The howls of disapproval from the cowboy-hat demographic have been loud this week, and for good reason. President Trump has announced plans to quadruple the import quota of Argentine beef to “bring beef prices down” at the grocery aisle. It was accompanied by a characteristically Trumpian broadside on Truth Social:
“The Cattle Ranchers, who I love, don’t understand that the only reason they are doing so well, for the first time in decades, is because I put Tariffs on cattle coming into the United States,” Trump said on Truth Social on Wednesday. “If it weren’t for me, they would be doing just as they’ve done for the past 20 years — Terrible! It would be nice if they would understand that, but they also have to get their prices down, because the consumer is a very big factor in my thinking, also!”
In a single post he managed to both praise and insult the very people who embody the mythos of American self-reliance. You don’t talk down to cowmen — as a rule they’re damn sensitive to being told their fortunes hinge on the beneficence of a politician. As an example of the pitfalls of dabbling in command economics, you can’t conjure a better case study.
Ranchers are no fools — they know that prosperity in a tenuous sector doesn’t come from tariffs, subsidies, or decrees. It comes from hard work and resilient management in the face of fickle weather and shifting markets. When a big-city billionaire — even one they’ve largely endorsed — tells them “you’re doing well because of me,” the reflexive response is basically what I heard from a cowboy buddy in Arizona: “Gaslight us harder, Mr. President.”
Trump is right: cattle prices have been astonishingly high the past few seasons, for a variety of extremely complicated factors mostly having to do with the size of the national cow herd. But Trump is laughably off base to attribute the recent high prices to his tariffs, which to the extent they had any effect at all, were applied long after the rise in cattle prices.
Trump’s maneuvering reflects the deepest problems of a command economy — you simply can’t foresee the knock-on effects of various market manipulations. Once you start tinkering — raising tariffs to curry favor with domestic producers, then slashing them to win over consumers, or allocating tariff revenues to those who are harmed by the tariffs — you trap yourself in the same contradictory logic that doomed the old Soviet planners. Every knob you twist sends vibrations through a market ecosystem too vastly complex to predict.
Take beef, which is a deceptively “simple” product. It isn’t. Its price is the result of feedlot margins, grazing leases, rail freight rates, hide buyer availability, veterinarian fees, hay producer margins, and farm credit, and a kaleidoscope of other factors. Like many industries, it is also heavily influenced by government regulations, including tariffs. Price signals ripple through this vast and interconnected network like nerve signals in a living body. Interference with one aspect risks numbing the whole. Beef, as a product of the modern integrated global market is no more “simple” than a semiconductor, and managing its price is a fool’s errand.
Ranchers can no more unilaterally “get their prices down” than they could unilaterally get their prices up over the 20 years when they were doing “Terrible.” Cow-calf producers (the foundational unit of the beef complex) take 400-600 pound calves to sale and pretty much take whatever price is being offered by the “buyers” (usually background/stocker/feedlot representatives). Those prices have, for decades, been marginal at best and were often lower than the input costs. In the absence of a vigorous small-scale meat processing complex (regulated largely out of existence), the options were limited. That has changed recently with the higher prices that come with lower inventories, and many ranchers are regaining some solvency lost over preceding years, but they all know it’s out of their control. Like the rain, they take it when they can get it.
Still, ranchers are right to feel whiplash. One day, they’re told tariffs are patriotic; the next day, they’re scolded for high prices. They are pawns in a political game that treats them alternately as mascots and villains. The message from Washington — sometimes in the same sentence — is: We love you, but you’re doing it wrong. This is the cultural insult buried at the heart of Trump’s missive. Rural America has long sensed that its independence is something to be managed, not respected. Trump insists that cowmen owe their good fortune to his tariff policy, but by doing so he adopts the same paternalism that ranchers despise in bureaucrats from either party. Whether the diktat comes from a Manhattan boardroom or the White House, it still smells like the city: clueless and smug, all at the same time.
The kind of economic nationalism Trump has unleashed pretends to restore dignity to the producers and manufacturers forgotten by globalization. But true dignity never comes from protection — it comes from freedom. Give ranchers open access to world markets, stable rules, reduced regulations, and the assurance that government won’t yank the reins every election cycle, and they’ll take care of the rest. The West was not won on quota systems.
What’s galling about this latest announcement isn’t just the inconsistency; it’s the presumption that prosperity can be engineered by presidential decree. Beef markets, like any living system, balance themselves through millions of daily decisions — when to calve, when to sell, when (or if) to buy feed, when to hold back heifers. That’s the invisible hand at work, and it’s far smarter than any White House staffer with a spreadsheet.
Politicians often say they “love” the rancher, the farmer, the working man. But love, in economics as in life, is best revealed by respectful restraint. Don’t interfere. Don’t pretend to know better. Don’t weaponize one group against another in the name of populist sympathy. Ronald Reagan, the cowboy president, said the nine most terrifying words one could hear was “I’m from the government and I’m here to help.” As the cattle industry turns its back on Trump’s meddling, he is about to learn the political perils of a command economy as well. The best thing Washington could do for the beef industry is to stop helping it.
Medicaid, Title XIX of the Social Security Act, is a joint federal-state program that finances health care to the poor.[1] When it was first signed into law, Medicaid eligibility was limited to low-income children, pregnant women, parents of dependent children, the elderly, and people with disabilities. In the sixty years since the program was enacted, however, it has strayed from its mission of providing healthcare for the most vulnerable and has become a steppingstone toward universal government-run health insurance.
This explainer will outline how Medicaid functions, the program’s costs, its influence on healthcare in the United States, and how the proposed policy changes in 2025 could reshape the program.
How Does Medicaid Work?
Medicaid is divided into two groups: traditional Medicaid and the Medicaid Expansion group. Before discussing the differences between the two, it’s important to understand that there are strings attached. For a state to participate in Medicaid (either traditional or expansion), the federal government requires that state to provide Medicaid coverage for certain eligibility groups, including[2]:
Certain low-income families, including parents, that meet the financial requirements of the former Aid to Families with Dependent Children (AFDC) cash assistance program;
Pregnant women with annual income at or below 133% of the Federal Poverty Level (FPL);
Children with family income at or below 133% of FP;
Aged, blind, or disabled individuals who receive cash assistance under the Supplemental Security Income (SSI) program;
Children receiving foster care, adoption assistance, or kinship guardianship assistance under the Social Security Act (SSA) Title IV–E;
Certain former foster care youth;
Individuals eligible for the Qualified Medicare Beneficiary program; and
Certain groups of legal permanent resident immigrants.
