At its core, economics is about making choices. We face trade-offs. If you want more of this, you must give up some of that.

Non-economists often ignore the trade-offs. For example, protectionists argue tariffs will help American industries compete with their foreign rivals while raising a lot of revenue for the American people.

Not so fast, say the economists. If tariff rates are low, most people will keep on importing. The government will collect tariff revenues on those imports, but the policy will not do much to protect American industries. If tariff rates are high, most people will stop importing. This may help those American industries that would otherwise face foreign competition, but it will not result in much revenue since so little gets imported.

Tariff Revenues

In a 2019 Journal of Economic Perspectives article, Mary Amiti, Stephen J. Redding, and David E. Weinstein considered the initial effects of the tariffs imposed by the Trump administration in 2018. The six waves of tariffs increased the average tariff rate by around 1.7 percentage points and reduced imports by 1.3 to 5.9 percent.

The monthly and cumulative tariff revenues estimated by Amiti, Redding, and Weinstein are presented in Figure 1. The authors estimate the additional revenue raised by the newly-imposed tariffs at around $15.6 billion in 2018. Furthermore, they find that “the US import tariffs were almost completely passed through into US domestic prices in 2018, so that the entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters.” The 2018 tariffs raised some revenue for the American people, but the revenue raised came almost entirely (and perhaps entirely) from the American people.

Of course, none of the tariffs imposed in 2018 were in place for the full year. Indeed, much of the increase in tariff rates occurred in the back half of the year. Since all of the tariffs were in effect by December 2018, we can multiply the December 2018 tariff revenues estimated by Amiti, Redding, and Weinstein ($3.2 billion) by twelve to get a rough estimate of how much these tariffs might be expected to raise per year going forward. Assuming no additional efforts to reduce one’s exposure to tariffs occur in subsequent years, the 2018 tariffs can be expected to raise around $38.4 billion per year — or, $46.8 billion per year in today’s dollars. For comparison, the federal government spent around $6,900 billion in 2024.

The estimated revenue raised by the 2018 tariffs is relatively small at around 0.7 percent of federal spending. Moreover, the revenue raised is largely (and perhaps entirely) paid by Americans. Higher tariff rates have a direct effect of raising tariff revenue. But higher tariff rates also discourage imports, which reduces tariff revenue. At some point, the latter effect dominates: higher tariff rates reduce tariff revenue.

Deadweight Loss of Tariffs

Economists are keen to cite another tariff trade-off, as well. Suppose the objective is to protect American industries. The higher the tariff, the bigger the disincentive to import. However, a higher tariff also raises the price prevailing on the domestic market — and the higher price will discourage some transactions from taking place. Economists use the term deadweight loss to denote the lost gains from trade that result when tariffs push up prices. You can increase protection for American industries, but only if you are willing to accept a bigger deadweight loss.

Amiti, Redding, and Weinstein also estimate the deadweight loss of the 2018 tariffs. Their monthly and cumulative estimates are presented in Figure 2. In total, they find that the six tariff waves reduced the gains from trade Americans realized by around $8.2 billion. As with revenues, we can get a rough estimate of the annual deadweight loss these tariffs might be expected to generate going forward by multiplying the December 2018 deadweight loss estimated by Amiti, Redding, and Weinstein ($1.4 billion) by twelve. Hence, the 2018 tariffs can be expected to reduce gains from trade by around $16.8 billion per year — or, $20.5 billion per year in today’s dollars.

The deadweight losses associated with the 2018 tariffs were relatively small: each US household loses roughly $156 per year. Higher tariffs would offer more protection for American industries but at a higher cost to Americans.

Tariffs and Income Taxes

Interestingly, there is one tariff trade-off many economists seem to overlook. Suppose the objective is to raise a given amount of revenue. You could impose a tariff. Or, you could impose a tax on income. The less you rely on tariffs, the more revenue you will need to raise from other taxes and fees, particularly income taxes, which account for the bulk of federal revenues. That’s how trade-offs work. 

The United States spends far too much today to rely exclusively on tariffs, of course. A 100 percent tariff on existing imports — that is, implausibly assuming no one was dissuaded from trading by the sky-high tariff rate — would generate just $4,110 billion (and much, much less under more realistic assumptions). Recall that the federal budget was around $6,900 billion in 2024. Still, there is a trade-off at the margin. We could rely a little more on tariffs and a little less on income taxes, or a little less on tariffs and a little more on income taxes.

Economists who oppose tariffs on the grounds that they generate a deadweight loss are ignoring an important trade-off. Income taxes also generate a deadweight loss. The relevant question is whether the marginal deadweight loss associated with the tariff is greater than the marginal deadweight loss associated with the income tax. It is at least conceivable that, given the relatively low tariff rate and the relatively high marginal income tax rates, the deadweight loss caused by a marginally higher tariff rate would be more than offset by the gains from trade caused by a marginally lower income tax rate.

The estimates from Amiti, Redding, and Weinstein imply that the 2018 tariffs generated around 44 cents in deadweight loss for every dollar raised, in addition to the dollar transferred (almost entirely or entirely) from Americans to their government. For comparison, Martin Feldstein estimated that a one-percent increase in all marginal income tax rates (e.g., from 15 percent to 15.15 percent, 25 percent rate to 25.25, and so on) would have increased the deadweight loss of taxation in 2001 by around 76 cents per dollar raised.

Before concluding that tariffs are a more efficient revenue-raising device on the margin, at least two caveats are in order. First, the marginal deadweight loss of tariffs and income taxes rise with the corresponding rates. That implies that the marginal deadweight loss of additional tariffs would exceed those estimated for the 2018 tariffs. Likewise, the estimates of the marginal deadweight loss from Feldstein should be updated to reflect potential changes from the status quo (e.g., expiration of the Tax Cut and Jobs Act) rather than an across-the-board increase from the 2001 income tax rate schedule.

Second, the marginal deadweight loss of tariffs estimated above does not include any costs associated with retaliatory tariffs levied by other countries. Amiti, Redding, and Weinstein find complete pass-through of foreign tariffs as well, indicating that retaliatory tariffs were similarly paid by those in the country imposing them. They do not estimate the deadweight loss of retaliatory tariffs in 2018, but note that “foreign retaliatory tariffs were also costing US exporters approximately $2.4 billion per month in lost exports” by the end of 2018. Since the corresponding deadweight loss would subtract the opportunity cost of lost exports from the value of lost exports, $2.4 billion per month can be thought of as an upper-bound estimate. Hence, the deadweight loss of retaliatory tariffs realized by Americans could be substantial — particularly in cases where the US imposes higher tariffs on many countries. If the opportunity cost was less than 57 percent of the value of imports, the deadweight loss of the 2018 tariffs per dollar raised exceeded the marginal deadweight loss of the income tax as estimated by Feldstein.

The aforementioned estimates should not be mistaken for rigorous policy analysis. They are rough-and-ready back-of-the-envelope calculations. That they cast doubt on the conventional view among economists should give one pause, though — and prompt economists working in public finance to take a closer look.

Economists usually have a keen eye for tradeoffs. They understand you cannot have your cake and eat it, too. It is surprising, therefore, that they have largely missed the tradeoff between tariffs and income taxes. It is not enough to say that tariffs are bad. One must also show that tariffs are worse than the available alternatives.

US government debt is growing faster than the economy. That is not sustainable. The government must get its budget deficit under control, but the political will to reduce spending is limited. That means the government will need to raise additional revenue. How should it go about doing that? Some want to let the Tax Cut and Jobs Act expire. Others want higher tariff rates. In order to decide which approach is best, we must consider the tradeoffs.

