms like “detoxing” to minimize economic pain or ‘art of the steal’ (a play on Trump’s book title, Art of the Deal) to reframe tariffs as clever strategies to reclaim manufacturing jobs, such spin may sway some political supporters. However, markets don’t buy into it.

For example, between February and March, the S&P 500 lost $5.3 trillion in value—an unmistakable signal that investors reject misleading narratives.   Likewise, a steep 11 percent drop in consumer sentiment—described by one economist as “horrific”, shows genuine public concern about economic conditions. If Trump’s tariffs had helped the economy, asset prices and consumer confidence would have risen. The absence of such positive signals provides a true, clear assessment of policy impact.

Critics might argue that markets aren’t a reliable check on poor policies because they sometimes crash, especially in highly uncertain times. But these crashes don’t mean markets have failed. They work like someone breaking the glass on a fire alarm, signaling that something is seriously wrong. In this way, a market crash forces immediate action and reinforces the market’s role as a crucial check on otherwise-unchecked executive power.

Amplifying Consequences

Policies that weaken fiscal stability have real consequences, including higher inflation, job losses, and declining asset values that impact financial security, from retirement accounts to purchasing power. Rather than simply causing poor outcomes or electoral defeat, these policies trigger market reactions that enforce accountability and even amplify their harm. For example, policies that lead to higher inflation and rising mortgage rates further depress home prices, triggering visceral voter anger.

The bond market, in particular, plays a powerful role in keeping government actions in check. In September 2022, UK Prime Minister Liz Truss’s government introduced a mini budget with major unfunded tax cuts aimed at encouraging economic growth. Instead, this led to a sharp sell-off in the bond market. Government bond yields spiked, and the British pound tumbled. The financial instability forced the Bank of England to step in and purchase government bonds to restore order. The market’s backlash undermined confidence in Truss’s leadership, creating dissent within her party and ultimately forcing her to resign after just 44 days in office.

The Soviet Union’s experience also illustrates this principle. Even in a system that severely restricted economic freedom, economic signals proved more powerful than political dictates. When faced with damaging inflation caused by centralized policies, Soviet authorities attempted to “outlaw” inflation — a futile effort that demonstrated the limits of political power against economic realities.

The Ultimate Accountability Mechanism

The market’s response to policy failures is both punitive and transformative. As poor decisions lead to rising unemployment, inflation, and declining investments, voters bear the true cost of executive overreach. The market’s autonomous feedback loop not only exposes these economic consequences but actively amplifies the harm from bad policies, serving as a stimulus for change. While traditional safeguards remain essential in areas like civil liberties and social policy that do not easily translate into economic signals, the market provides a continuous, impartial check on unchecked executive power.

Even as administrations often claim that their policies generate prosperity, stating for example, that tariffs benefit the nation — political spin cannot alter the market’s verdict. No matter how staunchly allies defend these narratives, economic reality prevails. This feedback forces corrective action when necessary, demonstrating that in a democratic society with functioning markets, the collective judgment of millions stands as a vital counterbalance to unchecked executive power. In this way, free markets represent the ultimate defense against executive overreach, functioning where constitutional checks and conventional political norms have failed.

If you maintain that over time, the United States has been the best country at exemplifying the teachings of Adam Smith, you would get no argument from me.  

Sadly, that imagined crown no longer fits. By one calculation, with President Trump’s new tariffs, the United States “is about to have the highest tariff rate of any advanced economy” with a rate of “around 22 percent — up from 1.5 percent in 2022.”

Smith’s teachings on markets and human nature established the foundation for a free trade policy. It would seem the fate of humanity is to forget timeless truths, endure the consequences, and struggle to recover those truths.  

Timeless principles apply everywhere and always. Principles ensuring human flourishing are mutually beneficial, not zero-sum. Famously, Smith pointed us to the advantages of the “division of labour” and how, under conditions of freedom, our actions lead us to naturally become “mutually the servants of one another,” helping each other thrive. 

We can assume tariff supporters have the best intentions, yet ultimately, intentions don’t matter. In his preface to the 1976 edition of The Road to Serfdom, FA Hayek warned that “unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.” 

When we are out of alignment with the principles by which humanity flourishes, there are consequences. The more we are out of alignment, the more severe the consequences. 

If the sirens’ call of protectionism is seducing you, perhaps it is time to review the clear teachings of Adam Smith in The Wealth of Nations. Regarding the outcome of President Trump’s new tariffs, I would bet the nation’s future on Smith’s principles rather than Trump’s passions.  

Let’s begin with a statement of the purpose that drives human activity. Smith writes, “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life.” 

To achieve the wealth we seek, we are almost 100 percent dependent on the efforts of others. Smith pointed out, “After the division of labour has once thoroughly taken place, it is but a very small part of these [necessaries, conveniencies, and amusements] with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people.” 

My wife dedicates a lot of time and energy to her vegetable garden. When we factor in her investments, the cost of homegrown food surpasses that bought at a farm stand or supermarket. Her devotion of time and energy is uncoerced — she gains much from gardening — and doesn’t violate Smith’s maxim: “Every prudent master of a family, never [attempts] to make at home what it will cost him more to make than to buy.” 

Smith gives us clear examples: “The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor.” 

Smith then generalizes the principle: “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.”

It is not merely domestic production that Smith referred to: “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” 

Smith used the example of the folly of growing wine in Scotland: “By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them, at about thirty times the expense for which at least equally good can be brought from foreign countries.”  

And then Smith asked the pertinent question: “Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and Burgundy in Scotland?”

He soundly answered no: “There would be a manifest absurdity in turning towards any employment thirty times more of the capital and industry of the country than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted.”

Consider President Trump’s assertion that these tariffs are retaliatory measures to protect America from unfair trade practices. The President’s calculations are dubious, but let’s make the best case for his policies and suppose his calculations are correct. 