Federal law provides two primary benefit packages for state Medicaid programs: traditional benefits and alternative benefit plans (ABPs). These benefit categories (taken from the Congressional Research Service) are recreated in Table 1. States also have some flexibility through Medicaid program waivers, which allow them to be exempt from certain federal requirements. These include research and demonstration projects (Section 1115), managed care/freedom of choice programs (Section 1915(b)), and home and community-based services (Section 1915(c)). To receive a waiver, a state must meet federal financing requirements such as budget neutrality, cost-effectiveness, or cost-neutrality.[3]
It is also important to note that Medicaid spending is often lumped in with the Children’s Health Insurance Program (CHIP) and similar federal subsidies created under the Patient Protection and Affordable Care Act (Affordable Care Act or ACA). The CHIP program provides health coverage to eligible children in families with incomes above the Medicaid threshold, either through Medicaid or separate state programs. The federal subsidies created under the ACA include premium tax credits (which subsidize the cost of an insurance premium) and cost-sharing reductions (reducing out-of-pocket costs such as deductibles, copays, and coinsurance) for those who purchase health insurance through a government-created healthcare marketplace.
Traditional Medicaid
Traditional Medicaid covers both primary and acute care as well as long-term services and supports (such as care for disabled adults and individuals with chronic illnesses). Eligibility is limited to low-income children, pregnant women, parents of dependent children, the elderly, and people with disabilities. In this program, states are guaranteed federal matching dollars without a cap for qualified services, based on a formula that matches at least 50 percent of state spending. The portion of the federal government’s share of most Medicaid expenditures is known as the Federal Medical Assistance Percentage (FMAP). This matching rate increases as state per-capita income decreases.
Under traditional Medicaid, states define the specific features of each covered benefit within four broad federal guidelines:
Each service must be sufficient inamount, duration, and scope to reasonably achieve its purpose. States may place appropriate limits on a service based on such criteria as medical necessity.
Within a state, services available to the various population groups must be equal in amount, duration, and scope (the comparability rule).
With certain exceptions, the amount, duration, and scope of benefits must be the same statewide (the statewideness rule).
With certain exceptions, enrollees must have freedom of choice among health care providers.[4]
Looking ahead to FY 2026 (October 1, 2025 – September 30, 2026), the federal matching rates for state funds are expected to range from 50 percent (the mandatory minimum matching rate) to nearly 77 percent.[5] Figure 1 shows the federal Medicaid FMAP matching rate for each state.
Figure 1: Federal FMAP Percentages, FY 2026
Sources: KFF estimates of increased FY 2026 FMAPs based on Federal Register, November 29, 2024 (Vol 89, No. 230), pp 94742-94746.
Note: Estimates are rounded to the nearest whole number.
The Medicaid Expansion Group
Under the Affordable Care Act (ACA), states had the option to expand Medicaid to non-elderly adults with income up to 133 percent of the Federal Poverty Level. When states were initially allowed to expand Medicaid starting January 1, 2014, the federal government promised to cover 100 percent of Medicaid expansion costs to encourage states to participate. With this promise of a “free lunch,” many states rushed to expand Medicaid, sharply increasing enrollment. By 2020, however, the federal match rate for the expansion program was reduced to 90 percent. As a result, states had to increase their own Medicaid spending, on average, $26.7 billion from 2017 to 2022 from their own sources.
As of 2025, all but 10 states have expanded Medicaid.[6] Those states are shown in Figure 2.
Figure 2: States that Have Not Expanded Medicaid as of 2025
Sources:KFF tracking and analysis of state actions related to adoption of the ACA Medicaid expansion and Searing, Adam. “Federal Funding Cuts to Medicaid May Trigger Automatic Loss of Health Coverage for Millions of Residents of Certain States.” Say Ahhh! Georgetown Center for Children and Families, November 27, 2024
How Much Does Medicaid Cost? Who Pays?
Given that Medicaid is a joint federal and state program, it is important to examine the costs of Medicaid at the federal and state levels. At the federal level, Medicaid, the Children’s Health Insurance Program (CHIP), and other healthcare marketplace subsidies enacted by the ACA cost $759 billion in FY 2024. Put another way, for every dollar the federal government spent, eleven cents of that dollar went to Medicaid, CHIP, and the ACA subsidies.[7]
At the state level, Medicaid accounts for about 30 percent of total state spending (capital inclusive) and is the single largest expenditure in all state budgets. For every dollar the average state spends, thirty cents go to Medicaid—only ten cents come from state revenue while the remaining 20 cents come from federal transfers.[8]
Although Medicaid was designed to be a “joint” funding program, state policymakers have found ways to get the federal government to cover the lion’s share of Medicaid spending. This reflects the incentives elected officials face: using accounting gimmicks to offer more generous Medicaid spending while passing the cost to federal taxpayers can help them win reelection.
This problem was exacerbated by Medicaid expansion under the ACA. Figure 3 (recreated from the CRS report) shows the breakdown of federal and state Medicaid spending. The percentages atop each column indicate the federal share of total Medicaid spending.
Figure 3: Federal and State Shares of Medicaid Spending
Sources: Congressional Research Service “R43357: Medicaid: An Overview,” Figure 6: Federal and State Actual Medicaid expendituresCMS, Form CMS-64 Data as reported by states to the Medicaid Budget and Expenditure System, as of May 29, 2024, at https://www.medicaid.gov/medicaid/financial-management/state-expenditure-reporting-for-medicaid-chip/expenditure-reports-mbescbes. CPI-U inflation data collected from US Bureau of Labor Statistics
Notes: CMS, Form CMS-64 Data as reported by states to the Medicaid Budget and Expenditure System, as of May 29, 2024, at https://www.medicaid.gov/medicaid/financial-management/state-expenditure-reporting-for-medicaid-chip/expenditure-reports-mbescbes.
In the end, federal taxpayers are footing the bill for Medicaid. However, as the national debt continues to strain the federal budget and crowd out other priorities, policymakers in DC are desperate to cut costs. One likely area is federal Medicaid spending. If the federal government were to change the matching rates of either traditional Medicaid or Medicaid expansion, state spending on Medicaid would rapidly increase and crowd out other spending. In more fiscally distressed states, this could spur a fiscal crisis.
