Alan Greenspan died Monday at the age of 100, and the obituaries have already settled on the title he embraced for two decades. He was the Maestro, the economist who conducted American monetary policy through booms, busts, and panics under four presidents. The praise is not baseless. But a maestro improvises, and improvisation is the wrong standard for the institution that governs the dollar.

Greenspan arrived at the Federal Reserve in 1987 with strong credentials and a clear philosophy. He studied economics at New York University and Columbia, built a successful consulting firm, and chaired the Council of Economic Advisers under President Gerald Ford. In his youth, he was a member of Ayn Rand’s circle, and he carried into office a sincere conviction that free markets allocate resources better than planners do. On most questions, that belief served him well and helped shape a long and consequential career.

For much of that career, the results were impressive. Greenspan presided over the Great Moderation, a long stretch of low inflation and steady growth running from the mid-1980s to the 2007 financial crisis. He calmed markets within weeks of the 1987 crash, and steadied them again after September 11. Milton Friedman, no easy grader of central bankers, called him the “most effective” in the Fed’s history. By the time he retired in 2006, Washington treated his judgment as close to oracular.

Yet Greenspan’s legacy is complicated by a number of inconsistencies. The most notable was the tension between his theoretical belief in free enterprise and his practical faith in discretionary money management. 

The Fed does not preside over a free market in money and credit. Its interventions in financial markets can have large effects on interest rates. The only real question is whether the Fed conducts policy by rule or by discretion. Greenspan chose discretion nearly every time. He kept interest rates low and held them there, most consequentially after the 2001 recession, when rates sat well below what the standard monetary rules of the day recommended. Cheap credit encouraged Americans to borrow heavily, and much of that borrowing flowed into housing.

He compounded the problem with a deliberate opacity. 

Greenspan cultivated the impression that monetary policy was an arcane craft, intelligible only to insiders, and that the public should defer to the experts who practiced it. Friedrich Hayek, who shared the Nobel Prize for economics in 1974, had a name for this conceit. He called it the pretense of knowledge, the belief that a central authority can gather and act on information that is in fact scattered among millions of people. A Fed wrapped in mystique is a Fed that escapes scrutiny, which suits the Fed and its allies yet harms everyone else.

The deeper damage came from what markets learned to expect. Again and again — in 1987, in 1998, and after 2001 — Greenspan met financial trouble by cutting rates and flooding the system with liquidity. Investors drew the obvious lesson. If their bets paid off, they pocketed the gains; if the bets went bad, the Fed would arrive to cushion the fall. This was the famous Greenspan put, and it taught financial institutions to gamble. When the housing bubble burst, the cost of all that risk-taking fell on taxpayers and ordinary families.

Greenspan was too quick to wash his hands of the wreckage. He did concede, in his 2008 testimony, that he was wrong in his assumption that banks would police themselves. The admission was real but partial. Greenspan implicitly framed the crisis as a failure of capitalism, despite the fact that America had operated with a discretionary central bank for nearly a century. He continued to defend his interest-rate decisions and blamed the housing bubble on global forces beyond his control. Admittedly, the crisis had many authors, among them a federal housing policy that pushed relentlessly toward homeownership. But Greenspan carried his own share of the blame, and he never fully owned it.

None of this erases what Greenspan achieved. He got a great deal right. 

His broader confidence in business over government was well-founded, and the country was better for it. His error was to exempt the one market the Fed strongly influences, governing it by his own judgment instead of a binding rule. Sound money depends on clear rules applied consistently, with little room left for improvisation. 

We can acknowledge Greenspan as an accomplished public servant while recognizing his select lack of epistemic humility. There’s another of Milton Friedman’s opinions we would do well to remember: “Any system which gives so much power and so much discretion to a few men that mistakes — excusable or not — can have such far-reaching effects is a bad system.”

During the Q&A period after a lecture on monetary history, a student asked me, “Mr. Reed, do you think a central bank should be independent or should it be directly controlled by elected officials?”

To me, this was a choice between the devil and the deep blue sea. Which should I pick, Scylla or Charybdis? By whom would I rather be mugged — Scarface or Machine Gun Kelly? Given the awful track record of central banks, and the appealing alternative of free, private, competitive banks in a market economy, I thought the question was rather loaded, akin to asking a believer in the separation of church and state, “Which religion should we establish as the official one?” 

The conventional wisdom — frequently wrong — holds that central banks should be independent so they can work for the good of us all, and then we can live happily ever after. It rarely questions whether empowering any person or persons to control a nation’s money and credit supply and its banking practices is a good idea. I wanted to answer the student’s query with another query, something like “Should the supply of green beans be managed by politicians or by a committee of people the politicians appoint?” Thanks, but green beans seem to do just fine with neither. 

If forced to make a choice between the options the student offered, next time I might respond, “I don’t like having to choose between the lesser of two evils but if pressed to do so, I would grudgingly choose independence — if I knew that those running it would be like Hans Luther.” That’s not the answer I gave, because I didn’t know of Luther at the time. 

Who was this monetary saint named Hans Luther? He was President of the Reichsbank, Germany’s central bank, from March 1930 until March 1933. Writing in The Atlantic a year ago, Timothy W. Ryback revealed that Luther was independent enough to stare down Adolf Hitler, at least for a while. 