In January 2025, the AIER Business Conditions Monthly indicators showed moderate economic momentum, with leading indicators moderating, coincident measures remaining solid, and lagging indicators rebounding sharply. The Leading Indicator declined to 54, down from 71 in December, reflecting softening forward-looking economic activity. However, the Roughly Coincident Indicator held firm at 67, indicating steady real-time economic conditions, while the Lagging Indicator surged to 83, suggesting improving conditions in longer-cycle economic trends. The divergence between leading and lagging measures indicates short-term uncertainty, though the broader economy shows resilience for now.

Leading Indicator (54)

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

The largest increase came from United States Heavy Trucks Sales SAAR, which rose 8.2 percent, reflecting continued demand for durable goods and business investment in transportation equipment. However, some of this surge may be attributed to forward ordering as firms seek to preempt potential cost increases from upcoming tariffs. US Initial Jobless Claims SA (4.3 percent) and FINRA Customer Debit Balances in Margin Accounts (4.2 percent) also increased, indicating a still-resilient labor market and continued risk appetite in equity markets. Manufacturing new orders saw modest gains, with the Conference Board’s Manufacturing New Orders for Nondefense Capital Goods (ex-Aircraft) up 0.6 percent and the Manufacturing New Orders Consumer Goods & Materials Index up 0.12 percent, suggesting marginal strength in production demand. The Inventory/Sales Ratio rose slightly (0.01 percent), pointing to flat inventory management trends.

On the downside, housing activity remained weak, as US New Privately Owned Housing Units Started fell 9.9 percent, marking a continued slowdown in residential construction. The 1-to-10 Year US Treasury spread declined 8.3 percent, maintaining its deep inversion, historically a strong recession signal. Consumer sentiment weakened, with the University of Michigan Consumer Expectations Index down 5.3 percent, and Adjusted Retail & Food Services Sales Total SA down 0.9 percent, signaling softening consumer demand. Finally, the Conference Board’s Leading Index of Stock Prices fell 0.6 percent, reflecting equity market volatility and investor caution.

Roughly Coincident Indicator (67)

Four constituents of the Roughly Coincident Indicator rose and two declined.

The strongest increase came from US Industrial Production SA (0.5 percent). Conference Board Coincident Personal Income Less Transfer Payments rose 0.4 percent, indicating moderate income growth outside of government support. Labor market participation improved, with the US Labor Force Participation Rate up 0.2 percent and Nonfarm Payrolls increasing slightly (0.1 percent). These reflect ongoing, but slowing, job growth in January 2025.

However, consumer sentiment weakened, with the Conference Board’s Consumer Confidence Present Situation Index declining 2.9 percent, reflecting growing uncertainty about near-term economic conditions. Conference Board Coincident Manufacturing and Trade Sales declined slightly (0.2 percent), suggesting a modest pullback in real-time business activity.

Lagging Indicator (83)

Of the six components, five rose and one was unchanged. At 83, the Lagging Indicator is at its highest level in 25 months (December 2022).

The strongest gain came from US CPI Urban Consumers Less Food & Energy YoY (3.1 percent), reflecting a slowing of the disinflationary trend in core goods and services. Commercial and Industrial Loan activity improved (0.3 percent), and Private Construction Spending saw a marginal gain (0.01 percent), revealing tepidity in long-cycle business investment. US Manufacturing & Trade Inventories ticked up very slightly (0.003 percent), signaling careful, or perhaps hesitant, adjustments to inventory.

The only unchanged measure was US Commercial Paper Placed Top 30 Day Yield, indicating stable short-term credit conditions. The Conference Board’s Lagging Average Duration of Unemployment fell 7.2 percent, suggesting that unemployed individuals are finding jobs faster, a positive sign for the labor market.

The January 2025 AIER Business Conditions Monthly indicators reflect an economy still expanding but more slowly and with mixed signals. The decline in the Leading Indicator from 71 to 54 was driven by weakening consumer sentiment, slowing retail and food services sales, stagnation in manufacturing activity, and pressure from both a deteriorating housing market and tightening financial conditions.Notwithstanding that the Roughly Coincident Indicator (67) remained solid, and the Lagging Indicator (83) improved notably, indicating strength in slower-moving economic components like inflation, credit, and labor market recovery.

The divergence between leading and lagging indicators makes the rapidly escalating uncertainty in forward-looking economic conditions clear, though real-time and lagging measures suggest areas of ongoing resilience. The dual threat of wild, last-minute policy fluctuations ahead of April 2nd and the long-term consequences of what could be the largest tariff increase since the Smoot-Hawley Act of 1930 are now the primary forces shaping economic activity and financial market behavior.

DISCUSSION

February’s CPI report highlighted the effects of weakening consumer demand for discretionary goods, reinforcing broader signs of softening consumption. While services disinflation continued, goods price declines stalled, particularly in categories sensitive to tariffs including cars, home furnishings, and apparel. The overall impact of President Trump’s trade policies on inflation will depend on whether weaker services spending offsets rising goods prices. For now, the February data suggests that services disinflation outweighed the modest uptick in goods inflation, delaying any significant reacceleration in price growth.

US wholesale inflation stagnated in February, as a 1 percent decline in trade margins offset rising costs in key sectors, tempering the overall producer price index (PPI), which remained unchanged from January’s revised 0.6 percent gain. Excluding food and energy, PPI declined for the first time since July, though underlying price pressures persisted, particularly in categories tied to the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index. Hospital inpatient care costs rose 1 percent, portfolio management fees increased 0.5 percent, and core goods prices (excluding food and energy) climbed 0.4 percent—the largest monthly gain in over two years. While declining wholesale margins may temporarily shield consumers from higher import and manufacturing costs, sustained weak consumer confidence and pulled-forward durable goods purchases could weaken demand later this year, potentially forcing retailers to accept thinner profit margins. Tariffs imposed by the Trump administration are also set to exert upward price pressures, with an additional 10 percent levy on Chinese imports introduced in February contributing to notable price gains in iron and steel scrap, machinery, and household goods like furniture and appliances. Meanwhile, food prices surged 1.7 percent, driven by rising egg costs, while energy prices fell 1.2 percent. Despite these mixed inflation signals, a separate report showed jobless claims remained stable, reinforcing the resilience of the labor market.

February price data showed broad-based increases in both manufacturing and services, with multiple regional and national surveys reflecting stronger pricing power across industries. The ISM Manufacturing Prices Index surged to 62.4, its highest level since June 2022, up from 54.9 in January, while ISM Services Prices remained elevated at 62.6. S&P Global’s US Manufacturing sector recorded its fastest output price growth in two years, while US Services firms raised prices modestly, constrained by competitive pressures and weak demand. Regional Federal Reserve surveys further confirmed rising price pressures, with the Kansas City Fed reporting a third consecutive month of price gains in manufacturing, and its non-manufacturing sector also seeing higher selling prices. The New York Fed’s manufacturing prices received index jumped to 19.6 from 9.3, nearly doubling its six-month average, while its services counterpart climbed to 27.4 from 19.4. Similarly, the Philadelphia Fed’s manufacturing index increased to 32.9 from 29.7, while the Dallas Fed’s manufacturing prices received measure rose to 7.8 from 6.2. The Chicago PMI indicated an acceleration in price expansion, and the Richmond Fed’s manufacturing index showed a modest uptick, with prices received rising to 1.62 from 1.21.