Smith allows, “There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of.”

But what is the probability of that happening? Smith cautions that the likelihood of repeal depends on “the skill of that insidious and crafty animal, vulgarly called a statesman or politician.” 

Skeptical of success, Smith argued that politicians “are directed by the momentary fluctuations of affairs.”

He added, “When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them.”  

Those who love the well-being of this country hope the President is a free trader at heart and hope Trump will negotiate regional and then worldwide tariff reductions quickly. Smith wouldn’t bet on that.

In The Theory of Moral Sentiments, Smith cautioned against “The man of system, … very wise in his own conceit,… [who] seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.”

And what about the moral side of the equation? Let’s set aside the charged issue of trade with China. Trump has imposed a 49 percent tariff on Cambodia and a 46 percent tariff on Vietnam. Both countries export a considerable amount of shoes and clothing to America. The higher prices will hurt American consumers, and Cambodia and Vietnam will suffer devastating economic consequences.

Does the President think Cambodian and Vietnamese workers have ripped us off? Or is it the factory owners? The Vietnamese government, for example, doesn’t trade with the American government. American businesses voluntarily trade with Cambodian and Vietnamese companies (often owned by foreign investors).

Free trade arguments will not sway the economically illiterate. Their faith in President Trump overshadows their understanding of Adam Smith’s economics and dulls their moral compass. We’re told that America’s interests must come first. Smith would say yes, let’s make America great, but trade, not tariffs, is a pathway to progress.

Though economics is called by some a dismal science, a truly dismal philosophy is that the world is a win-lose proposition, where one must beat others or be beaten. 

In his The Theory of Moral Sentiments, Smith explained why our moral sense, rooted in sympathy for others, promotes mutual respect.

Smith began Moral Sentiments with this optimistic moral observation: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” 

Prosperity in Cambodia and Vietnam should matter to Americans because of our shared humanity and also because it benefits us economically. Americans, Cambodians, and Vietnamese march in the same band, no different than Kansans and Iowans. We ignore Smith’s timeless teachings at the risk of our economic and moral well-being.

Post Content

On April 2, President Donald Trump made a sweeping declaration that could reshape the global economic landscape for years. Deemed “Liberation Day,” his announcement of reciprocal tariffs on nearly every major trading partner marked the most dramatic shift in American trade policy levels not seen in a century since the infamous Smoot-Hawley Tariff Act of the 1930s, which triggered a global trade war and worsened the Great Depression.

Trump’s protectionist agenda includes a blanket 10-percent tariff on all imported goods, with some rates climbing to 49 percent for select countries — and a staggering 145 percent on Chinese imports. In response, China imposed a 125 percent tariff on US goods, setting the stage for a full-scale trade war. Trump claims the goal is to reduce trade deficits and revive domestic manufacturing. But the risks are severe: rising consumer prices, retaliatory tariffs, and the looming threat of a global economic slowdown. 

Markets reacted sharply. The S&P 500 shed a staggering $2.4 trillion in market value, marking its worst single-day plunge since the onset of the COVID-19 pandemic in March 2020. This is not just market volatility; it’s a warning sign of the broader economic fallout that protectionism can trigger. In the wake of the financial chaos, the White House softened its stance, scaling back the harsher tariffs to a uniform 10 percent for 90 days — excluding China — to buy time for negotiations. 

Now, Trump faces a serious legal reckoning. On Monday, the nonpartisan Liberty Justice Center filed a lawsuit in the US Court of International Trade, arguing that the president overstepped his constitutional authority by unilaterally imposing tariffs meant for national security emergencies and that the sweeping measures — based on what the suit calls “dubious calculations of foreign trade barriers” — are inflicting serious harm on small American businesses.

Unchecked Presidential Power: Can Congress Rein in the President’s Tariff Powers?

President Donald Trump’s trade policies have sparked a growing backlash, not only from his usual political opponents but also from within his own party. In a rare instance of bipartisan defiance, a group of Senate Republicans voted 51-48 to block Trump’s tariffs on Canadian imports, signaling a shift in the political climate regarding his aggressive trade agenda. While limited, that Republican rebellion highlights concern over the president’s protectionist policies and their economic fallout. 

What’s at stake isn’t just bad policy. It’s constitutional overreach.

The Constitution gives Congress — not the president — the power to impose tariffs. Article I, Section 8 clearly states that lawmakers have the authority “to lay and collect Taxes, Duties, Imposts and Excises.” For much of American history, this was a core congressional prerogative. But over the past century — especially after the economic catastrophe of the 1930 Smoot-Hawley Tariff Act — Congress began steadily ceding this power to the executive branch, hoping presidents would take a broader, less protectionist view. For decades, that arrangement held. But this uneasy balance shifted sharply with Trump’s election in 2016.

According to the Congressional Research Service, six major statutes currently allow the president to impose tariffs — often unilaterally and without prior investigation. The main ones are the International Emergency Economic Powers Act (IEEPA) and Section 232 of the Trade Expansion Act of 1962. These provisions grant sweeping authority to impose tariffs under the pretext of national security or economic emergencies, with little transparency and almost no accountability. 

In an historic first, Trump invoked the IEEPA in 2025 to declare a national emergency and levy punitive tariffs on Canada, Mexico, and China — measures Congress has not sanctioned and cannot easily undo. The emergency can only be ended by the president himself or through a joint resolution of Congress.

Congress has tried to push back, but with little success. Speaker Mike Johnson has blocked House votes to end the emergency declarations that underpin Trump’s tariffs on Canada. Bills to restore congressional oversight have stalled. Any serious effort would likely face a Trump veto, leaving lawmakers paralyzed and the executive unchecked. 

This stalemate points to a broader constitutional crisis: the steady erosion of congressional authority in favor of unchecked presidential power. What began as a practical delegation to simplify trade negotiations has become a blank check for protectionism. And the fallout isn’t just legal — it’s economic. 