On January 30, 1933, Hitler became Chancellor of Germany. Nazi storm troopers (the SA) forced their way into the Reichsbank to mount a swastika flag on the building. Before the day was out, Luther was in Hitler’s office to lodge a formal complaint. Ryback recounts the tense exchange: 

‘I pointed out to Hitler that the SA actions were against the law,’ Luther recalled, ‘to which Hitler immediately answered that this was a revolution.’ Luther informed Hitler in no uncertain terms that the Reichsbank was not part of his revolution. It was an independent fiscal entity with an international board of directors. If any flag were to be flying over the bank, it would be the national colors, not the banner of his political party. The next morning, the swastika flag was gone. 

Now that’s “independence”! Especially because just nine months earlier, Luther had been shot in the shoulder by two Nazis objecting to his monetary policies.  

Six weeks later, Luther was back in Hitler’s office. The Nazi leader wanted the banker to cough up cash to help finance a huge rearmament plan. Luther stunned Hitler by offering him about one-twentieth of what he wanted, not a pfennig more. Hitler was outraged, but for the moment, that’s all he got from Luther.  

Luther’s independence lasted a few more days. Seeing the handwriting on the wall and likely fearing for his life, he resigned on March 16, 1933. He strongly urged President Paul Hindenburg to ensure that the bank didn’t fall into the wrong hands. To get Luther out of the country, Hitler named him Germany’s ambassador to the United States, a post he held for the next four years. Meanwhile, Hitler’s toadies assumed control of the Reichsbank. 

Hans Luther was no stranger to politics. When he became President of the Reichsbank in 1930 at the age of 51, he had already served as mayor of the city of Essen, the Weimar Republic’s minister for food and agriculture, minister of finance, and even Chancellor of Germany for six months in 1925.  

The Treaty of Versailles that ended World War I imposed a reparations bill that Germany could not afford to pay. By 1923, massive hyperinflation destroyed the value of the German currency. Debate raged in Berlin over what to do next. When it was suggested that a new currency be based on rye (the grain), Luther killed the idea. Then he introduced a new temporary currency called the Rentenmark, backed by a basket of commodities, followed a few months later by a gold-backed currency, the Reichsmark.  

He also slashed public spending and the bureaucracy. He temporarily hiked taxes to bring in more revenue, and at the same time, he fired 400,000 government employees to help balance the nation’s budget. More than anyone else, he gets the credit for ending the inflation and restoring sound finance for a crippled Germany.

Note the irony here. This man was a central banker who, by supporting a gold-backed currency, sought to make his country’s money somewhat “independent” of a central bank. Precious metals served the world well as money for centuries because they put market forces in the driver’s seat instead of creatures of government called central banks. 

The only biography ever written of Hans Luther appeared in 2010. Titled The Lives of Hans Luther, 1879-1962 by C. Edmund Clingan, it describes its subject as a courageous man who “gave more than forty years of good and honest service to his country,” then sullied it by four years as an ambassador for a government he knew to be increasingly vicious. He once confided that Hitler was “not a normal person.” 

One of Luther’s finer moments came in February 1924 when, just weeks after stabilizing the currency, he spoke to the Reichstag. Clingan writes, 

Luther used the analogy of a house. The ground floor was private business. The upper floors were the public economy and budget while the currency was the roof. Only by lightening the tax burden on private business could it support the public budgets and the currency because the war and its aftermath had damaged the “ground floor.” 

He was a man of generally sound ideas. But in the end, the Hitler regime corrupted everything it touched, including the good things that Luther had accomplished, and to some degree, even Luther himself.  Nonetheless, if a country finds a central bank foisted upon it, it could do worse than finding someone like Hans Luther to run it.  

A toxic wave of delinquent balances, distressed loans, and overvalued assets is beginning to break across the American economy.

Shanghai Commercial Bank just took an 85 percent loss on a half-finished Manhattan condo project. The example demonstrates “extend and pretend” loan games at work: the troubled property had been refinanced multiple times since 2016, repeatedly pushing back the maturity date and inevitable financial reckoning, even as costs mounted. 

This “extend and pretend” behavior is visible across various economic sectors. Debts have been refinanced and modified rather than repaid. Policymakers, lenders, and borrowers have responded to recent financial stress in the same way: not by addressing the pain, but by postponing it. Lenders, mortgage servicers, student borrowers, credit card swipers, and millions of others have relied on creative reshufflings, COVID-era accommodations, and a decade of unusually cheap credit to delay facing reality.

As economic growth slows, interest rates remain elevated, and temporary relief measures expire, the bill for years of “extend and pretend” is finally coming due. 

“Extend and Pretend” Starts In Commercial Real Estate

When a commercial buyer cannot meet contract terms, the lending bank has the option of simply adding a couple years to the loan. The bank pretends the loan is performing, and avoids depleting its capital. The borrower buys some time and avoids default. The increasing mismatch between price and value is swept under the rug, and financial fragility quietly builds in the background. 