While price pressures were broadly higher, select areas saw moderation. The Dallas Fed’s services sector reported a decline in selling prices, falling to 7.9 from 13.7, and the Philadelphia Fed’s non-manufacturing prices received index turned negative, dropping to -1.1 from -0.3. Richmond Fed services prices edged lower to 3.31 from 3.55. Overall, the data suggests persistent inflationary pressures, particularly in goods-producing sectors, with some signs of price relief in services. This supports a mixed inflation outlook, with price growth accelerating in manufacturing and remaining firm in services, despite isolated instances of easing.

Job growth in February 2025 exceeded expectations, with nonfarm payrolls rising by 151,000, led by gains in construction, manufacturing, health care, financial activities, transportation, and social assistance, while declines occurred in leisure and hospitality, retail, and government employment, particularly at the federal level due to a hiring freeze. The average workweek remained steady at 34.1 hours, contributing to a 0.3 percent increase in weekly earnings. However, labor market slack widened, with the unemployment rate (U-3) rising to 4.14 percent, reflecting an increase of 203,000 unemployed individuals. The U-2 rate, which tracks job losses, also climbed, while the broader U-6 measure of underemployment surged to 8.0 percent, indicating a rise in discouraged and involuntarily part-time workers. The labor force participation rate dipped to 62.4 percent as employment declined by 588,000, and transitions out of unemployment slowed, signaling weaker hiring momentum. Aggregate labor income rose 0.4 percent, largely on wage growth, but signs of labor market softening—particularly higher unemployment, an expanding pool of job seekers, and slower re-employment—reinforce expectations for a 75 basis point rate cut by the Federal Reserve in 2025 as economic conditions deteriorate.

US consumer sentiment fell sharply in early March, reaching its lowest level since November 2022, as concerns over tariffs and economic uncertainty weighed on confidence. The University of Michigan’s preliminary sentiment index declined to 57.9 from 64.7 in February, marking a steeper drop than any economist forecasted. Long-term inflation expectations surged by 0.4 percentage point to 3.9 percent, the largest monthly increase since 1993, while one-year inflation expectations rose to 4.9 percent, the highest since 2022. As President Trump’s tariffs expand, consumers across the political spectrum increasingly fear rising costs, with 48 percent of survey respondents mentioning tariffs unprompted, expecting them to drive future inflation higher. Households’ financial expectations hit a record low, and respondents assigned just a 48.7 percent probability to stock market gains over the next year, the weakest reading since May 2023.

Deteriorating confidence presents a growing risk to consumer spending, particularly in big-ticket purchases like homes, vehicles, and discretionary goods. The current conditions gauge fell to 63.5, a six-month low, while the expectations index dropped to its lowest level since July 2022. Political divisions were evident, with confidence among Democrats falling nearly 10 points, independents down 5.4 points, and Republicans slipping nearly 3 points. Economists warn that increased uncertainty over policy shifts and economic conditions is making it difficult for consumers to plan for the future, reinforcing fears that slowing confidence could curb household spending and contribute to economic downside risks in the months ahead.

Small-business optimism declined in February as inflation, policy uncertainty, and concerns over tariffs weighed on sentiment. The NFIB Small Business Optimism Index fell 2.1 points to 100.7, slightly below expectations, with the sharpest declines in economic outlook (-10 points), expected sales (-6 points), and expansion plans (-5 points). While job openings (+3 points), earnings trends (+1 point), and expected credit conditions (+1 point) improved, overall optimism remains well below December’s peak of 105.1, though still higher than the pre-election level of 93.7 in October. Hiring plans softened, with only 15 percent of owners planning to add jobs in the next three months, down 3 points from January, as retail, construction, and manufacturing faced the greatest labor shortages. Just 19 percent of businesses plan to expand in the next six months, reflecting lower expected sales (14 percent, down 6 points) and weak profitability trends (-24 percent). Inflation pressures intensified, with 32 percent of firms raising prices, a 10-point jump and the largest increase since April 2021, though businesses held off on preemptive pricing adjustments ahead of tariffs. Despite tax cuts and deregulation boosting the long-term outlook, high uncertainty is keeping small businesses in a wait-and-see mode, limiting hiring and expansion.

February retail sales fell short of expectations, reinforcing concerns about a slowdown in consumer spending, while weaker manufacturing and homebuilder sentiment further signaled softening economic momentum. Retail sales rose marginally, but seven of the 13 categories declined, including motor vehicles, electronics, apparel, and gasoline, with restaurant and bar sales posting their sharpest drop in a year. January’s figures were revised downward, marking the largest decline since July 2021. While e-commerce activity and healthcare spending lifted control-group sales by 1 percent, economists noted that seasonal adjustments played a significant role, limiting optimism for first-quarter GDP. Weaker income growth and rising job insecurity are likely curbing discretionary spending, particularly among lower-income consumers, while wealthier households may also cut back on major purchases following recent stock market volatility. Business caution is rising as New York state manufacturing activity dropped to its lowest level since early 2024 and homebuilder confidence fell to its weakest reading since August. Mounting uncertainty over tariffs, slowing wage growth, and deteriorating consumer sentiment increase the likelihood of weaker economic expansion, with some analysts warning that first-quarter GDP growth could contract.

US manufacturing activity in February edged closer to stagnation, with orders and employment contracting even as input costs surged. The ISM Manufacturing Index slipped 0.6 points to 50.3, while prices paid for materials jumped 7.5 points to 62.4, the highest since June 2022, signaling renewed inflationary pressures. New orders fell 6.5 points to 48.6, the first contraction since October 2024, and factory employment dropped 2.7 points to 47.6, marking contraction in eight of the past nine months. Rising costs, largely driven by tariff-related supply disruptions, are creating backlogs and inventory imbalances, with businesses struggling to pass on price increases amid softening demand. Imports climbed to 52.6, the highest since March 2024, as firms ramped up orders ahead of Trump administration tariffs on Mexico and Canada set to take effect Tuesday. Meanwhile, headline industrial production surged 0.7 percent, largely due to a 4.3 percent jump in consumer durable goods output, led by a sharp rise in automotive production. Manufacturing production expanded 0.9 percent, while business equipment output rose 1.6 percent, continuing its strong growth since November. Capacity utilization increased to 78.2 percent from 77.7 percent, as factories ramped up activity. The surge in production may reflect firms front-loading output before tariffs disrupt supply chains, suggesting a potential slowdown ahead. However, with Trump administration policies focused on onshoring and boosting domestic manufacturing, industrial activity may continue to receive moderate tailwinds despite near-term volatility.

In February and early March of 2025 the US economy showed mixed conditions. Moderate consumer spending growth, stable vehicle sales, and resilience in financial services were evident but clear signs of strain in manufacturing, construction, and agriculture are becoming clear. Holiday retail sales exceeded expectations, and nonfinancial services, including leisure, hospitality, and transportation, expanded modestly, particularly in air travel. Commercial real estate saw slight gains, and lending activity remained steady with little deterioration in asset quality. However, construction activity declined as high material and financing costs dampened growth, and residential real estate remained stagnant due to elevated mortgage rates. Manufacturing slipped slightly, with firms stockpiling inventories in anticipation of higher tariffs and truck freight volumes fell, signaling weaker goods demand. Rising delinquencies among small businesses and lower-income households raised concerns about financial stability and the overall disposition of consumers. Agricultural conditions remained weak, with low farm incomes and weather disruptions adding pressure.