How Does Medicaid Impact Healthcare?
The size of Medicaid means that it shapes almost every corner of the American healthcare system, from hospital and acute care to long-term care to medical research. The program covers one in five Americans and finances 19 percent of all health spending in the United States. Here are some of the results of that influence.[9]
Increasing Coverage with Little to Show for Health Access or Outcomes
Medicaid increases healthcare coverage. Thanks to the Medicaid Expansion under the ACA and more generous federal matching programs created during the COVID-19 era and through the Biden administration’s stimulus packages, enrollment in Medicaid dramatically increased and the percentage of uninsured Americans decreased, reaching an all-time low in 2022.[10]
Additionally, while use of healthcare services increased, other negative outcomes emerged that decreased access to care, especially for those in traditional Medicaid. Cannon (2022a) notes that the Medicaid Expansion under the ACA creates an incentive for state policymakers to prioritize Medicaid expansion group recipients over traditional Medicaid recipients.[11] Blase and Gonshorowski (2025) confirmed these findings, noting that Medicaid expansion decreased access to care, crowded out private options, and shifted funds away from the poorest Medicaid recipients.[12]
In a review of the literature, Sigaud (2025) also finds depressing results[13] States that expanded Medicaid saw longer wait times and reduced access to care for traditional Medicaid enrollees. Additionally, he notes that symptoms of depression increased among near-elderly adults on Medicaid before and after expansion, especially among rural residents with extremely limited access to mental health providers. He also notes slower ambulance response times and greater delays in the emergency room.
Cementing the Relationship Between Employment and Healthcare
Medicaid expansion under the Affordable Care Act further entrenched employer-sponsored insurance (ESI) as the backbone of American healthcare. The ACA kept the ESI tax structure in place, essentially creating what Cannon (2022b) calls “an implicit penalty on workers who do not (a) surrender control of a sizable portion of their earnings to an employer; (b) enroll in a health plan that their employers choose, control, and revoke upon separation; and (c) pay the balance of the premium directly.”[14]
In an ideal world, Americans would not need to leave their jobs to change healthcare provider networks. Unfortunately, if Americans want a different health insurance package, they must “fire” their employer, pay a large tax penalty for choosing an employer-sponsored plan, or be stuck with an inferior, public option.
Increasing the Cost of Healthcare
Medicaid costs for healthcare are much greater than the costs of healthcare in the private sector. In my AIER paper “The Work vs Welfare Tradeoff Revisited,” I found that Medicaid paid more per full-year equivalent enrollee than the average annual single premium for an employer-sponsored plan in 43 states.[15] Despite the higher payments, health outcomes for Medicaid recipients are not better than those of Americans with private insurance.
The reason why Medicaid is so costly comes from the incentives created under the joint federal-state funding relationship, as discussed in the previous section. Cannon (2022a) elaborates, “Spending $1 on police buys $1 of police protection. Spending $1 on Medicaid, however, buys $2 to $10 of medical or long-term care. Medicaid rewards states for spending the marginal dollar on medical and long-term care even when spending it on police, education, or transportation would provide greater benefit.”[16]State officials have an incentive to maximize Medicaid while cutting basic public services. The open-ended federal matching system allows states to maximize federal matching dollars (especially for expansion populations) through gimmicks such as provider tax loopholes.[17]As spending on the expansion population increases, traditional Medicaid enrollees are pushed aside, leading to less access to care and worsening health outcomes.
The Government Accountability Office (GAO) regularly lists Medicaid (and its relative Medicare) among the “High-Risk” list for improper payments. The GAO notes that Medicaid program integrity must be strengthened through both legislation and “coordinated effort across multiple entities.”[18] Additionally, America is one of the most charitable nations in the world. In closing, Mueller opines,
In other words, Medicaid is rife with waste, fraud, and abuse, and fixing it is no small task.
Increased Regulatory Complexity
Medicaid also has a significant impact on the nature and shape of healthcare regulations. Federal rules dictating how states shape their Medicaid policies discourage innovation, research, and flexibility because state policymakers want to maximize those federal matching dollars. Furthermore, states will shape their own healthcare regulations to ensure compliance with federal Medicaid guidelines and maximize federal Medicaid funding. This results in states limiting access to new therapies to control costs.
What Do the 2025 Policy Changes Mean for Medicaid?
In 2025, two major policy changes have impacted Medicaid: proposed changes under the “One Big Beautiful Bill” (H.R. 1) and a Centers for Medicare and Medicaid Services proposed rule to close a provider tax loophole. These changes have the potential to provide immediate fixes to Medicaid, but much deeper reforms are needed.
The largest change comes from the legislative and CMS rule changes toward Medicaid provider taxes. The changes in H.R. 1 phase the Medicaid provider tax rate from 6 percent to 3.5 percent and freeze any new provider taxes created[19] It would also mandate waiver resubmissions and suspend existing approvals in noncompliant states. These reforms would ensure Medicaid financing aligns with federal intent, helps reduce wasteful spending, and prevents states from misusing federal Medicaid funds for other general fund programs.[20] It would also mandate waiver resubmissions and suspend existing approvals in noncompliant states. These reforms would ensure Medicaid financing aligns with federal intent, helps reduce wasteful spending, and prevents states from misusing federal Medicaid funds for other general fund programs.
Additionally, H.R. 1 also strengthens work requirements and eligibility checks, ensuring that verification standards are improved and states are allowed to remove ineligible enrollees from Medicaid.
These reforms, unfortunately, only scratch the surface. Deeper changes to Medicaid (as well as healthcare broadly) are needed. One such change is offered by economist David Rose. Rose writes,
“To put it simply, eliminate Obamacare, Medicare, and Medicaid and replace them with a national healthcare voucher system. This transformative change for American healthcare could be limited to the level paid for with a national sales tax, and our unfunded liability problems would simply disappear. While, for practical reasons, this would likely have to start at the national level, the goal could be to then spin it off to the states.”[21]
There is no shortage of ideas available for healthcare reform. The problem lies in changing the incentives that millions in the healthcare sector face (both in government and the private sector) that keep them maintaining the status quo.