Tariffs imposed without oversight drive up prices on everything from electronics to clothing, burdening American consumers and businesses. They rattle investors, disrupt global supply chains, and strain ties with key allies already on edge.

Congress Must Reclaim Its Constitutional Authority Over Trade

If Congress continues to cede ground on trade policy, it risks cementing a dangerous precedent. Allowing the president to wield emergency powers for economic purposes undermines the separation of powers that the Constitution was designed to protect. Left unchecked, any future president could bypass Congress and unilaterally impose tariffs, centralizing trade control in the executive branch. The consequences extend beyond domestic governance: trade wars, diplomatic rifts, and instability in global markets become far more likely. The longer Congress remains passive, the harder it will be to undo the damage.

To prevent further damage to the constitutional framework and restore balance between the branches of government, Congress must act to reclaim its authority over trade policy. Bills like those introduced by Senator Rand Paul seek to limit the president’s ability to impose tariffs without Congressional approval. Although enacting such reforms will be challenging, particularly in the current hyper-partisan environment, they are essential to safeguarding the US economy and maintaining the separation of powers.

To preserve the integrity of US democracy and trade policy, Congress must reassert its constitutional role before the damage becomes irreversible. Unless those laws change — or enough Republicans are willing to break publicly with Trump — the president’s protectionist agenda will remain effectively immune from challenge.

The time to act is now — before the growing, unchecked power of the executive branch leads the nation down an even more precarious path.

What do the following three dates have in common with each other?

1975.

January 1, 1994.

December 11, 2001.

Think for a moment.

Give up?

Each of those three dates is one protectionists routinely identify — either explicitly or by implication — as marking a significant turn for the worse in Americans’ economic fortunes due to international trade.

1975 is the last year in which America ran an annual trade surplus. That year was the last to see the dollar value of Americans’ exports of goods and services exceed the dollar value of Americans’ imports of goods and services. Every year since then — 2025 is on track to be the fiftieth — the United States has run annual trade deficits.

January 1, 1994, is the date that the North American Free Trade Agreement (NAFTA) took effect. Despite some minor modifications and a name change (to United States-Mexico-Canada Agreement, or USMCA) in 2020, this trade agreement remained in effect until just a few weeks ago when Pres. Trump unilaterally moved the US into violation of it.

December 11, 2001, is the date on which China gained membership in the World Trade Organization (WTO), thus further increasing that country’s trade with many other countries, including the US.

If you pay attention to pronouncements, discussions, and debates in the US over trade you’ll regularly encounter laments about America’s “chronic trade deficits” (implying that new economic troubles began as 1975 ended), complaints about the depredations visited on Americans by NAFTA (suggesting that Americans’ economic fortunes began to worsen as 1994 dawned), and, of course, dire warnings of the alleged economic dangers that we Americans encounter by trading with the Chinese (implying that America’s economic health only took another turn for the worse as 2001 was coming to a close).

Fortunately, a great deal of relatively straightforward economic data allows us to put these common claims to the test. As is true of any economic data — which, after all, are drawn from an incredibly complex, dynamic, and ever-changing real-world economy — the data that I present below are incapable of proving anything.

Counterfactuals can always be offered, and questions about classifications, excluded variables, missing data, measurement methods, and errors, are never off the table. Nevertheless, even imperfect data can be sufficiently accurate to be revealing. At any rate, when used honestly such data are often an important part — although never the exclusive part — of any sound analysis or argument about economic policy.

So here are six economic phenomena the trends in which are useful to consult to test the claims about trade described above:

1. workers’ real earnings
2. US industrial production
3. US industrial capacity
4. US capital stock
5. US manufacturing employment as a share of total employment
6. inflation-adjusted average household net worth

These six phenomena by no means exhaust the potential data that are useful for judging the debate between protectionists and free traders, but they’re a good start.

Workers’ Real Earnings

Among the most meticulous and informed scholars who research economic trends is the American Enterprise Institute’s Scott Winship. His 2024 study Understanding Trends in Worker Pay over the Past 50 Years (PDF) is well worth a full and careful read. Among other achievements, it reveals the many sloppy uses of statistics by pundits who argue that ordinary Americans are today no better off economically than were ordinary Americans when the White House was occupied by Gerald Ford. But for our purposes, what Winship shows in his Figure 6 suffices: Today, average inflation-adjusted total compensation (wages and fringe benefits) for workers in the nonfarm business sector is about 250 percent higher than it was in 1975, 100 percent higher than in the year NAFTA took effect (1994), and about 40 percent higher than when China joined the WTO (2001).

US Industrial Production

US industrial production is today (February 2025) at an all-time high. Its previous all-time high was in September 2018, after which it leveled off — perhaps due to Trump’s first round of tariffs — and then fell (of course) during COVID. From the end of COVID until now it’s been largely flat and just below its September 2018 level until finally eking out a new all-time high in February of this year.

One plausible culprit for this leveling-off is the barrage of tariffs that began in early-to-mid-2018 and were mostly retained during the Biden years. Because more than half of American imports are inputs used in domestic production, these trade restrictions dampen the productivity of American producers.

Contrary to claims too numerous to count, the American economy has not been deindustrialized. Americans today (January 2025) produce 153 percent more industrial output than in 1975, 55 percent more than in January 1994, and 18 percent more than in December 2001.

US Industrial Capacity

Nor has the American economy’s capacity to produce industrial output been, as is often asserted, “hollowed out.” America today has an industrial capacity that is 146 larger than it was in 1975, 64 percent larger than in January 1994, and 12 percent larger than in December 2001. This reality is especially notable given that as we Americans grow richer, we spend more on services relative to what we spend on goods.