The huge surge in consumer and business optimism seen in November 2024, driven by disinflationary progress and strong corporate expectations of pro-business policies has steadily eroded in the face of skyrocketing uncertainty. By February and early this month stubborn inflation, weakening employment trends, and clear signs of consumer distress have fueled a sharp reversal in sentiment. Record levels of policy instability—marked by an unprecedented pace of executive orders, shifting tariff threats, and mounting regulatory uncertainty—has further compounded economic unease, disrupting business planning and investment. With the Trump administration’s full slate of tariffs set to take effect on April 2nd, trade flows, input costs, and corporate strategies face the potential for significant upheaval.

With businesses and households increasingly moving to the sidelines amid mounting economic uncertainty, concerns over the likelihood of a recession have risen sharply. Public discourse on the subject has intensified, and while the ultimate outcome remains uncertain, these concerns may not be premature. Given the current policy and economic landscape, strong caution is warranted.

LEADING INDICATORS

ROUGHLY COINCIDENT INDICATORS

LAGGING INDICATORS

CAPITAL MARKET PERFORMANCE

Today (Mar 19, 2025) is Match Day — the medical equivalent of the NFL Draft — when would-be medical residents are matched with sponsoring clinical programs. 

For thousands of America’s brightest young people — 3,350 graduates in 2024 — today will be among the worst days of their lives. Those thousands of medical students go unmatched, which means they’re shut out of the only path to legally practice medicine in the United States. No residency? No license. For an unmatched graduate, a med school degree won’t mean a thing. 

Demand for doctors continues to rise, but the supply has not been allowed to keep up. Fewer than half of med school applicants find a spot in the nation’s 154 medical schools, and up to 10 percent of graduates won’t get a residency (though a few more may be placed through the Supplemental Offer and Acceptance Program — SOAP). Hospitals are desperate for staff, small towns are begging for family doctors; yet, perfectly qualified doctors-in-waiting are locked out of the system. 

Who’s administering this near monopoly? What created this massive bottleneck of healing potential, which is expected to result in a shortage of at least 86,000 physicians by 2036?

The answers, unsurprisingly, are the federal government and Congress, thanks to a 1997 spending bill supported by a cartel of campaign donors.

A Bureaucratic Bottleneck on Medicine

Ninety-eight percent of all US medical residencies are funded by the federal government: 86 percent through Medicare and Medicaid and Veterans Affairs. Another 12 percent comes from state matching of federal Medicaid funds (funds confiscated from the people of those states, in the first place). Provisions set by Congress decide how many doctors can be trained annually, and effectively bars all others from practicing, even if they are highly qualified. You can’t independently practice medicine in the United States without having first been matched with, and then completed, a three-to-seven year residency.

Most readers are likely aware of the looming physician shortage: current projections estimate that within the next decade, the US could face a shortfall of up to 120,000 doctors, posing a significant challenge to an aging population’s healthcare needs. The doctors we do have are often misallocated both in terms of specialty (we lack OB-GYNs and family physicians, but have an overabundance of specialists), and geography. The problem isn’t a lack of aspiring doctors — it’s an artificial training shortage imposed by Washington. 

Like so many of our most daunting policy problems, the doctor shortage stems from a past federal attempt to fix a smaller issue. 

Back in the 1980s, medical literature and discussions with policymakers were dominated by the threat of a doctor surplus. “Cuts in Schooling Urged to Prevent Doctor Surplus,” wrote The Washington Post in 1980; “Predicted Doctor Surplus Brings Plea for Caution,” reported The New York Times. Both were referencing “GMENAC,” a federal committee study (PDF) presented to The Department of Health and Human Services the same year. The panel of experts called for a 17-percent cut in medical school enrollment to head off a predicted glut of some 70,000 physicians, including 10,450 “too many” OB-GYNS. 

The worry then was that too many doctors would create a surge in demand for care — physician-induced demand, the reports to Congress warned. So the prevailing wisdom of the time was to address rising health care costs by reducing the number of doctors.

Congress, in its infinite wisdom, decided to cap the number of residency slots funded by Medicare. Congress’s residency cap sidelines up to 10 percent of potential doctors (the ones who’ve already graduated medical school) while patients wait weeks or months for appointments. 

The Role of Residency

Medical resident training is the only pathway to becoming a licensed physician. However, access to these training programs is tightly controlled, with Congress holding the monopoly and federal agencies overseeing the process.

In the early 1970s, federally appointed review committees had eliminated any path to becoming a general practitioner (apprenticeship and service abroad, for example) that didn’t include a mandatory, federally funded three-year medical residency.

The 1997 Balanced Budget Act, responding to fears of rising costs due to a physician surplus, capped residency training funds at their 1997 level, where they remained for 25 years. A hospital already training 20 residents could keep its 20 residency slots, but the government would not allow it to hire or train more doctors. Nor could new donors or hospitals create new residency training programs. The total number of medical residents — 98,258 in 1997 — was virtually locked in. The government even shuttered medical schools (despite ample numbers of qualified applicants) and paid some hospitals not to train doctors. 

Since then, the US population has grown by over 75 million people, and shifted demographically and geographically, while the number and location of doctor residency positions barely budged. The population aged, medical technology improved, and lives lengthened. But the training of doctors had been cryogenically frozen the year Titanic and Men in Black debuted.

That was 28 years ago. Today’s unmatched residents weren’t even born yet when their opportunity to serve was artificially excised. 

The Economics of a Manufactured Shortage

The misallocation of medical graduate training isn’t just a healthcare problem—it carries a heavy economic price. The physician shortage costs the US billions annually in lost productivity and higher healthcare costs. A recent report found that adding just 275 medical residency slots in Arkansas over six years could generate $465 million in economic activity. Now imagine scaling that across all 50 states.

The problem isn’t that we don’t spend enough on training doctors, but that the funding is so poorly distributed that it creates systemic distortions in the availability of medical care. Federal dollars spent on medical education don’t go to students; the funded spots are owned by institutions, mostly teaching hospitals. Because those institutions are generally in high-concentration urban areas (or at least the urban areas that were highly concentrated in 1997) and because general practitioners tend to open practices within 100 miles of where they completed a residency, new doctors for rural America are disturbingly difficult to come by. 

Congress has taken baby steps, adding 1,000 new Medicare-supported residency slots in 2021, in the $2.3 trillion Consolidated Appropriations Act. That’s a start, but it’s a rounding error compared to what’s needed. The federal government also designated some “medically underserved areas” and annually routes some new graduates to those areas. 

J.D. and Turk from Scrubs, Mark Green and Doug Ross from ER, and the titular Meredith Grey of Grey’s Anatomy are perhaps our most culturally familiar examples of these aspiring young doctors. But we rarely consider that their medical studies are not funded by hospitals, surgical practices, nor with any connection to services provided to patients. 

Congress insisted, at the behest of the American Medical Association, that only the federal government could train and license doctors. Then it refused to do so. In attempting to avert overspending on a doctor surplus, it induced a doctor shortage. The United States now has 50 percent fewer practicing physicians per capita than Sweden or Germany and spends roughly 50 percent more per capita on medical care. Unsurprisingly, US doctors also earn much higher salaries.

Many advocates and a handful of bills in Congress call for increasing the number of resident slots or uncapping residency funding. Allowing hospitals to create more training spots would help alleviate the shortage. But that only treats the symptom of this government monopoly. 

While some licensing structure (preferably at the state level) must continue to exist, eliminating per-institution caps on resident training, and expanding the pathways by which one can become a practicing physician — restoring apprenticeship, for example — could go much further to reduce the stranglehold of a few doctors over the future of American health care. 