Conclusion
Medicaid was designed to provide a safety net for the most vulnerable Americans. After sixty years, trillions spent, and millions of Americans enrolled, the program has little to show for it. It has strayed from its mission of helping the poor because policymakers prioritize maximizing federal matching rates. Medicaid spends more yet fails to provide better health care access or health outcomes, increases costs, and discourages choice and innovation in healthcare.
The United States—the wealthiest nation in history—and its people deserve health care that delivers access, valuable health outcomes, affordability, and choice. Market-driven solutions can provide such a system.
Footnotes
[1] Social Security Administration. Medicaid. In Annual Statistical Supplement to the Social Security Bulletin, 2015. https://www.ssa.gov/policy/docs/statcomps/supplement/2015/medicaid.html.
[2] Congressional Research Service. Medicaid: An Overview. R43357. Washington, DC: Library of Congress, 2023. https://www.congress.gov/crs-product/R43357.
[3] Ibid.
[4] Ibid.
[5] KFF. “Federal Matching Rate and Multiplier.” KFF State Health Facts. Accessed July 9, 2025. https://www.kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier.
[6] KFF. “Status of State Medicaid Expansion Decisions.” KFF. Accessed July 9, 2025. https://www.kff.org/status-of-state-medicaid-expansion-decisions.
[7]
[8]
[9] Office of the Assistant Secretary for Planning and Evaluation. The Benefits of Expanding Medicaid Eligibility to Low-Income Adults: Evidence from State Expansions. U.S. Department of Health and Human Services, March 28, 2022. https://aspe.hhs.gov/reports/benefits-expanding-medicaid-eligibility.
[10] Office of the Assistant Secretary for Planning and Evaluation. 2022 Uninsurance Rate at an All-Time Low: New Estimates Highlight the Role of the ACA and Medicaid Expansion. U.S. Department of Health and Human Services, September 2022. https://aspe.hhs.gov/reports/2022-uninsurance-at-all-time-low.
[11] Cannon, Michael F. Cato Institute. “Medicaid and the Children’s Health Insurance Program.” In Cato Handbook for Policymakers, 9th ed., 2022. https://www.cato.org/cato-handbook-policymakers/cato-handbook-policymakers-9th-edition-2022/medicaid-childrens-health-insurance-program#perverse-incentives.
[12] Blase, Brian and Gonshorowski, Drew. “Resisting the Wave of Medicaid Expansion: Why Florida Is Right.” Paragon Institute. May 1, 2024. https://paragoninstitute.org/medicaid/resisting-the-wave-of-medicaid-expansion-why-florida-is-right.
[13] Sigaud, Liam. “Losing Focus: How the ACA’s Medicaid Expansion Left Traditional Enrollees Behind.” Paragon Prognosis, February 10, 2025. https://paragoninstitute.org/paragon-prognosis/losing-focus-how-the-acas-medicaid-expansion-left-traditional-enrollees-behind/#:~:text=A%202021%20analysis%20in%20Health,adverse%20outcomes%2C%20including%20higher%20mortality.e.
[14] Cannon, Michael F. Cato Institute. “The Tax Treatment of Health Care.” In Cato Handbook for Policymakers, 9th ed., 2022. https://www.cato.org/cato-handbook-policymakers/cato-handbook-policymakers-9th-edition-2022/tax-treatment-health-care#the-tax-exclusion-for-employer-sponsored-health-insurance.
[15] Savidge, Thomas. “The Work vs. Welfare Tradeoff Revisited.” American Institute for Economic Research, June 17, 2022. https://aier.org/article/the-work-vs-welfare-tradeoff-revisited/#medicaid.
[16] Cannon (2022a). supra note 11.
[17] Blase, Brian. Medicaid Provider Taxes: A Gimmick that Exposes the Flaws in Medicaid’s Financing. Arlington, VA: Mercatus Center at George Mason University, June 20, 2023. https://www.mercatus.org/research/research-papers/medicaid-provider-taxes-gimmick-exposes-flaws-medicaids-financing.
[18] U.S. Government Accountability Office. Medicaid Financing: Actions Needed to Ensure Provider Taxes Do Not Undermine Federal Oversight. GAO-25-107743, May 2025. https://www.gao.gov/products/gao-25-107743.
[19] U.S. Congress.H.R. 1: “One Big Beautiful Reconciliation Act of 2025,” 119th Cong., 1st sess., § 71115, “Provider Taxes” (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text
[20] Centers for Medicare & Medicaid Services. Preserving Medicaid Funding for Vulnerable Populations by Closing Health Care-Related Tax Loophole: Proposed Rule. Fact Sheet. Washington, DC: U.S. Department of Health and Human Services, May 2, 2024. https://www.cms.gov/newsroom/fact-sheets/preserving-medicaid-funding-vulnerable-populations-closing-health-care-related-tax-loophole-proposed#_ftn2.
[21] Rose, David C. “Want to Fix Medicaid? Look to Milton Friedman.” The Daily Economy, June 6, 2025. https://thedailyeconomy.org/article/want-to-fix-medicaid-look-to-milton-friedman.
Americans are feeling the sting of President Trump’s tariffs. Consumer goods ranging from coffee and watches to toys and televisions are experiencing a jump in prices. Meanwhile, socialist frontrunner and New York City Democratic mayoral nominee Zohran Mamdani attacks private enterprise and advocates for even more state control. Amid this storm, the old right needs to hold the line on economics against the rising tide of protectionism on its own side. If it fails, American businesses and consumers will continue to suffer, and Mamdani-style socialism will look more attractive, especially to young people.
Mamdani’s recent victory in the NYC primary reminded Americans of what bad economic policy could look like on the left, namely government-controlled grocery stores and citywide rent freezes. To put it mildly, these proposals are economically naïve. Profit margins in the grocery industry are already razor thin, so the only way to sell food at lower prices is to lose money. Rent control has only ever hurt the people it is meant to help by reducing the incentive to build and thus creating shortages of rental housing.
No matter. Socialists like Mamdani continue to argue against all empirical evidence that if prices are too high, it is because a greedy Scrooge McDuck somewhere is squeezing the little guy for every last penny.
The White House is reportedly looking for ways to get Republican nominee Curtis Sliwa to end his campaign. Since Mayor Eric Adams dropped out last month, this would free up Andrew Cuomo to defeat Mamdani in November’s general election. Though this strategy seems likely to fail — polls show Mamdani defeating Cuomo, even in a one-on-one race — the very attempt is suggestive of a longstanding Republican consensus.