The Federal Reserve’s own research suggests “credit risk in the CRE market has substantially increased in the post-pandemic period but banks — weakly capitalized ones in particular — have been sluggish in assessing the associated losses… Nonperforming loans and net charge-offs have remained low by historical standards.” Commercial lenders pushed forward maturity dates for half of all commercial real estate loans ending in 2025, with billions in potential property defaults “adjusted” to avoid fire-sale conditions. Over $1.5 trillion in commercial real estate loans will mature by the end of 2026. Many of those loans should’ve been marked as defaults in 2023 or 2024, but weren’t. The pain of pruning malinvestment was delayed, guaranteeing markets wouldn’t get healthier. 

The credit cushion that allowed this widespread kick-the-can behavior is running out. Sunbelt cities are seeing apartment loans underperform by 30 percent. Many of the distressed properties are second-tier office buildings struggling to reach full occupancy in the era of remote work. Their unrealistic valuations have become a burden, forcing lenders to reprice and offload overleveraged buildings. Unrealized losses for private creditors continue to compound.

Similar “extend and pretend” dynamics are at work in student loans, residential mortgages, and personal consumption. 

Student Loans: Extend and Pretend at Government Scale

Student loan terms are remarkably unforgiving, but most of the draconian provisions haven’t been active for the past five years. The New York Federal Reserve reports a total of $1.65 trillion in student loan debt, with an average monthly payment of $434 per borrower. The unpaid balances amount to $14,390 per federal taxpayer, floating out there in the liability ether.

Federal student loan payments were almost universally paused during the 2020 shutdowns. Interest resumed in October 2023, but many graduates moved to Biden’s SAVE plan, with its promise of erasing the remaining debt after 20 years. Young borrowers, understandably, slowed their rate of repayment to extend the timeline, rather than pay off the loan. Households subject to the repayment pause, Chicago Booth researchers later found, did indeed spend more and goose the economy — by taking on an additional $1,800 in debt. The SAVE plan was eventually struck down, but millions of loans were placed in interest-free forbearance and delinquencies were not reported to credit agencies.

Not until Q4 2025 did new student loan defaults begin appearing in credit reporting data — and the data are grim. Roughly a million borrowers defaulted at the end of 2025, and another 2.6 million defaulted in Q1 2026. Delinquencies are reported after 90 days of nonpayment, so 17 percent of student loan borrowers have been three months behind at least once in the months since reporting resumed. Total student loan delinquencies now exceed 25 percent.

But there’s a still-hidden second wave coming. One-fifth of all student loan recipients — 8.8 million Americans — have at least one loan still in general forbearance, accumulating interest. The almost four million borrowers who’ve already defaulted aren’t included. That unpaid balance is $504 billion or about $60,000 per borrower — deferred distress excluded from official statistics. 

Subprime Mortgages: Modify Until the Music Stops

When people have trouble paying their mortgages, banks and other lenders use a combination of tools to make the mortgage “sustainable.” Missed payments may be tacked onto the end of the loan term or rolled into the total principal. Loan terms may be extended or the interest rate adjusted. Banks undertake these loss-mitigation efforts to keep troubled loans current and prevent costly foreclosures.

But residential loans were another hotspot of COVID-era government protections, and the Federal Housing Administration offered “home retention options” that favored borrowers and extended risk beyond what banks would ordinarily tolerate. The “relief” policies masked the growing troubles with taxpayer funds.

The Office of the Comptroller of the Currency reports 97 percent of mortgages remain in good standing, but loss-mitigation schemes simply can’t go on forever. Delinquencies reported so far do not capture true loan stress. 

For starters, FHA-sponsored modification programs are expiring. President Trump ended COVID-era mortgage assistance in April 2025, overturning President Biden’s attempt to extend it indefinitely. Some observers point to the rapid increase in delinquency as an artifact of the reporting rule change, but nobody denies: the new data are more accurate and the news isn’t good. 

“The long tail of loss mitigation is now coming into view as FHA’s post-pandemic relief tools give way to repeat defaults, exhausted options, and a swelling foreclosure pipeline,” summarized Katie Jensen for National Mortgage Professional.

Foreclosure activity remains 30 percent lower than it was in pre-pandemic years. Pandemic programs to “help borrowers” recreated some of the worst features of the 2008 subprime mortgage meltdown. Borrowers didn’t have to prove hardship. Verification tools were suspended. “Partial claims” policies encouraged the FHA to use taxpayer funds to bring delinquent mortgages up to date every three to four months. The FHA made more than half a million “incentive payments” to delay foreclosure, so even defaulted mortgages provide revenue to servicers.

Up to 60 percent of those mortgages are in serious delinquency — some seven percent never even made the first payment. When FHA modifications expire, mortgage finance specialist John Comiskey warns, “the music stops,” and the foreclosure machine will lurch to life. Mark Zandi, chief economist for Moody’s Analytics, recently said the FHA delinquency rate is “a proverbial canary in the coal mine.” 

Through FHA, VA, USDA, Fannie Mae, Freddie Mac, and the rest — taxpayers now back about half of all residential mortgages. 

Consumer Credit and Phantom Debt

The motivations behind extend-and-pretend are pretty clear. All share the same core logic: defer visible distress today, allow it to accumulate invisibly, and postpone the inevitable long-term consequences. For our last category of debts, that extend-and-pretend trap is, in fact, the whole business model.