The current residency cap isn’t just bad policy. It’s malpractice.

The Federal Reserve’s monetary policy committee left the target range of its policy rate unchanged at its March meeting on Wednesday. It has remained at 4.25 percent to 4.50 percent since December. This decision was widely expected by market participants, given that inflation remains stubbornly above the Fed’s two-percent target.

 At the post-meeting press conference, Chair Powell stated that the committee believes the US economy is strong and the labor market is balanced. He noted that wages are rising faster than inflation but are on a more sustainable growth path than earlier in the pandemic recovery.

Nonetheless, Powell acknowledged the committee’s concerns about economic uncertainty and its potential effects on spending and investment. These concerns are reflected in the summary of economic projections, also released on Wednesday. The median committee member now projects real GDP growth of 1.7 percent in 2025, down from 2.1 percent in December. 

Powell noted that inflation has fallen significantly since the Fed began tightening in 2022 but conceded that it remains above the central bank’s target — and is likely to stay there for the rest of the year. The committee now projects 2.7 percent inflation for 2025, up from 2.5 percent in December.

Even more troubling, in September of last year, the median inflation projection for 2025 stood at just 2.1 percent. While inflation projections have risen sharply over the past six months, the median federal funds rate projection for 2025 has fallen: from 4.4 percent in September 2024 to 3.9 percent in the latest projections. In other words, the committee expects inflation to remain above target yet still anticipates cutting its policy rate by the end of the year.

To be sure, there is a great deal of uncertainty surrounding the new administration’s economic policies, especially when it comes to trade, immigration, fiscal policy, and regulation. Powell acknowledged as much in his remarks on Wednesday, noting that ultimately, “the net effect of these policy changes” will shape monetary policy going forward.

Powell also indicated that the Fed would reduce the speed with which the central bank has been shrinking its balance sheet. He noted that although market indicators point to an abundant quantity of reserves, there are early signs of tightness in the money market, which the Fed hopes to address by slowing the pace of its recent efforts at quantitative tightening. The decision to slow its balance sheet runoff was not unanimous however: Governor Waller dissented.

Finally, Powell reiterated the Fed’s commitment to incorporating the lessons of the past five years into its ongoing framework review, which he noted should be completed by the end of the summer. The Fed introduced its current framework, known as flexible average inflation targeting, in 2020. Given the shortcomings of its framework, one can only hope Powell is serious about applying those lessons.

When I was in my teens (a lifetime ago), I read a lot of fantasy. J.R.R. Tolkien. G.R.R. Martin. C.S. Lewis. Terry Brooks. 

And then there was Frank Herbert, best known for his novel Dune (1965) and its many sequels. Though I didn’t read the entire Dune series, I loved the first two books, which follow Paul Atreides, the heir of House Atreides, as his family is assigned control over the desert planet Arrakis, home to the spice melange, the most valuable resource in the galaxy. 

Herbert set a new standard for sci-fi, building entire worlds and cultures that integrated complex ideas and events from our own world, touching on a variety of themes — politics, religion, ecology, and power.

For years, I had not thought about Dune. But during the pandemic I recalled how Paul Atreides warned about the danger of fear. 

Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me.

It was a passage that always stuck with me, and I wasn’t alone. 

The quote — part of the Bene Gesserit Litany Against Fear and a mantra recited by Atreides during a critical test early in the first novel — is probably the most popular quote from the Dune books, and one routinely shared during the pandemic. 

Recently, I came across a Frank Herbert quote I hadn’t heard before, one far less known. 

All governments suffer a recurring problem: Power attracts pathological personalities. It is not that power corrupts but that it is magnetic to the corruptible.

It’s a penetrating thought, and when I first read the words, I wondered if they were too good to be true. Most of us at one time or another have seen a quote online attributed to Morgan Freeman, George Washington, Robin Williams, or some other famous or influential person only to find after a two-minute investigation the quote is pure fiction or falsely attributed.

This is not the case with Herbert’s quote on power. Even though I had never heard it before, it appears in Chapterhouse: Dune (1985), the final book in the series, and one widely considered the weakest of the Dune novels. (This might explain why I didn’t read the book and was unfamiliar with the quote.)

Herbert’s words on power stood out to me for two reasons. First, it somewhat turns on its head Lord Acton’s famous line that “power tends to corrupt and absolute power corrupts absolutely.” Unlike Acton, Herbert was not saying individuals are corrupted by power, but that power draws corrupt people.  

Second, Herbert’s line is deeply Hayekian. In his magnum opus The Road to Serfdom, the Nobel Prize-winning economist F.A. Hayek dedicated an entire chapter to the idea of the worst men in society rising to the top (it’s literally called “Why the Worst Get on Top”).

In that chapter, Hayek describes at length how centralized systems elevate individuals to lead them, and concludes that those possessing the strongest desire to organize economic and social life to their plan tend to have the fewest scruples about exercising power over others. 

“To undertake the direction of the economic life of people with widely divergent ideals and values,” Hayek wrote, “the best intentions cannot prevent one from being forced to act in a way which to some of those affected must appear highly immoral.”

The Road to Serfdom was published in 1944, when Stalin and Hitler were ascendant and the world was immersed in totalitarianism. Yet Hayek did not see the brutality of these systems as “accidental by-products,” but the natural progression of nation-states in which checks on power are destroyed or abandoned.  

“Just as the democratic statesman who sets out to plan economic life will soon be confronted with the alternative of either assuming dictatorial powers or abandoning his plans,” he wrote, “so the totalitarian dictator would soon have to choose between disregard of ordinary morals and failure.”

This is why “the unscrupulous and uninhibited” are most likely to rise in such systems, Hayek concluded.

I have no idea if Herbert ever read Hayek, but his observation that governments have a powerful tendency to attract “pathological personalities” sounds remarkably close to Hayek’s idea that “the worst” get on top. 

As to the nature of power and whether it corrupts man or attracts the worst, I suspect it does both. Either way, history shows the result is much the same. For every George Washington, there are a hundred Robespierres.

In his famously odd 1975 book, Platform for Change, the British business professor Stafford Beer made the following observation:

So we follow our noses. Our noses are going to be smashed up on the fascia board.

So we will have an air cushion that inflates when we crash to protect us.

Now that we can drive much faster and with less regard for others: we shall be all right.

Don’t you think if we really cared about safety we could consider replacing the inflatable bag with a row of sharp spikes?

This is not a serious proposal, you understand. 

The “safety spikes” observation has had many authors over the past 60 years, and has taken many forms. It is an illustration of paradoxes ranging from risk compensation to the “lemons problem” to “moral hazard” in insurance. The true first author may never be known.

But it seems that a plausible “first,” at least in terms of the particular phrase given here, is Gordon Tullock in the early 1960s. The general phenomenon is now called “risk compensation,” or the tendency for improvements in safety to have unintended consequences of increased risk-taking. (For more on Stafford Beer, see this….) 

Tullock’s Original Intuition

This story was told by Richard McKenzie in an EconLib remembrance fifty years after the events described:

I remember, as a young graduate student in the early 1970s, listening to several faculty members in the foyer discussing the case for regulating the internal safety of automobiles, then an emerging hot political topic. They were refining standard arguments regarding mandates for the installation of seatbelts, collapsible steering columns, padded dashes, and airbags, all proposed to save lives.