Until recently, the American right understood that only good economic policy could dampen the lure of bad economic policy. In other words, it understood that the correct response to seductive but dangerous proposals like Mamdani’s is economic dynamism, a key component of which is global trade.
The rise of Donald Trump has brought an end to this consensus. Trump believes that tariffs are an effective policy to reshore American manufacturing. This view is not only economically illiterate, but if left unchecked, it will fuel the rise of Mamdani-style socialism.
First, tariffs are a tax on consumers. If there was ever any doubt on this point, it is now undeniable. The Consumer Price Index — which measures the cost of a broad basket of everyday goods and services — rose by 2.9 percent in August from a year earlier, more than it would have without the tariffs. As a result, inflation stands at a stubborn 3.1 percent. Retailers from Walmart to Ikea are raising their prices due to the president’s trade war.
Trump has argued that short-term economic pain would ultimately be worth it when the tariffs bear fruit, presumably in the form of high-paying domestic jobs. This summer, the European Union, Japan, and South Korea pledged to invest hundreds of billions of dollars in the United States in exchange for tariff relief. The administration cited this as proof that its strategy was working.
Practical considerations cast serious doubt on this optimism. For one, the exact meaning of these pledges is unclear. Governments do not have the authority to compel domestic industries to make investments in the United States. Even if they did, the White House does not have the capacity to enforce the pledges, except of course by imposing more tariffs.
But the deeper problem with the president’s strategy is that it is simply unlikely to work. One 2025 study estimated that American manufacturing employment actually decreased by around 2.7 percent due to Trump’s 2018-2019 tariffs. Two earlier studies found similar results.
These findings are inconvenient for the protectionist right, which continues to maintain that raising the price of foreign goods will boost production of local ones. But American businesses do not only import finished products — they import inputs as well. Raising the price of imports can therefore harm the very businesses tariffs are meant to help by making production more expensive. For instance, steel-consuming jobs in America outnumber steel-producing ones 80 to 1. Raising the price of steel through tariffs thus benefits one worker at the expense of 80. The implication is clear: Trump’s tariff strategy will continue to hurt consumers with no upside for workers whatsoever.
Americans — young Americans in particular — are flirting with socialism because the cost of living is too high. Leftists like Mamdani feed on this legitimate frustration by proposing economic policies that should have been consigned to the dustbin of history long ago. Trump-style protectionism responds with an economic theory as outdated as the socialism it opposes. Regardless of who wins this fight, the American people lose.
The old right needs to stand in the breach.
Free enterprise and free trade will not solve all of America’s problems. They may not have the same ring as free jobs and free stuff. But at least they won’t make everything worse. Right now, they are what America needs.
Inflation eased slightly in September, the Bureau of Labor Statistics (BLS) reported late last week, after a delay in the release due to the government shutdown. The Consumer Price Index (CPI) rose 0.3 percent last month, down from 0.4 percent in August. On a year-over-year basis, headline inflation ticked up slightly to 3.0 percent, compared with 2.9 percent in August.
Core inflation, which excludes volatile food and energy prices, rose 0.2 percent in September, down slightly from 0.3 percent in August. On a year-over-year basis, it ticked down from 3.1 percent in August to 3.0 percent last month.
Gasoline was the main driver of inflation last month. Gasoline prices rose 4.1 percent in September, after rising 1.9 percent in August. Overall energy prices climbed 1.5 percent.
Food prices, in contrast, rose just 0.2 percent in September, which was less than half the change observed in August. Prices for food at home increased 0.3 percent, while food away from home rose 0.1 percent. Both grew more slowly in September than in the previous month.
Most components of core CPI declined last month, with the notable exceptions of apparel and medical care.
While inflation is currently much lower than it was for much of 2021, 2022, and 2023, newly imposed tariffs have caused prices to rise more rapidly in recent months. Inflation averaged 0.3 percent per month in July (0.2 percent), August (0.4 percent), and September (0.3 percent), which is equivalent to a roughly 3.7 percent annual rate. That is well above the year-over-year figure of 3.0 percent.
Recent core CPI data tell a similar story. Core prices rose 0.3 percent in July, 0.3 percent in August, and 0.2 percent in September — an average monthly rise of roughly 0.3 percent, which is again equivalent to a roughly 3.7 percent annual rate. Hence, core inflation has risen faster in recent months compared to its year-over-year pace, as well.
Although the Fed officially targets the personal consumption expenditures price index (PCEPI), CPI data provide timely and relevant information for policymakers. The two measures generally track each other closely, though CPI tends to overstate inflation relative to the PCEPI. That makes the latest CPI readings a useful (if slightly higher) measure for Fed officials — and, hence, for determining how those Fed officials will likely conduct policy.
The fact that recent inflation is running hotter than its year-over-year pace is not altogether unexpected. The consensus view is that tariffs are likely to result in a one-time increase in the price level. If Fed officials accept that view, they will likely go through with the widely-expected rate cut this week, despite both headline and core inflation exceeding the 2 percent target.
According to the CME Group’s FedWatch tool, markets are assigning a 96.7 percent probability to an October rate cut. Last week’s CPI release appears to have had little effect on expectations: the implied odds of a 25-basis-point cut were over 98 percent on Thursday and have remained in the high 90s since the Fed’s September meeting.
The Fed was slow to act when inflation first accelerated. It should avoid making the opposite mistake now. Although policymakers cut rates last month, monetary policy remains restrictive.
Some officials may be tempted to pause this week. They should remember that tariffs, not excessive money growth, are the main driver of recent inflation. Rather than risk overcorrecting, the Fed should stay the course and cut rates again. Failing to do so would mean falling behind the curve once more—this time by allowing overly tight policy to push the economy into a needless recession.
Globalization is perhaps best explained not with statistics, but with a pair of foods beloved in China.