Credit card balances now total $1.25 trillion, a 63 percent increase from 2021 lows. Millions of borrowers are making monthly minimum payments while accumulating inescapable debts. Delinquencies are at a 15-year high, on par with the Great Financial Crisis, with one in eight accounts at least 90 days behind. Half of borrowers carry a balance from month to month. That’s forty percent of the US adult population tapping tomorrow’s funds for today’s expenses.

Auto loans are also under pressure, with outstanding auto loan debt totaling $1.67 trillion. High interest and ever-more-expensive vehicles are concealed by “manageable” monthly payments, with loan terms extending out to 84 months. Car dealers explicitly execute the extend-and-pretend mechanism by rolling the negative equity into a new loan, transferring unpayable debt onto the new vehicle’s financing. Delinquency and repossession stats actually hide most of this, and even so, are at record highs.

Extend-and-pretend consumer behavior is made literal with the Buy Now, Pay Later installment plan craze. With double-digit annual growth, these services are custom-designed to lure almost 90 million unwary buyers into long-term debt. Major BNPL firms only recently opened their books to credit bureaus: now we know at least $3.02 billion is outstanding, and that’s just the beginning. Users often juggle multiple BNPL accounts creating phantom debt that’s invisible to other commercial lenders, but silently stacks the risk of cascading default.

Institutional Origins and a Warning

Economic storm clouds are gathering. Inflation is once again outstripping wage growth. Americans are running out of savings cushions and the savings rate has “tanked.” Meanwhile, assets and equities, led by tech stocks, have jumped 30 percent in the past 12 months, propping up GDP numbers. 

But high corporate profits largely reflect consumer spending, while an unknown amount of current consumer spending isn’t backed by income or savings. We are living on invisible leverage as the real value of our paycheck crumbles. Extend-and-pretend doesn’t have to be an explicit policy choice to be so pervasive — it’s an emergent behavior born of the disconnect between sticky prices and buyers’ genuine purchasing power. Lenders defer, rather than absorb, those losses. Consumers go on consuming in excess of what they actually earn, both for necessities and hedonic luxuries, dancing ever closer to the financial edge. 

Between 2008–2022, the Federal Reserve presided over 14 years of near-zero or below neutral interest rates. During the same period, it increased its balance sheet tenfold, from $900 billion to $9 trillion. Quantitative easing injected easy money into the banking system, inflating asset prices by purchasing mortgage-backed securities. The Fed’s primary mechanism — nudging up asset prices to use the wealth effect as a policy tool — is structurally regressive. Buying power at the lower end of the income distribution was hit hardest. The working class was priced out of assets, but received unprecedented access to student loans and consumer credit — lifelong amounts, for many. The Fed doesn’t act alone: much of the blame for this asset expansion belongs to Congress and the executive branch, whose obsession with spending beyond their means led an entire nation to do the same. 

Extend-and-pretend is a denial of economic realities. Each time-buying intervention obscures price signals, misallocates capital, and encourages even greater risk-taking. The result is an economy that appears stable on the surface while underlying imbalances continue to grow. Eventually, reality reasserts itself, and the longer that reckoning is delayed, the more painful it becomes. 

The Federal Reserve held its target range for the federal funds rate at 3.5 to 3.75 percent on Wednesday, at the first meeting of Kevin Warsh’s tenure as Fed chair. The decision itself drew less notice than what came with it: a shorter policy statement, the end of forward guidance, five task forces to review the Fed’s core practices, and a chairman who declined to submit his own interest-rate projection. 

Warsh used his debut not to move policy but to signal how much of the Fed’s machinery he means to remake, even as the Federal Open Market Committee raised its inflation outlook and held rates anyway.

In his first press conference at the helm of the Fed, Warsh framed the leadership change as a chance “to review current practices, and to consider whether those practices best meet our objectives.” He named task forces in five areas: the Fed’s communications, its balance sheet, the data it relies on, the effect of new technologies on productivity and jobs, and, most consequentially, its “inflation frameworks.” Each, he said, deserves “a fresh look” that starts from “first principles.” He has begun recruiting members from inside and outside the Fed and expects most of the reviews to conclude by year-end.

The changes were not all prospective. Warsh pointed to the day’s statement, which was visibly shorter and “dispenses with some older language.” Gone too was forward guidance, which the FOMC judged “not well-suited to the current policy conjuncture.” And in a break with the practice of every recent chair, Warsh declined to submit his own dot for the path of interest rates in the Summary of Economic Projections, saying he had “refrained from offering any projections of my own — consistent with my long-held views on the SEP, at least as currently structured.”

Warsh conceded that inflation has run “well ahead” of the Fed’s two-percent goal for “more than five years,” and that “persistently high prices are a burden for the American people.” The FOMC’s own projections made the point sharper: the median projection for total PCE inflation this year jumped to 3.6 percent, from 2.7 percent in the March SEP, with core inflation marked up to 3.3 percent from 2.7 percent.

A five-year overshoot, an inflation projection revised up nearly a full point in three months, and a decision to hold rates steady anyway are the conditions under which a central bank falls behind the curve, as the Fed did when it dismissed the last inflation surge as transitory. Warsh’s decision to put the Fed’s inflation framework back under review is a welcome change after years in which the Fed has failed to return inflation to its two-percent target. If anything, the fact that the review begins as the inflation outlook is being revised upward only reinforces the case for reexamining a framework that has yet to deliver price stability in the post-pandemic era.