Gordon emerged from his office on hearing the discussion and insisted: “You have it wrong! Interior safety features in cars will reduce the costs of accidents for drivers and encourage them to drive more recklessly, causing more pedestrian deaths. To reduce deaths, the government should require the installation of a dagger at the center of the steering wheel with its tip one inch from the driver’s chest. Who would take driving risks then?” (emphasis added)

McKenzie left the University of Virginia in 1965, and in his recollection puts the Tullock hallway incident in 1962 or 1963, which means (as far as I can tell) that this is the earliest use of the example. (Charles Goetz tells a similar story, for the same time period). That timing makes sense, because a large increase in highway traffic accidents, injuries, and deaths had come about as a result of the expansion of the national highway system, and the increased power and sophistication of auto drive trains and suspensions. The National Traffic and Motor Vehicle Safety Act was being formulated, and was passed in 1966, with the first mandatory safety features, including seat belts, becoming law in 1968.

The idea either spread, or was arrived at independently (as indicated by the Stafford Beer quote at the outset). It wouldn’t have to be a dagger, of course. Neck belts would also be effective: buckle a belt around your neck, and in even a minor accident your head would rocket forward through the windshield. But the dagger or “Tullock Spike” is an especially powerful image, which, as Don Boudreaux has noted, makes it extremely useful as a teaching tool. (The more technical version of the result is now called the “Peltzman Effect.”)

Amusingly, Warren Buffett used the image in 1991, in a speech at the business school at Notre Dame, to illustrate the problem of taking on excessive risk:

The analogy has been made (and there’s just enough truth to it to get you in trouble) that in buying some company with enormous amounts of debt, that it’s somewhat like driving a car down the road and placing a dagger on the steering wheel pointed at your heart. If you do that, you will be a better driver – that I can assure you. You will drive with unusual care. You also, someday, will hit a small pothole, or a piece of ice, and you will end up gasping. You will have fewer accidents, but when they come along, they’ll be fatal.

Another interesting application comes from insurance markets, where the question of who should bear risk is called “moral hazard,” a situation where shedding liability for risk changes the level of risk that is taken. This is at the core of Tullock’s original thought experiment, of course: since the driver has less risk of injury, that risk is transferred to pedestrians and other drivers by excessive speed and less care.

In 2012, the “Tullock Spike” came up (though not by name) in a discussion of crop insurance. The idea was that subsidizing crop insurance effectively subsidizes the taking of excessive risk, and reduces the incentives to limit damages, for farmers. “The indemnity number will go up, especially for corn; more claims are coming in all the time,” said Cory Walters, assistant professor in UK agricultural economics. 

“If we all had a dagger sticking out of our steering wheels,” Walters continued, “we’d be more careful [when driving]. But what if crop insurance removes that dagger? How would we drive then?”

The problem has most directly been recognized in contexts where driving and risk are at the core of the action: the real “National Sport of America,” NASCAR. Beginning in 1988, NASCAR imposed “restrictor plates” as a safety measure, limiting the air (and therefore the horsepower and speed) of cars. In 2004 an article was published in the Southern Economic Journal that concluded the “safety” measure had actually increased the number of crashes and multi-car pileups, though it had not affected the number of deaths.

But that is what you would expect. If speeds are suppressed, and safety equipment is improved, the risks of death and serious injury are lowered. The results should be increased selection of risky behavior by drivers, including close drafting and bumping. More recently, in February 2018, NASCAR switched from restrictor plates to the more precise and consistent “tapered spacers,” which have the same effect and the same “safety” rationale. The 2018 NASCAR “Cup Series” champion Joey Logano, was just as clear about the likely effect:

I totally expect to crash more cars [because of the spacers] ….As cars are closer and drivers are more aggressive, a mistake will create a bigger crash. We can’t get away from it…You know how it is when you’re on the highway and they check up right in front of you. You can’t stop quick enough and you’re only going 70, you know? Try going 180…So I assume there will be more crashes. I assume we’re all going to tear more stuff up this year. (AP, 2/16/19)

Knowing Tullock as I did, I imagine that his reaction to the obvious problem of NASCAR drivers increasingly “tradin’ paint” would be to point out a dirty secret: NASCAR fans come for the “racin’”, but they stay for the crashes. Using a “safety” rationale, particularly one that reduces injuries but increases the number of wrecks, makes a lot of sense.

If anybody at NASCAR was serious about wanting fewer wrecks, they’d put Tullock Spikes in steering columns, not little plates in carburetors.

On Saturday, Immigration and Customs Enforcement (ICE) agents showed up to arrest Mahmoud Khalil, a Columbian graduate student who was accused of showing support for Hamas.

On one level, the State Department’s actions in this case might appear legitimate. Khalil isn’t a United States citizen; he’s a green-card holder, and immigrants have fewer legal protections than American citizens. In particular, the Immigration and Nationality Act allows the State Department to deny or revoke the visa of “any alien who. . . endorses or espouses terrorist activity or persuades others to endorse or espouse terrorist activity or support a terrorist organization.” The Supreme Court agrees; in Turner v. Williams (1904), it established that aliens could be deported if they hold dangerous views (for instance, advocating anarchism). 

Khalil’s actions might rise to the level that the Immigration and Nationality Act and the Supreme Court had in mind. He’s a member (and accused leader, though he denies the charge) of Columbia University Apartheid Divest, a group that said of Hamas’ October 7 attack on Israeli civilians that “The Palestinian resistance is moving their struggle to a new phase of escalation and it is our duty to meet them there…It is our duty to fight for our freedom!” The Trump administration alleges that Khalil “led activities aligned to Hamas, a designated terrorist organization.”

If Khalil is guilty of everything he’s being accused of, then it’s reasonable to expect his deportation. I’m pretty close to a free speech absolutist, but the First Amendment doesn’t cover aliens who come to our country and then provide meaningful support (meaning actions and activities, not just words of praise) for terrorist organizations.

But to date, the government has provided no evidence to support its accusations against Khalil. This is an evolving story, and the facts on the ground may change. But as things currently stand, Khalil’s arrest should concern us for two reasons.

First, the Trump administration has a legal and moral obligation to respect Khalil’s right to due process. It is not enough for the administration to merely allege that he did something bad. History is full of dictators and authoritarians who accused their political opponents of the worst crimes, often without evidence. In a constitutional republic, the administration needs to actually provide evidence against Khalil.

This is true even in cases of national security. A White House official described Khalil as a “threat to the foreign policy and national security interests of the United States.” While national security concerns can sometimes be valid, they’re also often in tension with our national commitment to free speech.

It’s also important to remember that, when it comes to what is and is not a matter of national security, administrations are prone to lie. In United States v. Reynolds (1953), the widows of three air force pilots whose husbands had died during a training mission sued the United States government. They alleged that the government had been negligent in maintaining the jets, and that this negligence had gotten their husbands killed. The government fought back, not with facts, but with arguments about national security: if the details that the widows sought were exposed, the government alleged, it could give America’s enemies vital information about our military. The court agreed. But the government’s claim was based on a lie. As Glenn Greenwald reports in With Liberty and Justice for Some:

It was only in 2000, when the maintenance records were obtained via a Freedom of Information Act request filed by one of the pilots’ family members, that it was revealed that the government had blatantly lied to the court. The records in question contained no military secrets at all but were full of information showing that there had indeed been gross negligence in how the plane’s engines had been maintained by the air force.

Governments often invoke claims of “national security” as a fig leaf to convince citizens to look the other way while they expand their power. As citizens, we should be leery of such claims. They might be true; or they might be a convenient justification for the administration to remove a political enemy who has not violated any laws. In the case of Khalil, either could be the case.