Consider Shenyang’s chicken racks and Wuhan’s duck necks — two dishes born directly from trade. In the 1990s, Liaoning’s poultry plants exported white-feathered chickens to Japan. Japanese consumers rejected the racks — the leftover frames stripped of meat — so they were sold cheaply to local workers in Shenyang, who turned them into a beer snack. After China’s entry to the World Trade Organization, Henan-based companies like Huaying Agricultural Group began exporting duck breasts to Europe and America. Western consumers wanted only the premium cuts, leaving the heads, wings, and necks behind. Those scraps traveled a few hours south to Wuhan, where they became the foundation of a local culinary culture. Today, duck neck is to Wuhan what barbecue is to Memphis. Globalization, and the preferences of distant consumers, made this transformation possible. The opening of markets allowed individuals from all across the world to become aware of a much under-appreciated Chinese cuisine, and the resulting demand transformed the cuisine in return. In a way, it is diplomacy through the stomach.
This is precisely Douglas Irwin’s insight: trade is not an abstraction. Trade preferences ebb and flow organically between countries with seemingly distant cultures and customs, and reshape daily life. Whole industries are created from byproducts. The tastes of a shopper in Düsseldorf are intimately tied to the diet of a student in Wuhan. As Milton Friedman knew, markets work through dispersed knowledge — billions of individual choices created a demand — and dishes — that no planner in Beijing could have designed.
China joined the World Trade Organization (WTO) in 2001, adding something fundamental to the trade globalization project. The world had a General Agreement on Tariffs and Trade (GATT), tariff cuts, and cross-border trade, but that global export market lacked a large, disciplined labor force capable of functioning as the world’s factory. Japan briefly played that role in the 1970s and 1980s, but its bubble burst and the model collapsed. The Four Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) had readily combined Western capital and technology with local labor and education programs to become hubs of production and processing, but each lacked the scale necessary to anchor truly global demand for modern goods.
Ronald Coase and Ning Wang, in How China Became Capitalist, described the process as a capitalist transformation—though Beijing would never admit to the word. Bottom-up reforms since the 1980s, coupled with WTO access, lowered transaction costs, attracted investment, and opened markets. From 2001 to 2016, China’s GDP multiplied nearly tenfold, and the country reached its international peak between 2008 and 2016. By 2023, China accounted for almost 30 percent of global manufacturing output — more than the United States, Japan, and Germany combined.
Without China, globalization would have been a club of rich and dominant countries trading with each other. With China, it became a system that benefited nearly every household in the developed world.
China’s entry into the WTO was hailed by Presidents Bill Clinton and George W. Bush, who hoped integrating hundreds of millions of skilled workers into a rule-based trade order would offer not just economic advantage to the Chinese people, but political liberty, as well. That liberty has largely failed to emerge. A relatively wealthier, globally connected China continues to violate the human rights of its citizens and neighbors, including Taiwan, Tibet, and Hong Kong.
Nor has China’s globalization been without costs for the rest of the world. In Europe, Chinese solar panels sold at below-market prices devastated local producers in Munich and Brussels. The same story repeats in other nations, with electric vehicles, smartphones, semiconductors, prescription drugs, and medical devices. The “China Shock,” as documented by David Autor, David Dorn, and Gordon Hanson, showed how regions of the US exposed to Chinese import competition suffered persistent job and wage losses. Low-skilled workers with no college degree were hurt the most. Consumers benefited from cheaper goods, but voters began to question whether the bargain was fair.
The deeper problem is that China, having gained so much from globalization, began to weaponize it against the very countries that had helped lift its country out of destitution. Subsidy-fueled overcapacity, export coercion, and selective trade retaliation turned economic interdependence into political and military leverage. Neighbors were blackmailed, partners punished, and the global system distorted. Technological tactics have ramped up with psychological warfare to manipulate and influence public opinion.
Washington took notice of these aggressions. Charlene Barshefsky, who had helped represent the Bush administration in admitting China into the WTO, found her initial optimism soured, and recently lambasted previous presidents for not holding China accountable to the WTO’s rules. Donald Trump’s trade war stepped up tariffs — including 100 percent on Chinese EVs — and imposed duties on critical minerals. Europe reacted with its own duties on EVs. Beijing retaliated with tariffs on EU pork (including pig ears, noses, and feet, which are popular in China), targeting exactly the kind of complementary consumption seen in duck necks and chicken racks. Globalization shifted from cooperation to confrontation.
Even so, removing China from the international trade order remains unthinkable. In 2024, China was still the world’s largest merchandise exporter, shipping about $3.6 trillion worth of goods — 14.6 percent of the global total. Its manufacturing value-added of $4.66 trillion accounted for 29 percent of the world’s output. US-China trade still totaled $582 billion in 2024, even after tariffs, and the volume and value of that trade still tick upward. China still runs persistent trade surpluses approaching $1 trillion annually.
Rational consensus now speaks not of outright decoupling but of “de-risking” and “friend-shoring.” Developed nations are diversifying supply chains, shielding sensitive nodes like chips and batteries, and maintaining tight control of technology, while leaving non-strategic trade largely intact (if tariffed). That will cost China leverage, lessening its capacity to coerce other players and manipulate markets with subsidy shocks.
Eventually, China will have to look in the proverbial mirror to address its misguided economy. For advanced economies, the moral hazard is equally stark: decades of cheap “China prices” left them vulnerable to offshoring and dependent on authoritarian-led supply chains.
China once showed the world how openness could turn a poor country into a great power. Its future may depend on remembering that lesson. If China adapts, it can still prosper in a more pluralized order. Globalization works best when it is a bargain, not a weapon.
Failure gets rewarded when it comes to government unions. Look no further than Stacy Davis Gates, the president of the Chicago Teachers Union (CTU). She was just unanimously elected to lead the Illinois Federation of Teachers (IFT).
Her promotion comes despite a track record of presiding over educational disasters in Chicago, where student outcomes are abysmal and public trust in the union has cratered. Failing upwards exposes the rotten core of teachers unions. They focus on power, politics, and protecting adults at all costs, with no regard for kids.
Start with the facts on the ground in Chicago Public Schools (CPS). Despite spending roughly $30,000 per student annually, not a single child was proficient in math in 55 schools. Zero kids met basic standards in over 50 schools – failure factories churning out ill-equipped students while taxpayers foot the bill.
According to the Nation’s Report Card, only nine percent of black eighth graders in Chicago are proficient in math. Children are getting shortchanged by a system that prioritizes union demands over actual education.
When confronted with these dismal results during a radio interview, Davis Gates deflected by calling standardized testing “junk science rooted in white supremacy” and claiming it was “born out of eugenics.”