With forward guidance gone, the dot plot is now the committee’s clearest signal of where rates are headed, and its message is that the next move is more likely to be a hike than a cut. 

The median participant expects the federal funds rate — the interest rate the Fed targets — to end this year at 3.8 percent and next year at 3.6 percent, up from 3.4 percent and 3.1 percent, respectively, in the March dot plot. Among the eighteen members who submitted projections (Warsh abstained), nine see the rate above its current range by year-end, six see it at 4.125 percent or higher, and only one sees a cut. Warsh discounted the dots, noting that FOMC members had submitted them tentatively and did not feel bound by them. Markets, he argued, should price incoming data rather than parse the Fed’s signals. 

The projections also undercut the case for treating the inflation problem as the byproduct of an energy shock from the Iran conflict. A genuine adverse supply shock would be expected to push inflation up while weighing more heavily on real activity. But the FOMC’s growth projection slipped only modestly, to 2.2 percent from 2.4 percent, while unemployment held near 4.3 percent. Nor was the inflation revision confined to headline inflation, where oil prices would show up most directly. Core inflation, which excludes food and energy, was revised up to 3.3 percent from 2.7 percent. Energy shocks can pass through to core prices indirectly, through freight, production, and input costs, but they do not easily explain an inflation outlook revised upward across both headline and core measures while the economy remains near trend. The broader the price pressure, the less convincing it becomes to treat the problem as a relative-price shock rather than an aggregate-demand problem.

Warsh drew the right distinction between the Fed’s limited control over particular prices, such as oil or eggs, and its responsibility to prevent such shocks from broadening into general inflation. That distinction is correct, which makes the case for leaving rates unchanged considerably harder to understand.

Warsh has long argued that inflation is a choice the central bank can control, and he insisted the FOMC is now “unambiguous and unanimous” that it “will deliver price stability.” Yet it chose to hold while projecting headline inflation more than 150 basis points above target and a rate path that would bring inflation back to target only gradually. Pressed on why, if credibility is earned by delivering on commitments, the Fed would not tighten or at least signal it, Warsh pointed to the next meeting, six weeks away.

Warsh inherited both the inflation overshoot and a committee still divided over how to respond. The test is whether the resolve he voiced shows up in the rate decisions to come.

Even so, Warsh has given more reason for optimism than the Fed has offered in years. A chairman who calls inflation a monetary phenomenon, rejects the idea that the Fed must accept higher prices to secure more jobs, and wants to reexamine the inflation framework from first principles is saying what the institution has long needed to hear.

The next step is to match that diagnosis with a better target. A nominal spending target would reject the false choice Warsh disavows by anchoring aggregate demand directly, rather than forcing the Fed to explain persistent inflation as a series of one-time price shocks. The danger is that the Fed spends too long rethinking its framework while inflation remains above target. Warsh appears to understand the problem. The question now is whether he can move the institution quickly enough to solve it.

With 2026 marking the 250th anniversary of both the American Revolution and Adam Smith’s Wealth of Nations, it is worth remembering the role the East India Company played in both. It was the Company’s monopoly on legal tea imports to the colonies that helped spark the Boston Tea Party, and much of Book IV of Smith’s work is devoted to a devastating critique of the Company, particularly the perverse incentives created by its structure as a public-private hybrid.

This is not merely a historical curiosity in this semiquincentennial year. Today, public-private hybrid companies are a favored tool of industrial policy on both the nationalist right and the progressive left. Proponents argue that public ownership stakes in strategically important firms can harness private enterprise for public purposes. Whether it is the Trump administration’s equity stakes in firms such as Intel or Senator Sanders’s proposal for a public sovereign wealth fund to acquire 50 percent ownership of leading AI companies, the intent is the same. Yet Smith’s warnings about the East India Company should remind us that this arrangement is bad for commerce, bad for government, and bad for constitutional accountability.

“Sharing the Gains”

What Trump and Sanders have in common is that neither is calling for outright nationalization in the public interest (although Ezra Klein has done so, proposing a “public option” large language model). Instead, they favor different mechanisms for embedding public power within private enterprise. Both cloak the idea in the language of “sharing the gains,” but both are equally clear about the importance of state direction. Intel’s own press release described the equity stake as an $8.9 billion government investment tied to “key national priorities.” Sanders says his public ownership model would “give the public a direct role in determining the future of this technology.”

Smith’s indictment of the East India Company focused heavily on its role as the governing power over large parts of India. The Company possessed territorial authority, military power, the ability to raise taxes, and political protection at home. At the same time, it distorted trade, prices, and capital allocation throughout Britain. In many respects, the Company’s vices stemmed from its position as an arm of the British state.

Obviously, neither Intel nor AI companies possess territorial power, but the underlying confusion of roles is similar. While the firm remains formally private, its fortunes become politically significant to the state, which simultaneously acts as regulator, funder, and investor.

“A Strange Absurdity”

It is worth considering how the East India Company came to occupy such a position. Initially, it was genuinely a trading company, operating under an exclusive British government charter. Owing to the realities of the time, its operations came under threat from local powers, and it took steps to defend itself.