US Capital Stock

In 2019 (the last year for which these data are available), the inflation-adjusted size of the US capital stock was 178 percent larger than it was in 1975, 66 percent larger than in 1994, and 36 percent larger than in 2001.

US Manufacturing Employment as a Share of Total Nonfarm Employment

The accompanying graph shows, from January 1939 through February 2025, manufacturing employment as a share of total nonfarm employment in the US.

I constructed this graph from two different data sources available at the St. Louis Fed’s FRED data site. As you can see,  protectionists are correct when they note that manufacturing employment as a share of total employment has fallen since 1975, has continued to fall since 1994, and has fallen further still since 2001. But as you can also see, this trend dates back long before 1975. Excluding the wartime (November 1943) peak, manufacturing workers as a share of all nonfarm workers started falling rather steadily in 1954, 22 years before America began its still-unbroken run of annual trade deficits, 40 years before NAFTA, and 47 years before the WTO accepted China as a member.

It’s true that the average monthly rate of decline in the share of workers employed in manufacturing has been very slightly faster from 1976 through today (February 2025), at 0.171 percent, than it was from 1954 through 1975, at 0.134 percent. But it’s also true that the average monthly rate of decline in the share of manufacturing workers has slowed since China joined the WTO. From January 1976 through November 2001, the share of manufacturing workers fell at an average monthly rate of 0.192 percent; from December 2001 through February 2025, that rate dropped to 0.146 percent.

Manufacturing employment as a share of total employment is falling not because of trade but because of improvements in labor-saving technologies, combined with Americans’ rising demand for services relative to the demand for goods.

Inflation-adjusted Average Household Net Worth

If protectionists are correct that US trade deficits either push Americans further into debt to foreigners or result from Americans selling too many assets to foreigners, the net worth of American households would have fallen over the past half-century, as these years saw an unbroken string of annual US trade deficits. But the opposite has happened. As I explain in this short blog post at Café Hayek, the average inflation-adjusted net worth of a US household today (2024) is 232 percent higher than it was in 1975, 140 percent higher than in 1994, and 78 percent higher than in 2001. In short, we Americans have gotten richer as we’ve run trade deficits and since NAFTA took effect as well as since China joined the WTO.

Again, none of these six trends in the data proves that protectionists are mistaken to argue that freer trade and trade deficits have harmed America economically. But taken together they should at least put the burden of proof squarely and heavily where it belongs — namely, on protectionists. It is they, and not free traders, who advocate government-imposed restrictions on Americans’ economic liberties.

The Trump administration has taken a wrecking ball to the Department of Education and to DEI programs at universities across the country. And, in typical Trumpian style, the President has escalated and retaliated against schools that refuse to comply with his administration’s orders. Harvard recently decided to fight back, garnering praise from prominent figures like Barack Obama: “Harvard has set an example for other higher-ed institutions – rejecting an unlawful and ham-handed attempt to stifle academic freedom.”

Opposition to the Trump administration hinges on the newly rediscovered virtue of academic freedom – something that had long been lost under microaggression warnings and inclusion training. Now, apparently, academic freedom is back in vogue because the federal government is attaching strings to its funding. “Hands Off Our University” has become the slogan of recalcitrant university officials, outraged faculty, and student protestors. 

Harvard has become a rallying point for other universities that don’t want to kowtow to the Trump administration’s demands. Harvard’s President, Alan Garber, has said: 

As of writing, the administration has frozen roughly $2.2 billion of federal funding and has begun investigating whether it can revoke Harvard’s tax-exempt status.

Administrators are right to chant, “hand off my university!” We should want the federal government’s hands off universities. We can start by removing its tentacles from student loan financing. No more FAFSAs. No more Pell grants. This, by the way, would save taxpayers nearly $30 billion annually. 

Then, we can remove government research grants, whether for the arts and humanities or for science and medicine. The $40 billion to $50 billion of federal tax dollars spent annually at research universities could be used to pay down national debt (or at least to reduce the deficit). 

In 2018, colleges and universities received roughly $150 billion in federal money through a variety of programs. That’s a lot of government “hands” on the higher education system. If universities want those hands off, they should refuse the money.

But suppose that is a bridge too far. Afterall, we don’t want to return to the dark ages before the 20^th century when almost no general scientific research was done until national governments started funding it at universities…

Perhaps universities could set up organizational firewalls between the university and its various government research arms. Or they could spin off the med schools and research centers entirely. Afterall, the goal is to get the government’s hands off of the universities. This would do that.

And before anyone says this is impractical, impossible, or purely hypothetical, we should note that several successful colleges do not accept federal money of any kind: Hillsdale College, Grove City College, Christendom College, Patrick Henry College, Wyoming Catholic College, Thomas Aquinas College, and New Saint Andrews.

When universities no longer accept federal funds, they will be free to run (or not run) their sports and dorms however they wish. No more “Dear Colleague” letters scolding or not so subtly threatening schools that don’t take the right political or social stances.

Of course, this is decidedly not what President Garber and other university administrators have in mind. They very much want to keep all their federal funding (and get more if they can). They just don’t want conditions for how they operate with that money. One could be forgiven for thinking this sounds more like a large-scale grift than a robust defense of academic freedom.

Remember, he who pays the piper calls the tune. If these universities don’t want to face political pressure and government oversight, they need to stop taking government money. And until they put their money where their mouth is, academic freedom will remain a fig leaf for massive institutions (full of extremely well-paid administrators and faculty) that have been taking American taxpayers to the cleaners for decades.

In February 2025, the AIER Business Conditions Monthly indicators painted a picture of a moderately slowing but still resilient US economy. The Leading Indicator held at 54 for the second consecutive month, suggesting that forward-looking momentum is plateauing amid growing headwinds. The Roughly Coincident Indicator remained steady at 67, reflecting modest strength in current economic activity. However, the Lagging Indicator dipped to 75, down from 83 in January, pointing to slight softening in long-cycle components. The broad takeaway: while real-time and backward-looking indicators remain solid, early signals of deceleration warrant closer scrutiny.