The second problem with Khalil’s arrest is that it is providing a chilling effect on constitutionally protected speech. Khalil’s actions may in fact violate the Immigration and Nationality Act, but the administration is being very vague about this case. They have not, as of the time of this writing, presented any evidence or even accused him of any crime (as the White House official quoted above says, “The allegation here is not that he was breaking the law.”). 

Trump said of Khalil’s case that “This is the first arrest of many to come.” He said that his administration “will not tolerate” students who have “engaged in pro-terrorist, anti-Semitic, anti-American activity.” But of course this is extremely vague. What exactly — and who — defines “anti-American activity?” 

Trump’s language is especially concerning because he has historically taken a very expansive view of what constitutes a public enemy. In 2019, he tweeted that the press is “truly the enemy of the people.” Earlier this year, he sued CBS News for editing a “60 Minutes” interview with then-candidate Harris in a way that he alleged made her answers look better. When Trump says that he’ll target non-citizen students who engage in “anti-American activity,” does he mean students who aid and abet Hamas…or just students who support his political opponents?

Even in the Khalil case, Department of Homeland Security deputy director Troy Edgar conflates merely protesting with being a terrorist. 

As such, other immigrants and permanent residents are wondering if they’ll be next in the crosshairs. The Foundation for Individual Rights and Expression (FIRE) reached out to the administration with several pointed questions designed to clarify the administration’s case against Khalil. As FIRE wrote, as of March 10, “the government has not made clear the factual or legal basis for Mr. Khalil’s arrest.” “This lack of clarity,” they warn, “is chilling protected expression, as other permanent residents cannot know whether their lawful speech could be deemed to ‘align to’ a terrorist organization and jeopardize their immigration status.”

This administration has touted itself as a full-throated defender of free speech. Khalil’s arrest, and the vague and overbroad accusations used to justify it, is the latest warning sign that the administration might not be as committed to this foundational American value as they pretend to be.

Last December, I wrote about Senators Hawley and Sanders’ call to cap credit card interest rates at 10 percent. This cause was recently taken up by Representatives Alexandria Ocasio-Cortez and Anna Paulina Luna in the House of Representatives, reminding Americans that even President Trump pitched this idea on the 2024 campaign trail. Their stated goal is to help the growing population of Americans struggling to make credit card payments.  

No matter which party or branch of government pitches this idea, the result will be the same: Hard-working Americans will lose access to credit. Good intentions do not guarantee good outcomes.

Interest, like any other price, is a natural result of human interaction. Although I’ve told this example from the late economist Walter Williams before, it bears repeating: 

Imagine you were to visit a country that has effectively outlawed all lending and borrowing. Despite the prohibition on lending and borrowing, you could still get a rough estimate of the market rate of interest by comparing the present price of present goods to the present price of future goods. One can get a sense of the interest rate by looking at the difference between the price of milk and the price of cheese. If we have to use milk to make cheese, then milk is a present good and cheese is a future good. Further, if the price of milk rises relative to cheese, then we know that the interest rate must have fallen. If the price of cheese rises relative to milk, then we know that the interest rate must have risen. 

Interest is the price people pay to have resources now rather than later. An interest rate measures the price that borrowers pay to have resources now and the reward a lender receives for delaying consumption of resources to a future date (expressed as a percentage). 

Like all other prices, interest rates are determined by supply and demand. People’s willingness to save impacts the supply of loanable funds. If the inflation rate is expected to rise, lenders will ask for a higher interest rate to compensate. The riskiness of the borrower and the length or duration of the loan also determine the interest rate as well as the rate at which interest income is taxed. Allowing these and other factors to influence interest rates uninhibited allows credit markets to adjust to changes in supply and demand. 

When an interest rate is capped at a certain percentage, the cap prevents the information about relative scarcity and buyer/seller behavior from being portrayed accurately. When that happens, credit card companies will fall back on less accurate proxies for insight. 

Credit card companies may choose to deny credit cards to those in lower income percentiles. While being in the lowest income percentile does not guarantee that someone will end up in delinquency, lenders will be aware of data that show the poorest households tend to have the highest rates of credit card delinquency. They may end up denying a credit card to someone with a low income who may otherwise have had a reputable history of paying off debt on time. 

Additionally, credit card companies can raise or lower credit limits. Many credit card holders may end up unpleasantly surprised when credit card companies lower their credit limit to reflect a 10-percent interest rate cap. 

As I stated before, politicians attempting to “save” Americans with price controls will inevitably result in Americans being kicked while they’re already down.

Elon Musk’s cost-cutting crusade has reignited discussions about the need for a leaner, more efficient public sector. While Musk’s Department of Government Efficiency (DOGE) has made significant strides in slashing wasteful government spending, much work remains. In addition to chiseling the government’s inflated state, DOGE must work alongside Congress and the President to tackle more fundamental issues, including the reform of entitlement programs such as Medicare and Social Security.

Musk’s goal is clear: he aims to save American taxpayers at least $1 trillion by streamlining government operations. Despite facing resistance from critics and entrenched bureaucrats, Musk has managed to implement meaningful changes in the federal government, focusing particularly on eliminating the worst cases of government “waste, fraud, and abuse.” However, achieving lasting, transformative change within the vast and complex government apparatus will require navigating a host of challenges, including opposition from both a dysfunctional Congress and the sprawling agencies on the chopping block.

DOGE’s Early Wins and Challenges

Under Musk’s leadership, DOGE has focused on cutting waste across a variety of government agencies. Recent initiatives include efforts to overhaul the Social Security Administration (SSA), which recently eliminated 7,000 non-essential positions. In addition, the SSA announced plans to restructure its operations, including closing six of its 10 regional offices. These moves are part of a broader effort to clean up inefficiencies that have long plagued the federal government.

Despite these early successes, these actions alone won’t generate the significant taxpayer savings Musk envisions. To truly reshape America’s fiscal landscape, significant reforms to the nation’s entitlement spending must accompany DOGE’s measures. This is where President Trump, who has historically opposed cuts to entitlement programs, could present a significant challenge. Musk’s role, however, is not to make these cuts himself but to lay the groundwork for a broader structural overhaul that only Congress and the President can enact.

As economist Veronique de Rugy has noted, “even if DOGE eliminates all improper payments and fraud — an estimated $236 billion and $500 billion per year, respectively — we’ll be facing a debt explosion.” The current interest payments on the national debt alone amount to $881 billion annually, a figure that’s projected to skyrocket to $1.8 trillion by 2035 unless substantial reforms are made to entitlement programs.

Lessons from the Past

To understand the potential impact of DOGE, it’s helpful to reflect on past initiatives to enhance government efficiency. One of the most notable attempts occurred in 1982, when President Ronald Reagan established the Private Sector Survey on Cost Control, a private task force chaired by J. Peter Grace, a prominent businessman and registered Democrat. The commission’s goal was to identify wasteful spending across federal agencies, and its findings were nothing short of staggering.

One famous example highlighted by the Grace Commission was the Pentagon’s procurement of hammers. The Navy reportedly paid $436 per hammer — $41 dollars of which was needed to pay general overhead costs for “the engineering staff involved in mapping out the hammer problem.” What would have cost the private sector roughly $7 in the 1980s instead cost the government more than $400 in an astonishing display of waste.

The commission’s final report found that roughly one-third of income tax revenues were consumed by government inefficiency, with another third escaping taxation altogether through the underground economy. While the Grace Commission’s recommendations — nearly 2,500 in total — promised to save taxpayers more than $400 billion and potentially close the federal deficit by 1990, most of these reforms went unimplemented. Moreover, a joint report by the Congressional Budget Office and the General Accounting Office found that the commission had overstated the potential savings from its proposals.