In what may be the clearest example of the principal-agent problem in history, its agent Robert Clive not only defeated local forces in the field but also extracted from the weakened Mughal sovereign formal authority to raise revenue, despite having no mandate from the Company’s directors to do so. Having secured what may be the greatest prize ever won by rent-seekers, the Company seemingly accepted its new role without hesitation and folded it into its corporate operations. As Smith observed, “Trade… they still consider as their principal business, and by a strange absurdity regard the character of the sovereign as but an appendix to that of the merchant.”

The result was that the Company entangled Britain in the government of India. By the 1770s, it had become, in modern parlance, too big to fail. Its bailout by the government in 1773 included the infamous Tea Act, which sought to facilitate repayment of its £1.4 million government loan by granting the Company a monopoly on selling its vast stockpile of tea in the American colonies without paying duty in Britain. This undercut colonial merchants and helped provoke the Boston Tea Party and everything that followed.

Alongside the Tea Act, Parliament passed the Regulating Act, which attempted to address corporate mismanagement by appointing a Governor-General of Bengal, Warren Hastings, who was tasked with maximizing revenue to help repay the loan. But this did not create clear accountability. It merely drew Parliament more deeply into the Company’s governance of India, culminating in the Burke-led impeachment of Hastings over abuses committed in the name of revenue, order, and imperial necessity. While this is an extreme example, it vividly illustrates the dangers that arise when government becomes too closely intertwined with a company deemed both too important to fail and essential to national priorities.

The distortions to commerce are also important, as America’s tea merchants discovered. Commerce depends on competition, consumer preferences, and clear price signals. State-backed ownership replaces or distorts all three with political priorities and bureaucratic selection. Favored firms attract capital not simply because they are productive, but because they enjoy political support.

Rival companies are no longer competing solely against another firm, but against the Pentagon, the Treasury Department, the Department of Commerce, and all the tools at those agencies’ disposal — not to mention the incentives facing industry regulators. This encourages management at both favored firms and their competitors to become more political and less focused on consumers.

As Smith wrote, “Every derangement of the natural distribution of stock is necessarily hurtful to the society in which it takes place.” That concern applies directly to both the administration’s approach and Sanders’s proposal, each of which centers on government ownership stakes. When a company’s primary focus becomes satisfying its most important shareholder, it is necessarily less focused on serving its customers. The result is less innovation, weaker competition, and, in some cases, taxpayers ultimately footing the bill for failure. Where, one might ask, is the American tea industry today?

A Conflict of Interest

This arrangement is not just bad for the company and the consumer-citizen; it is also bad for government itself. The American constitutional system rests on the rule of law, separated powers, and laws of general applicability. Government is supposed to set the rules, not acquire a financial interest in particular market participants. Once it has a financial stake in the success of a company, its neutrality becomes suspect. A host of potential distortions emerge: favoritism, procurement bias, antitrust discretion, favorable export licensing, advantageous permitting, and selective enforcement.

That is not to say there is no case for these policies. China’s model creates real security risks that government has a duty to address. Semiconductors are strategically important, and domestic fabrication capacity does matter. The administration can also argue that it has taken only a passive stake, with no authority over Intel’s board.

However, the argument that the stake is passive rests on an illusion. Management generally wants to please shareholders, and it generally wants to please regulators. When the same institution serves as both shareholder and regulator, passivity becomes a legal fiction. The pressure does not have to be written into a stock agreement to be felt in the boardroom. Nor is there any guarantee that future governments will remain as passive. Elections have consequences.

The Perils of Nationalization

Sanders’s case is more direct. He argues that every citizen should benefit from the profits of AI companies, not just founders and investors — and especially not while workers bear the costs of job displacement. This is traditionally the argument advanced for outright nationalization, and Sanders’s proposal shares many of nationalization’s features. In many privatizations, governments retained special “golden shares” or large residual stakes, preserving political influence even after formal private ownership had begun. Over time, many such arrangements were curtailed, including in Europe, where they conflicted with the free movement of capital — an interesting example of the European Union’s liberalizing tendencies in its earlier years.

Otherwise, the same objections that apply to nationalization apply to Sanders’s proposal, and they are largely the ones outlined by Smith. The public-private firm suffers from distorted incentives, to the detriment of consumers, citizens, and innovation alike. Public ownership on that scale would make government both umpire and shareholder, with incumbents’ market positions treated as public assets.

Government is not without tools to secure its objectives even without owning part of a company. It generally possesses regulatory authority, can use procurement power to secure or stockpile critical supplies, and can fund research (preferably through prizes rather than grants, which share many of the problems associated with public ownership). Most importantly, it can establish general rules that foster competition while rewarding innovation.

Smith’s fundamental warning was that public power and private profit become dangerous when fused within the same corporate form. The East India Company began as a private corporation legitimately defending itself against predation by sovereign powers, but it ended as a sovereign power jealously defending its own privileges. Its officers could invoke the public interest while destroying rivals and exploiting the people of the American colonies to their breaking point.

America does not need its own version of the Company with better marketing.