Leading Indicator (54)

Of the twelve Leading Indicator components, five rose, one was unchanged, and six declined in February.

The strongest contributor was US New Privately Owned Housing Units Started by Structure Total SAAR, which rose 11.2 percent — likely reflecting preemptive activity in anticipation of higher construction costs from tariff effects. The Conference Board US Leading Index Stock Prices 500 Common Stocks advanced 1.0 percent, mirroring a resilient equity market, while Conference Board US Leading Index Manuf New Orders Consumer Goods & Materials increased by 0.1 percent, suggesting some momentum in near-term manufacturing demand. Adjusted Retail & Food Services Sales Total SA rose 0.2 percent, modestly rebounding after January’s softness.

On the downside, United States Heavy Trucks Sales SAAR fell sharply by 11.4 percent, indicating weaker demand for large capital goods. FINRA Customer Debit Balances in Margin Accounts dropped 2.0 percent, pointing to declining investor leverage. Conference Board US Manufacturers New Orders Nondefense Capital Goods Ex Aircraft slipped 0.3 percent, a cautionary sign for business investment. Labor market signals weakened, as US Initial Jobless Claims SA fell 0.9 percent (a small positive), while the University of Michigan Consumer Expectations Index plunged 7.9 percent — signaling mounting consumer concern. The Inventory/Sales Ratio: Total Business was effectively flat at -0.01 percent. Finally, the 1-to-10 Year US Treasury Spread remained deeply inverted at 67.6 basis points, reinforcing long-standing recessionary signals.

Roughly Coincident Indicator (67)

Four of the six Roughly Coincident components rose in February, while two declined.

Conference Board Coincident Manufacturing and Trade Sales led gains with a 1.4 percent increase, supported by a 0.7 percent rise in US Industrial Production SA, which continued its upward trend across durable manufacturing sectors. The labor market saw slight improvement as US Employees on Nonfarm Payrolls Total SA ticked up 0.1 percent and Conference Board Coincident Personal Income Less Transfer Payments advanced 0.1 percent, suggesting slow but ongoing income growth.

Weakness was evident in the US Labor Force Participation Rate SA, which fell 0.3 percent — potentially reflecting early signs of labor market softening. The Conference Board Consumer Confidence Present Situation SA (1985=100) declined 1.3 percent, reinforcing consumer unease about current economic conditions despite solid activity.

Lagging Indicator (75)

Of the six Lagging Indicator components, five rose and one declined in February.

The most substantial gain came from the Conference Board US Lagging Avg Duration of Unemployment, which rose 3.2 percent, indicating that job seekers are spending more time out of work. Conference Board US Lagging Commercial and Industrial Loans rose 2.1 percent, suggesting stable business credit demand. The US Commercial Paper Placed Top 30 Day Yield increased 0.5 percent, signaling marginal tightening in short-term funding markets. Census Bureau US Private Constructions Spending Nonresidential NSA advanced 0.4 percent, while US Manufacturing & Trade Inventories Total SA remained virtually unchanged, rising only 0.002 percent.

The only decline came from US CPI Urban Consumers Less Food & Energy YoY NSA, which fell 6.1 percent, continuing the disinflationary trend in core inflation components and offering some breathing room for monetary policy.

February’s Business Conditions Monthly data suggest the economy is still growing, but under increasing pressure. Resilient coincident and lagging indicators underscore ongoing strength in current activity and long-cycle metrics, but leading indicators remain soft, with sharp drops in capital investment and consumer confidence. Elevated uncertainty around trade policy — especially as key tariff deadlines approach — is beginning to show up in forward-looking data. For now, the US economy remains on stable footing, but directional momentum is fading, and the risks of miscalibrated policy or global spillovers are rising. The outlook warrants cautious optimism — tempered by heightened vigilance.

DISCUSSION

March’s CPI report delivered a broad-based downside surprise, with both headline and core inflation coming in softer than expected and showing little to no evidence of pass-through from the 20-percentage-point tariff increase on Chinese imports. Key categories with high China import exposure — including apparel, furnishings, and recreational goods — saw either price declines or minimal gains, while core goods overall fell 0.1 percent after rising in February. Gasoline prices dropped 6.3 percent month-over-month, contributing roughly 19 basis points of drag to headline CPI, while deflation in discretionary services like airfares, car rentals, and hotels signaled a pullback in consumer spending. Although utilities prices rose 1.6 percent and food prices increased 0.4 percent — partly due to dairy — broader inflation pressure appears to be easing: the share of core categories with annualized inflation above 4 percent fell from 42 percent to 34 percent, and over 37 percent of categories are now experiencing outright deflation. Medical care goods also helped suppress inflation, with prescription drug prices falling 2.0 percent, and used vehicle prices reversed course with a 0.7 percent decline. The soft inflation print gives the Federal Reserve additional room to hold or ease policy, though rate cuts are still unlikely until late 2025 absent a credit shock. Meanwhile, the lack of price impact from tariffs may embolden President Trump to proceed with broader reciprocal trade measures after the 90-day pause announced April 9, with more definitive pricing effects likely to surface in the April CPI release due May 13.

Shifting back in the term structure, the latest PPI data show that producer price inflation is easing overall but remains sticky for goods, particularly those tied to exports. While March CPI data reflected outright declines in core goods prices, core goods in the PPI still rose, indicating a disconnect between input costs and consumer pricing. This suggests companies are increasingly absorbing higher costs rather than passing them on to consumers, signaling pressure on margins. A pricing environment where producer prices consistently outpace consumer prices typically precedes margin erosion. With earnings season underway, investor focus will turn to whether firms are beginning to feel this financial strain.