Under Davis Gates’s leadership, public opinion of the CTU has tanked. A poll by Echelon Insights, conducted for the Illinois Policy Institute, showed the union’s net favorability dropping 11 points – from +2 to -9 – in just eight months of her tenure. The rapid nosedive reflects Chicagoans’ growing frustration with strikes, school closures, and political overreach.
Yet instead of accountability, Davis Gates gets a statewide promotion, now representing over 100,000 educators across Illinois. Parents in conservative areas won’t even be able to escape her influence, as she’ll be calling the shots for the entire state’s union apparatus.
Failing up is baked into the union model. Teachers unions reward the ability to extract resources from taxpayers while minimizing accountability for results.
Remember, unions represent teachers, not kids. As Albert Shanker, former president of the American Federation of Teachers (AFT) and Randi Weingarten’s predecessor, reportedly put it: “When schoolchildren start paying union dues, that’s when I’ll start representing the interests of schoolchildren.” Shanker’s words ring true today – the unions’ loyalty goes to their members and their political agendas.
The Chicago Teachers Union poured $2.4 million into Brandon Johnson’s mayoral campaign, helping elect a former CTU organizer who now boasts the highest disapproval rating of any Chicago mayor in history, with nearly 80 percent of residents disapproving.
Johnson doesn’t negotiate against the union. He’s on their side, scheming to enrich them while the city crumbles. Bargaining has turned into a rigged game where taxpayers lose every time.
Even Franklin D. Roosevelt, the father of the New Deal, recognized the dangers of public sector unions. In a 1937 letter, FDR warned that collective bargaining in government could lead to strikes and disruptions incompatible with public service. He called their obstructive tactics “unthinkable and intolerable.” Yet here we are, with unions like the CTU wielding outsized power, free from the market forces that keep private sector unions in check.
In the private sector, employees and employers have competing interests. Workers want better pay and conditions, while management aims to satisfy customers with quality products at competitive prices. If workers demand too much, the business suffers. If employers exploit workers, they lose talent to competitors. Customers can always vote with their feet.
But public schools trap families. Unions fight tooth and nail against school choice because competition threatens their monopoly, and ability to enrich themselves at kids’ expense.
The CTU’s hypocrisy is staggering. In late 2020, they posted (and quickly deleted) a claim that the push to reopen schools during COVID was “rooted in sexism, racism and misogyny.” A union that kept kids locked out of classrooms made the claim, exacerbating learning losses that hit low-income and minority students hardest.
And Davis Gates herself might be the biggest hypocrite in union history. A couple of years ago, she called school choice “racist,” yet she sends her own son to a private school.
Davis Gates has even outflanked Randi Weingarten, the AFT’s national leader infamous for pushing far-left agendas. Weingarten recently called Davis Gates to express concern over a CTU X post glorifying Assata Shakur, a convicted cop killer and former FBI Most Wanted terrorist.
The word on the street is that Davis Gates is gunning for Weingarten’s job at the AFT. I didn’t think it was possible, but she might be even worse for American education. At least Weingarten occasionally pretends to care about kids. Davis Gates doesn’t bother. She gloats about her power to advance a socialist agenda.
Take her recent speech at the City Club of Chicago, where she declared that the teachers union owns the children in the public school system. Quoting James Baldwin, she said, “The children are always ours, every single one of them, all over the globe.” Her X bio echoes this communist sentiment. Education takes a back seat to control. In her new IFT role, she’ll spread Chicago’s failures statewide, imposing her ideology on every corner of Illinois.
Parents and teachers who value real education need to fight back. Conservative and independent teachers should pull their dues from the IFT immediately. After the Supreme Court’s 2018 Janus decision, no teacher can be forced to pay union dues – that compulsion would be a First Amendment violation.
Opting out cuts off revenue to this left-wing money-laundering operation, where over 99 percent of AFT political contributions go to Democrats. And for those worried about liability insurance, the Teacher Freedom Alliance offers it for free to teachers who leave the union.
Teachers unions reward failure because their incentives are upside down. Until we introduce competition through school choice, empower parents, and break the monopoly, kids will continue to suffer. Stacy Davis Gates’s promotion exposes the teachers unions’ grift. It’s time to defund unaccountable union bosses and fund students instead.
The AIER Everyday Price Index (EPI) rose 0.29 percent to 297.6 in September 2025, marking its tenth consecutive monthly increase and bringing the year-to-date change to roughly 3.2 percent. Out of the 24 components, 15 categories posted price increases, one was unchanged, and eight declined. The strongest gains came from gardening and lawncare services, motor fuel, and intracity transportation, reflecting both seasonal and energy-related pressures. Offsetting those, the most notable price declines occurred in nonprescription drugs, admissions to movies, theaters, and concerts, and housing fuels and utilities, indicating modest relief in select consumer essentials.
AIER Everyday Price Index vs. US Consumer Price Index (NSA, 1987 = 100)
(Source: Bloomberg Finance, LP)
Also on October 24, 2025, the US Bureau of Labor Statistics (BLS) released its September 2025 Consumer Price Index (CPI) data. The month-to-month headline CPI rose 0.3 percent while the core month-to-month CPI number increased by 0.2 percent, both of which were lower than forecasts by 0.1 percent.
September 2025 US CPI headline and core month-over-month (2015 – present)
(Source: Bloomberg Finance, LP)
In September 2025, the food index rose 0.2 percent following a 0.5 percent increase in August, with food at home prices climbing 0.3 percent as four of six major grocery categories posted gains, including other food at home (0.5 percent), cereals and bakery products (0.7 percent), nonalcoholic beverages (0.7 percent), and meats, poultry, fish, and eggs (0.3 percent), while dairy products declined 0.5 percent and fruits and vegetables remained unchanged, and food away from home increased a modest 0.1 percent. Energy costs surged 1.5 percent in September, accelerating from August’s 0.7 percent rise, driven primarily by gasoline prices that jumped 4.1 percent, while electricity fell 0.5 percent and natural gas dropped 1.2 percent.
Core inflation, excluding food and energy, moderated to 0.2 percent in September from 0.3 percent in each of the previous two months, with shelter costs rising 0.2 percent as owners’ equivalent rent posted its smallest monthly gain (0.1 percent) since January 2021.