Decades ago, in a British prison, Dr. Anthony Daniels heard a murderer explain how he came to be serving a life sentence. “It’s just my luck to be here on this charge,” the prisoner answered. He had served a dozen prior sentences. He carried the knife to the scene. He sought out the victim. Luck? 

Daniels worked for decades in prisons and poor neighborhoods of England. In his book Life at the Bottom, writing under his pen name Theodore Dalrymple, Daniels explores the responsibility-dodging mindsets of the British underclass. Dalrymple explains that prisoners commonly “describe themselves as the marionettes of happenstance.” 

One inmate told Dalrymple of an attack he had orchestrated, “‘The knife went in…” Dalrymple, with his characteristic wry wit, quipped, “The knife went in – unguided by human hand, apparently.”

A thief in prison for a spate of church robberies blamed churches “for the laxness of their security.” It was their laxness, not his criminal mindset, that “first caused and then reinforced his compulsion to steal from them.”

A car thief explained that his behavior was compulsive and that he was therefore not responsible for his actions. Responsibility, he argued, lay with those who had failed to properly treat him.

Dalrymple eventually viewed exposing this dishonesty and self-deception as an essential part of his work. He wrote, “When a man tells me, in explanation of his anti-social behavior, that he is easily led, I ask him whether he was ever easily led to study mathematics or the subjunctives of French verbs.”

Even criminals would sometimes confess to the absurdity of these beliefs, Dalrymple reports, but still found some psychological advantages to pretending.

Rob Henderson added some pointed commentary to the introduction for the twenty-fifth anniversary edition of Life at the Bottom. Henderson is known for his work on what he calls luxury beliefs, or “ideas and opinions that confer status on the upper class at very little cost, while often inflicting costs on the lower classes.” 

Henderson grew up in impoverished foster homes. He recalls being “mystified to hear elite university students deride marriage, family stability, personal responsibility, self-control — the very norms that had fueled their rise” and his own ascent out of poverty.

Henderson explains, “Clear moral norms and the expectation that adults will behave responsibly are not mere bourgeois niceties. They are the minimum conditions for ordinary people to build decent lives.”

People who flout these conditions in favor of luxury beliefs “trade stability for fleeting pleasures.” In the absence of a culture that expects and socially rewards responsibility, people don’t seem to discover these virtues on their own. But pointing this out to people, Henderson writes, and emphatically defending some actions as “better, more worthwhile, or more moral than others” may garner a label of “reactionary outcast.” 

Henderson wants us to realize that when people refuse to judge behavior, those in the underclass often suffer the consequences, while wealthier groups have enough stability and margin to avoid the negative impacts of their luxury beliefs. 

We might think we have little in common with the prisoners Dalrymple studied. But many of us are beholden to only slightly better-polished versions of these same views.

Born a slave, the Stoic philosopher Epictetus begins his classic Handbook: “Some things are up to us, and some are not.” Epictetus continued, “Up to us are judgment, inclination, desire, aversion — in short, whatever is our own doing.” By assigning control over improving these to someone outside ourselves, we give up both responsibility and hope. What lies within our control is relatively unhindered. What lies beyond our control is fragile, dependent, easily obstructed, and ultimately not truly ours.

In what is “up to us,” we can choose virtue. We get up in the morning, show up to work on time, take care of our bodies, and nurture our loved ones. We strive to be good colleagues and neighbors. Importantly, we take responsibility for cultivating our minds, preparing them for the pursuit of liberty, guarding against the endless rabbit holes of mob psychosis that rob us of the ability to live as free people.

By comparison, many outcomes — whether we get a promotion, whether our neighbors like us, or whether our marriage works out — may not be within our control. Yet, none of the vagaries of life subtract from our duty to own up to that which is our responsibility.

Taking responsibility has nothing to do with controlling outcomes. If we believe otherwise, we will waste our energy, or as Epictetus put it, “you’ll be obstructed, dejected, and troubled, and you’ll blame both gods and men.” We should care about outcomes while understanding that we do not control them. 

Indeed, like Dalrymple’s criminals, when we blame others for things that were our responsibility, we will be “dejected and troubled.” We will behave as victims, sure our troubles are caused by others. When we believe or act as if we cannot control things over which we clearly have a choice, we might even narrate our excuses, justifying our behavior and further undermining our ability to make responsible choices in the future.

Our excuses are mostly lies. A billiard ball does not manage its self-image after being struck. The individual who insists he was pushed by circumstance is, in the same breath, demonstrating the agency he denies. 

The next time you feel wronged by another person — perhaps a rude colleague, an inconsiderate driver, a partner who spoke sharply — notice how immediately and confidently you assign them agency, fully assuming they made a choice to behave so. Then ask yourself whether you grant yourself the same standard in the moments you have been the rude colleague, the inconsiderate driver, or the partner who spoke sharply.

Listen for this contradiction in your own thinking. The moment you find yourself constructing an account of why something was beyond your control, ask what kind of person is doing the construction — a victim of happenstance, or a free person building a meaningful life?

Online reactions to Alexandria Ocasio-Cortez’s recent comments that “you can never earn a billion dollars” reveals something more significant than the usual furor over one viral soundbite.