Data in February’s core PCE release gave a different picture of prices, rising at more than twice the pace needed to reach the Fed’s 2 percent target. That surge was driven in part by a 6-basis-point boost from rising health-care costs — particularly hospital services — linked to annual price resets. Durable and nondurable goods prices edged higher, potentially reflecting consumer stockpiling ahead of new tariffs, while prices for “other services” such as legal and household repairs also accelerated.

Outside of the major price indices, regional and sectoral surveys offer a more nuanced picture of pricing dynamics — and they’re sending mixed signals. Several indicators point to continued upward pressure on prices: the ISM Manufacturing Prices Index jumped to 69.4 in March, marking a strong acceleration. S&P Global’s US Manufacturing PMI showed output prices at a 25-month high, and both the New York and Richmond Fed surveys reported rising prices received in manufacturing and services alike. The Chicago PMI also indicated price growth, though at a slower pace, reinforcing the view that firms are still facing pricing power in many sectors.

However, other regions suggest softening inflation pressures. The Philadelphia Fed reported a decline in prices received across both manufacturing and services, with non-manufacturing prices even turning negative. The Kansas City and Dallas Fed surveys showed similar easing, particularly in services, where selling prices fell sharply. Meanwhile, the ISM Services Price Index, though still elevated at 60.9, decelerated from 62.6 the month prior. Overall, the data highlight persistent — but uneven — price momentum across the US, complicating the inflation outlook beyond the headline figures.

The ISM Manufacturing PMI fell to 49.0 in March, marking a return to contraction as Trump’s tariffs and industrial policy fueled uncertainty, with sharp drops in new orders (45.2), production (48.3), and employment (44.7), while input price pressures surged — driven by tariff-related metal cost spikes and supply chain disruptions — raising concerns over demand destruction, squeezed margins, and potential fallout in the upcoming jobs report.

Surveys have highlighted growing pessimism about US economic growth, fueling recent market volatility, but the hard data — especially labor market indicators — have not yet confirmed those fears. Bloomberg Economics forecasts a solid gain of 200,000 in March nonfarm payrolls, driven by a rebound in weather-sensitive sectors like construction and hospitality, the resumption of delayed state and local grant disbursements, and front-loaded hiring in trade and transportation ahead of new tariffs. Private payrolls are projected to rise by 168,000, with Homebase high-frequency data pointing to broad improvement across core job-creating sectors. However, federal hiring and professional/business services may be relative drags, and most tailwinds — like front-running of tariffs and delayed layoffs tied to the Department of Government Efficiency — are expected to fade in the second half of the year.

Although Homebase data suggest stronger March hiring, it also flags a sharp deceleration beginning in mid-March, likely to appear in April’s report due in May. That timeline aligns with expectations for DOGE-related federal layoffs to begin registering in payroll data, alongside a potential pullback in activity from earlier tariff front-running. Bloomberg’s model range of 170,000–230,000 sits above consensus, but underlying risks remain: February’s upside surprise was largely due to seasonal adjustments and one-off strength in manufacturing and waste services. With Chair Powell in no rush to cut rates and Trump seeking to maintain leverage through tariffs, March’s jobs report is unlikely to prompt a near-term policy shift — markets will need to wait longer for definitive evidence of slowing growth.

Consumer sentiment collapsed in early April, with the University of Michigan index dropping to 50.8 — its second-lowest reading on record — driven by soaring inflation expectations and anxiety over tariffs and economic policy. Expectations for the year ahead jumped to 6.7 percent, while long-run inflation expectations hit 4.4 percent, the highest since 1991. The decline was broad-based, with current conditions falling to 56.5 and future expectations plunging to 47.2. High-income households, previously more optimistic, reported the lowest expectations since 1980, aligning with lower-income respondents in a rare and worrying convergence. Consumers are increasingly pessimistic about the labor market, with the share expecting rising unemployment reaching the highest since 2009. Though recent inflation data surprised to the downside and job growth remains firm, nearly two-thirds of consumers spontaneously cited tariffs in survey interviews, underscoring how deeply trade policy is affecting sentiment. With political independents and Democrats registering the largest spikes in inflation fears, and the Fed signaling patience, expectations are now centered on a single 25-basis-point rate cut in December — absent a sharper deterioration in hard data.

Despite collapsing sentiment, signs of an actual pullback in consumer demand remain scattered. Mortgage applications surged over nine percent in early April, discretionary travel and dining activity were only modestly weaker year-over-year, and jobless claims remain low, with continuing claims falling to 1.85 million and the insured unemployment rate holding at 1.2 percent. However, employers remain cautious, and job openings have not materially rebounded since before the latest tariff announcements. Meanwhile, a sharp spike in trade-policy uncertainty has exceeded levels seen during Trump’s first-term US–China trade war, leading to widespread front-loading of imports and shipping congestion. Although tariffs have not yet fed through to higher prices, activity is being pulled forward in a way that likely sets the stage for a slowdown in the second half of 2025. With business investment plans weakening, labor market expectations deteriorating, and inflation expectations becoming unanchored, risks are mounting — even if the hard data have yet to crack.

Small-business sentiment declined sharply in March, with the NFIB optimism index falling 3.3 points to 97.4 — well below expectations — driven by worsening outlooks for sales and overall business conditions. Although most owners haven’t yet felt the direct impact of new US tariffs, policy uncertainty is already dampening hiring and expansion plans. The share of businesses raising prices dropped by the most since December 2022, while intentions to raise prices rose slightly, suggesting firms remain cautious about demand but concerned about cost pressures. Hiring plans also weakened, with only a net 12 percent of owners planning to create new jobs, even as labor retention remains a challenge. Despite a slight uptick, planned capital spending remains historically subdued, reflecting persistent uncertainty in both the domestic and global policy environment.