Despite these setbacks, the Grace Commission’s efforts brought attention to inefficiencies that persist today, such as outdated operating systems and overlapping administrative duties across federal agencies.

The NPR and the Limits of Bureaucratic Reform

In 1993, President Bill Clinton launched the National Partnership for Reinventing Government (NPR), a commission aimed at reducing waste and improving the efficiency of federal agencies. Led by Vice President Al Gore, NPR succeeded in cutting the federal workforce by more than 400,000 employees and eliminating more than 640,000 pages of internal regulations. The initiative also closed thousands of field offices and consolidated various federal programs.

Though the NPR achieved some successes, such as agency-wide adoption of the internet, it ultimately fell short of enacting lasting reforms. A key reason for this was the inherent resistance within federal agencies to change. Many agencies quickly reverted to inefficient practices as the incentive to continually modernize faded in subsequent years, leading to outdated computer systems and endless mission creep such as USAID’s nonsensical pet projects. Additionally, a 1999 report by the Government Accountability Office (GAO) found that NPR had overstated its projected savings, further undermining the credibility of its claims.

President Clinton famously declared in 1996 that “the era of big government is over.” To some extent, he was right. His administration’s reforms made considerable progress at the time, but they were unable to achieve the kind of lasting structural change needed to rein in government spending. The NPR’s reliance on career civil servants, many of whom were invested in the status quo, proved to be a significant culprit.

What’s Next for DOGE?

As Musk’s team of tech-based outsiders moves forward with their reform agenda, they should take lessons from both the successes and failures of previous initiatives. While it’s easy to be skeptical of government reform initiatives, DOGE has already demonstrated that it’s possible to overhaul government quickly and effectively.

To succeed in the long run, DOGE must adopt the best aspects of past commissions. Like the Grace Commission, DOGE must maintain its outsider perspective and continue to apply pressure on entrenched bureaucratic interests. However, it also must work collaboratively with Congress, as the Gore-Clinton Commission did, to build a broader coalition of support for systemic reforms.

Most importantly, DOGE’s success will depend on its ability to lay the groundwork for reforming entitlement programs like Social Security and Medicare. While DOGE can propose cost-cutting measures, only bipartisan action in Congress will make comprehensive reform possible. This will require a delicate balance of political will, public support, and careful policymaking.

In the end, Musk’s bold approach offers hope for a more sustainable fiscal future for America, but the road ahead is long and will require greater degrees of collaboration with other branches of government and the agencies DOGE seeks to reform. By learning from the past and building on its early successes, DOGE may prove to be the catalyst for the lasting reforms our government so desperately needs — and has long sought to achieve.

I attended Apple’s annual meeting several weeks ago. I saw many signs of how corporate culture is shifting away from ESG and DEI.

To understand why, let’s briefly discuss the basics of how people actually engage with major corporations. Shareholders who own certain thresholds of stock in a publicly-traded company have the right to place proposals on that company’s ballot for consideration at the annual meeting of shareholders. This process allows shareholders not only to make their voices heard at the annual meeting, but often to discuss their concerns directly with company representatives.

In past years, this process was used almost exclusively by the political left and its corporate activist allies — a typical annual meeting agenda would see a slate of proposals urging companies to divest from the oil and gas industry, perpetuate divisive “diversity” policies, or issue statements on social/political issues outside of the company’s core area of focus. 

And the center/right? Missing in action, as a recent op-ed from Oklahoma State Treasurer Todd Russ (the first red state to actually step into the shareholder engagement arena) explains: 

The activists pushing ESG and DEI into American corporations have been hard at work, and those tasked with defending fiduciary duty, rejecting radical activism, and championing corporate political neutrality have been blind to it.

For years, we lost the corporate engagement war on two fronts: (1) allowing the activism that exists in this space to continue unchecked, and (2) never forging a positive vision of what engaging with companies looks like for people who want those companies out of politics.

But now, slowly, the fortunes of war are changing. And that takes us to Apple.

In past years, the agenda at Apple’s annual meeting has been controlled by pro-ESG activists. A glance at agendas from the years leading up to 2023 reveals proposals asking the company to release unadjusted pay gap data based on race and gender (the lack of adjustment can give the appearance of systemic pay inequality when it doesn’t actually exist) and pressuring the company to reincorporate as a “social purpose corporation.” In 2024, the shareholder agenda was almost evenly split between pro-ESG and anti-ESG proposals.

But the company’s 2025 meeting took place several weeks ago — without a single pro-ESG proposal on the ballot. The four proposals before Apple shareholders were all from ESG/DEI skeptical groups: American Family Association (filed by my firm, Bowyer Research), asked the company to square its lax approach to combating child pornography on its platform with its commitments to user privacy and free speech. Besides our proposal, the National Legal and Policy Center urged Apple to conduct analysis on the greatest reputational and ethical risks of the company’s use of AI. The National Center for Public Policy Research asked Apple to officially terminate its diversity, equity, and inclusion (DEI) efforts. And Inspire Investing petitioned Apple to justify its charitable giving to, and partnerships with, divisive organizations like the Human Rights Campaign (which is currently pushing companies to provide puberty blockers to children as part of their health coverage).

Let’s be clear: although these proposals didn’t pass (relatively few shareholder proposals do), this is a major win. Pro-fiduciary actors have gone from zero representation on corporate ballots to quite literally setting the entire agenda for shareholders — in less than five years. Furthermore, several shareholder proposals got historic levels of support — an incredibly difficult feat when you realize that most proxy advisors (organizations that control the votes of many Apple shareholders) maintain hardline opposition to any proposals aimed at true fiduciary duty and political neutrality.

The company seems to want to pretend that such shareholder concerns don’t exist. But even there, Apple is setting the ground for a potential rollback of its current approach to DEI. CEO Tim Cook admitted that the company “may need to make some changes” to its DEI approach. No kidding — when Apple’s entire shareholder agenda is being set by non-ESG-aligned groups, change is the rational response.

The activist dominance that locked in ESG and DEI at America’s biggest companies years ago is rapidly diminishing. Pro-shareholder actors, ranging from individual investors to multi-billion dollar state pension funds, are stepping into the corporate engagement world, with more joining every day. Per a recent release from the Heritage Foundation, a new member of this pro-shareholder coalition, “Americans have woken up to the reality that their pensions, savings, and investments are being used to push corporate agendas that don’t align with their values… Those who continue to embrace these divisive and discriminatory practices will ultimately face economic consequences.” A recent article in Harvard Law School’s Forum on Corporate Governance reported that “the data does suggest that the anti-ESG movement will continue on and maintain a strong presence in shareholder meetings while possibly expanding reach in the coming years.”

That’s no small feat — it’s a complete shift in momentum. Right-of-center shareholders are realizing how much leverage they’ve been leaving on the table — and it’s been paying off at a variety of major companies, from Chase to PepsiCo. As a corporate engagement professional, I’ll tell you this is a turning point. Companies that claim their leftward drift is a result of only hearing from one side of the political aisle now have to contend with hearing from shareholders of diverse political viewpoints — a key pressure point when it comes to staying politically neutral. 

The activist class that pushes for ESG, DEI, and biased corporate policies now has to contend with their worst nightmares: shareholders who want businesses to focus on business, not politics. A growing infrastructure is committed to maximizing pro-fiduciary influence at America’s biggest companies, and the political space is incredibly ripe for this action. Apple is only the beginning.