The terse turn of phrase encapsulates how democratic socialists communicate about wealth, capitalism, and inequality. Politically, it taps into real frustrations many younger Americans feel: rising rent, student debt, inflation, stagnant affordability, and growing distrust in institutions. But those who posit redistribution as the solution must first shift an entire economic mindset. To plant the seeds of resentment, it isn’t enough to acknowledge that billionaires became wealthy. The goal is to persuade young people that wealth can only be gained by either exploitation or redistribution.

This insidious-but-powerful worldview follows three steps — a pattern designed to convince younger generations that wealth is not truly earned, but taken from someone else.

Step 1: Convince Gen Z That the American Dream Is Dead

Younger generations may already be inclined to see the economic system as fundamentally stacked against them. Take Cristian Spariosu, for example — a former Trump-supporting Republican who now identifies as an independent socialist. “I was a huge believer in the American Dream throughout my life, and now I just think it’s a rigged system and the rich don’t pay their fair share,” Spariosu told The Times of London. “A lot of people feel hopeless about affording a house and having a family. The American Dream: a lot of us think it’s dead.”

This belief, often repeated by media voices, is both persuasive and damaging. When people repeatedly hear that no matter how hard they work, they will never truly get ahead — that the system is built to keep them behind — hopelessness gets reinforced. High housing costs, rising grocery prices, and crushing student debt are real frustrations, and political messaging can tap into that reality. But when frustration hinges on the belief that upward mobility is no longer possible, ambition can slowly shift into despair and resentment.

Why take risks? Why build? Why create? Why pursue hard work, entrepreneurship, or long-term wealth if the game is rigged? That hopeless mindset creates fertile ground for redistributive politics. If enough people begin to believe the American Dream is dead, then taking more from those at the top can start to feel not just justified, but like the only path left.

Step 2: Convince Them Wealth Is Not Created — It’s Taken

Once hopelessness takes root, the next step is to convince young people that wealth is a fixed pie — not created, just redistributed. 

If every gain made by billionaires automatically costs everyone else, success itself becomes evidence that someone else was exploited. Jeff Bezos’s billions must rely on underpaying or taking advantage of employees. Steve Jobs’ enormous wealth must indicate he didn’t pay workers enough, or cheated his customers. In this worldview, wealth is not created — it is taken.

But that is a deeply flawed understanding of how wealth is often created in a market economy.

Under capitalism, wealth is created when people build something valuable enough that millions voluntarily choose to buy — because they were convinced it was worth giving up their money for. No one has been forced to buy from Amazon, or purchase an iPhone, or subscribe to Netflix. Each company, and its leaders, had to compete. Each create and markets products that consumers choose over countless alternatives. Wealth accrues to those who provide value.

Customers voluntarily exchange their money only when they value what they buy more than the money they spent. That is the key component democratic socialists and other critics of capitalism often overlook: in a voluntary exchange, both sides are made better off in their own estimation. And along the way, billion-dollar ideas generate new jobs, services, economic opportunity, and even infrastructure for millions of other people — think of all the small vendors who rely on Amazon’s website, warehouses, trucks, and employees. In the skewed zero-sum story, profit is framed as exploitative. But profit is often evidence that someone had an idea, took a risk, invested time and money, and built something millions of people freely valued enough to buy.

Step 3: Convince Them to Punish Success

Once wealth is viewed as something taken rather than earned or built, redistribution can be framed as a moral necessity, a righting of injustice.

The phrase “fair share” is powerful political language, shifting the conversation away from economics and into morality. The questions of how wealth is created and how to get more of it fall away. The question becomes: Is it fair that billionaires should have so much when others are struggling?

And that question creates the deeper shift. Voters driven by moral fairness don’t ask whether a policy makes people better off, encourages growth, rewards investment, or creates broader opportunity. Society’s focus turns away from how we empower more people to rise, build wealth, execute new ideas, and improve their own circumstances. Instead, the goal becomes redistributing existing wealth rather than creating the conditions for more people to build wealth for themselves.

Gen Z, Beware: Bad Beliefs Become Bad Policy

The dangerous, compelling message being fed to younger generations follows a powerful three-step progression: 1) advancement is hopeless, 2) wealth is stolen rather than built, and 3)  fairness requires punishing success. Once people begin to adopt this three-part framing, their ideas of productive economic policy become warped. Young people increasingly favor policies that aggressively target private wealth in the name of fairness, seeking to redistribute existing wealth. In doing so, the same policies discourage future investment, suppress job creation, and limit the growth that could spread new wealth around. 

But redistribution cannot build businesses, drive innovation, create products, or generate long-term prosperity. A government focused on managing inequality, rather than creating opportunity, slowly begins to prioritize dividing wealth over growing it.

An entire generation taught to view wealth, profit, and success with resentment rather than aspiration will increasingly hand power to politicians who attack success as inherently exploitative. The economics of young adulthood are changing fast, and they have every right to be frustrated with the options they face. But they’re being deliberately misled about wealth and growth by those who would rather convince them to take what they think they deserve from the successful than create something valuable themselves.

Gen Z deserves better than a worldview built on resentment. They deserve a vision of the future that encourages them to build, create, take risks, solve problems, and believe their lives can improve through their own effort and ingenuity. Because the future doesn’t belong to the people arguing over who deserves someone else’s success. It belongs to the people creating the next success story.