US retail sales surged 1.4 percent in March — marking the strongest monthly gain in over two years — driven largely by a sharp increase in auto purchases and robust demand for goods like electronics and sporting goods. The strength was broad-based, with 11 of 13 retail categories posting gains, though the standout was autos, which spiked ahead of President Trump’s impending 25 percent tariff on finished vehicles and parts. While the headline figures were broadly in line with expectations, upward revisions to February’s numbers and a 0.4 percent rise in the core “control group” suggest stronger-than-anticipated momentum heading into Q2. Much of that activity is attributable to tariff front-running, as consumers scramble to avoid imminent price hikes — particularly on Chinese-made goods now facing 145 percent levies. Retail data, which are not adjusted for inflation, may be distorted going forward, as future gains could reflect higher prices rather than real demand. Meanwhile, the deteriorating consumer sentiment discussed earlier and stock market losses are clouding the spending outlook, especially among lower-income households. Executives from companies like Ford, Walmart, and LVMH are bracing for margin compression and uncertain demand, while the Federal Reserve remains cautious, divided over whether tariff effects will be transient or inflationary. When the retail data was released financial markets were unmoved, likely recognizing that any perceived consumer strength may simply be consumption borrowed from future months.

Industrial production fell 0.3 percent in March, largely due to a 5.8 percent drop in utilities output amid unseasonably warm weather, while manufacturing outperformed expectations with a 0.3 percent gain, driven primarily by vehicles and aerospace. Durable goods manufacturing rose 0.6 percent, while nondurables were flat, and aggregate manufacturing hours worked had hinted at this upside. Despite the headline weakness, mining activity rose 0.6 percent, and capacity utilization in manufacturing ticked up even as the overall rate dipped to 77.8 percent. However, the narrow breadth of factory gains and the likelihood of future supply chain disruptions from new tariffs suggest that manufacturing momentum may prove short-lived. The data reinforce that while March’s weather skewed utility output downward, the strength in industrial activity is concentrated and vulnerable.

Minutes from the March 18–19 FOMC meeting revealed that a majority of participants saw President Trump’s tariff policies as likely to generate more persistent inflation than previously expected — a view that aligns with the March Summary of Economic Projections, where nearly all participants saw inflation risks skewed to the upside for the first time since July 2022. Policymakers cited multiple sources of potential inflationary persistence, including tariffs on intermediate goods, the complexity of supply chain restructuring, retaliatory trade measures by other nations, and the fragility of long-term inflation expectations. While a few officials acknowledged difficulty in distinguishing between temporary and lasting price effects, others warned of potential trade-offs if inflation remains elevated while growth and employment weaken. Despite these risks, the committee maintained a wait-and-see stance, emphasizing reliance on hard data and expressing confidence in their readiness to respond as needed — though this stance increases the likelihood they will act too late if labor market conditions deteriorate. On balance sheet policy, most participants supported a gradual slowdown in quantitative tightening as consistent with 2022 guidance, though several questioned the need to do so now, and others noted that existing tools could manage any short-term reserve pressures linked to Treasury General Account volatility. Overall, Bloomberg Economics expects only one 25-basis-point rate cut in 2025, likely in December.

The US economy remains superficially stable, with March inflation readings softening and job growth holding up, but underlying risks are building. Consumer sentiment has plunged, business confidence is weakening, and inflation expectations — particularly among high-income households — are rising sharply amid growing tariff uncertainty. While headline CPI showed disinflation, producer prices remain sticky, suggesting firms are absorbing rising costs and facing margin pressure. Front-loaded hiring and spending ahead of new tariffs may temporarily buoy the data, but fading tailwinds and policy lags raise the risk of a downturn later in the year. With the Fed signaling just one rate cut in December and new tariffs advancing on critical sectors, the economy appears increasingly exposed to a policy mistake. With underlying risks mounting, strong caution remains the most prudent stance.

LEADING

ROUGHLY COINCIDENT

LAGGING

Great Barrington, Massachusetts, April 17, 2025 — The American Institute for Economic Research (AIER), one of the oldest and most respected nonpartisan economic research and education organizations in the United States dedicated to promoting the ideas of individual freedom, free markets, sound money, and limited government, today congratulates its President, Dr. William Ruger, on his appointment as Deputy Director of National Intelligence. After consultation, AIER’s Board of Trustees has accepted his request for a leave of absence from AIER for one year, renewable, to serve our nation in this important role.

It is with great pleasure that the Board of Trustees announces that AIER’s Friedrich Hayek Chair of Economics and Economic History, Dr. Samuel Gregg, has accepted the Board’s invitation to serve as President of AIER during this interim period. 

Katy Delay, Chair of AIER’s Board of Trustees, remarked, “We are delighted that Dr. Gregg will seamlessly carry on the thoughtful work of the Institute in educating the general public, students, and policy makers on the value of personal freedom, free enterprise, property rights, limited government, and sound money.”

“I’m deeply honored by the trust that the Board of Trustees has placed in me to lead AIER during Will Ruger’s absence,” said Dr. Gregg. “Dr. Ruger has done outstanding work in shaping AIER’s direction, and I intend to continue down the path he and the Board have laid out for AIER’s future.”

AIER, which was founded in 1933 by economist and financial advisor Colonel Edward C. Harwood, is dedicated to promoting the ideas of individual freedom, free markets, sound money, and limited government.

“These are very challenging times for those who believe in free markets, limited government, and the free society,” said Dr. Gregg. “But I am confident that AIER will continue to take a leading role in making the case for economic liberty to its target audiences, and first and foremost those everyday Americans whom AIER’s founder, Colonel Harwood, was especially committed to reaching.” 

Read About Our Founder, Edward C. Harwood

Psychotherapist Orion Taraban, host of the enormously popular PyschHacks YouTube channel, has a new book out. In The Value of Others: Understanding the Economic Model of Relationships to Get (and Keep) More of What You Want in the Sexual Marketplace, he attempts to explain dating and romantic relationships through the lens of economics. It’s an interesting idea, especially to someone like me who’s written about economics for many years. But on balance, it leads to a pretty broken worldview.

Why?

First off, Taraban’s transactional model leads to a dim view of human nature. A big place that this shows up is how Taraban talks about mutinies.

Taraban’s model of relationships is a naval one: a captain and a passenger (or passengers, as the case may be) contract to sail the ocean blue together. Eventually, Taraban warns, the passenger may be tempted to mutiny: that is, to try to seize control of the ship so that the ship goes where the passenger wants to go, rather than to the original and mutually agreed-upon destination. Examples of mutinies include “When passengers suddenly confess that having children is actually very important to them and that they need a captain willing to start a family immediately” and “when passengers become sulky or throw a tantrum every time captains go out with their friends.” Taraban suggests that captains should shut down any mutiny immediately, with a 30-second conversation that gets the following point across: “if you ever try something like that again, I’ll cast you adrift in a rowboat.”

Given the destructive nature of a mutiny (to say nothing of the captain’s response), one would expect mutinies to be pretty rare. Not in Taraban’s world. He warns that “few passengers can entirely resist the urge to mutiny over a long enough timeline.” Why? Because “most people make decisions based on an (often unconscious) analysis of the various incentives under which they are operating, as opposed to recourse to a personally extrapolated moral or ethical code.”

When Taraban describes human relationships, he seems to have in mind relationships between two homo economicus (a term for imaginary humans whose only goal is to maximize their economic success, untempered by any higher virtues or ethics). The average homo economicus passenger might indeed rebel in the way that Taraban described, and the average homo economicus captain may indeed respond as Taraban suggests. But in the real world, with real people, this situation is a lot less frequent.

The same dim worldview can be seen in Taraban’s perspective on cheating. He suggests that, when we are in the sexual marketplace and we don’t wish to attract a sexual encounter, “The best we can do is communicate on as many levels as possible that we are ‘closed for business.’”

“Just keep in mind,” he warns, “that most shops are willing to transact after hours for the right price.” Or to put it another way: most people would cheat if the right opportunity came along. But I’m not sure this is true. The Institute for Family Studies reports that just 20 percent of men (and 13 percent of women) have had sex with someone other than their spouse while married. Or to put it another way: 80-87 percent of married people are loyal. Some probably haven’t cheated because the right opportunity hasn’t come along, but others stay faithful because real people have virtues which homo economicus lack.

Taraban also describes a lot of mating strategies that, if they were applied in (for instance) the realm of business, we would call immoral. He says that women can attract a higher-quality husband by letting said man sleep around while remaining emotionally and financially committed to her. Another way that a woman can increase her success in the relationship market, he suggests, is to become so enmeshed in her man’s life that “it becomes prohibitively expensive to extricate her from his life” even if he wanted to (Taraban admits that this strategy would be “somewhat nefarious” if utilized in the realm of business). 

His strategies for men aren’t much better. He says that because men need experience to be considered sexually attractive to women, one winning strategy is to seduce women that we don’t actually like, just for the experience they offer. But using people and discarding them the moment they cease providing value (especially if you don’t communicate this intention upfront to the other person) has never been an ethical way to date. Taraban says that another way for a man to gain experience is via simultaneous dating: that is, dating multiple women at the same time. That doesn’t sound so bad until you realize that his example of what simultaneous dating looks like is dating five women at once for an entire year.

To his credit, Taraban makes it clear that he’s not endorsing these strategies (though he’s not discouraging them either). But he also promises that they work. If a business consultant wrote a book essentially saying that, “I’m not endorsing corporate fraud, but it does work and here’s how to do it,” then we would hardly consider the book to be prosocial.

I’ve always thought that markets work wonderfully, but that a precondition of this wonderfulness is some level of virtue in the market participants. In a commercial marketplace, these virtues can be secondary (though it might be a better world if they were not). But when it comes to romance, these virtues are a lot more important. My marriage to my wife works because both of us practice a sort of self-emptying love; that is, we are in each other’s corners as much as we are in our own. The reason that I don’t cheat is not because the right opportunity hasn’t come along, but because cheating would violate the foundational virtues on which we built our relationship. 

To be fair, Taraban isn’t blind to virtues such as love, kindness, loyalty, and friendship. He calls these “non-transactable goods” and he says that they are of the utmost importance. Probably the best part of the book is a short section epitomized by the below:

Like all other non-transactable goods, love fundamentally represents ‘another way to go.’ Without these goods, the social world would be nothing more than the marketplace of human relationships. The highest good the individual could attain would be his or her own perpetual self-gratification, which is even less fulfilling than it is possible. Nothing is wicked about transacting with others for our needs and wants, but this is hardly life’s highest possibility. Qualities like friendship and loyalty and love have the potential to redeem the suffering of life and can prevent existence from becoming unbearably hellacious. They are real, and they are invaluable. Through the cultivation of non-transactable goods, we not only escape the marketplace but also the narcissism of the ego – with its attendant isolation and despair.

The problem is that encouraging a purely economic model of relationships might well lead to a less virtuous and more transactional world than the one that Taraban describes wanting.

As one example: in the last chapter, Taraban suggests that marriage is a dying institution. What will replace it? He suggests that romantic relationships will evolve to look something like the gig economy: you’ll get your childrearing partner in one person, your sexual partner in someone else, etc. As part of this, he suggests that relationships will become a lot shorter: out with till death, in with until this relationship no longer provides adequate value for us both. As he writes, “before too long, it will likely seem outdated (or baffling) that people used to commit to a single person for their entire lives.”

This sounds like a pretty bleak future. But when you convince your audience that relationships are all about getting what’s theirs, it also becomes a lot more plausible.