Also in the core numbers, transportation costs were mixed, with airline fares increasing 2.7 percent and new vehicles rising 0.2 percent as motor vehicle insurance and used cars and trucks both declined 0.4 percent. Other notable changes included recreation and household furnishings each rising 0.4 percent, apparel gaining 0.7 percent, personal care up 0.4 percent, and communication falling 0.2 percent. Medical care costs increased 0.2 percent overall, with hospital services and prescription drugs each rising 0.3 percent, offsetting declines in dental services (down 0.6 percent), and physicians’ services (down 0.1 percent).
Tracking changes over the previous 12 months, both the headline and core Consumer Price Indices rose 3.1 percent, slightly higher than the 3.0 percent rise that was projected for both.
September 2025 US CPI headline and core year-over-year (2015 – present)
(Source: Bloomberg Finance, LP)
Over the 12 months ending in September, overall food prices increased 2.7 percent, with grocery prices holding steady from August while dining-out costs accelerated to a 3.7 percent annual pace. Within food categories, meats, poultry, fish, and eggs climbed 5.2 percent, and nonalcoholic beverages rose 5.3 percent, while “other food at home” advanced 1.9 percent and cereals and bakery goods were up 1.6 percent. Energy prices rose 2.8 percent over the year, led by steep gains in electricity (5.1 percent) and natural gas (11.7 percent), though gasoline edged 0.5 percent lower. Full-service restaurant meals rose 4.2 percent compared with 3.2 percent for limited-service meals, while fruits and vegetables gained 1.3 percent and dairy prices were up a modest 0.7 percent.
Core CPI, which excludes food and energy, increased 3.0 percent year-over-year, driven primarily by shelter costs, which advanced 3.6 percent. Other notable contributors included household furnishings and operations (4.1 percent), used cars and trucks (5.1 percent), medical care (3.3 percent), and recreation (3.0 percent). These figures highlight that while goods inflation has moderated, services and housing remain the key sources of upward price pressure within the core index.
The September 2025’s Consumer Price Index report delivered news of a welcome moderation in inflation, marking the slowest pace of underlying price growth in three months. Core CPI was restrained by a cooling in shelter costs — the smallest increase in owners’ equivalent rent since early 2021. Broader price movements were similarly tame: goods inflation eased on cheaper used cars and slower gains in household furnishings, while services inflation was capped by softening rents and airfare costs. Of note, the data release was delayed by the ongoing federal shutdown and assembled primarily to ensure the Social Security Administration could calculate its 2.8 percent cost-of-living adjustment for next year.
For policymakers at the Federal Reserve, the report reinforces confidence that price pressures are continuing to cool without threatening broader economic stability. The slower pace of inflation, particularly across shelter and core services, effectively seals the case for a 25-basis-point rate cut at the late-October Federal Open Market Committee meeting and strengthens the likelihood of another in December. The immediate financial market reaction reflected that view: Treasury yields, and the dollar slipped, while stock futures advanced. Despite persistent tariff exposure — particularly in categories like apparel and household goods — the overall pass-through to consumers remains modest. Estimates suggest firms passed through roughly 26 cents of every dollar in new tariff costs, underscoring how competitive pressures and slowing demand are muting inflation’s reach.
Still, the data paint a nuanced picture beneath the headline calm. Measures of inflation breadth show that while fewer items posted outsized increases, nearly half of core CPI components continue to rise at an annualized rate above 4 percent, signaling lingering while narrowing stickiness. The primary concern now is not so much inflation’s direction but data continuity: with the government still shuttered, the Bureau of Labor Statistics has suspended most data collection, casting doubt on the release and accuracy of upcoming CPI reports. For the moment, though, September’s figures offer reassurance that inflation is on a slower glide path — enough to justify the Fed’s easing bias but not yet soft enough to rule out renewed vigilance if tariff or supply shocks reemerge over the next several months.
Imagine a parallel universe where, with the stroke of a pen, President Trump declares an end to the ill-conceived trade war that, while it intensified sharply in April 2025, started in 2017. Not only are the existing duties on steel, aluminum, semiconductors, consumer goods, and countless other imports rescinded, but the administration also explicitly disavows the threat of future tariffs. In an instant, a fog of uncertainty that hangs over the US economy for years vanishes. For thousands of businesses — from family-owned manufacturers in the Midwest to sprawling multinationals with global supply chains — the abrupt shift is transformative.
A New Horizon of Certainty
The first and most immediate effect is psychological: firms that have been paralyzed by uncertainty suddenly see a clear horizon. Projects that sit mothballed — factory expansions, product launches, acquisitions — spring back to life. Capital expenditure budgets, which are padded with contingencies for unpredictable tariff costs, are redirected into tangible investments. CFOs no longer devote boardroom hours to hedging strategies and pricing contingencies; instead, they plan growth with confidence.
Hiring surges. With the removal of tariff-induced costs, margins fatten, and businesses put idle plans into action. A Texas auto-parts maker, once forced to pay a 20 percent surcharge on imported aluminum, now opens a second plant. A Midwestern agricultural-equipment manufacturer that shelves its design for a next-generation harvester rehires engineers to get the project rolling. Technology companies, once squeezed between tariff costs and price-sensitive consumers, accelerate R&D spending and greenlight acquisitions that consolidate their competitive positions.
Supply Chains Realign
Tariffs force many companies to build inefficient, defensive supply chains. Firms reroute imports through third countries or scramble to find suboptimal domestic substitutes. With tariffs gone, supply chains realign on the basis of cost and quality rather than politics. Container traffic through major ports like Long Beach and Savannah spikes, while logistics companies report volumes reminiscent of pre-tariff highs. Freight forwarders, trucking firms, and rail operators all feel the downstream effects of renewed activity.
Inventory positioning sees rapid restrategizing. Where, starting earlier this year, companies stockpiled vast amounts of goods to hedge against possible tariff hikes or retaliatory duties, now they return to leaner, just-in-time models. This frees up working capital for expansion. The elimination of uncertainty — something businesses value almost more than favorable regulation itself — creates efficiencies across the system.
Consumers Regain Confidence
The parallel-universe tariff rollback quickly reverberates through consumer markets. Prices of goods that quietly creep higher — appliances, apparel, electronics — begin to ease. Retailers, once forced to pass higher import costs along to shoppers, now find breathing room to discount and promote. Households, feeling the combined effect of lower prices and rising job opportunities, loosen their wallets. Consumer confidence indexes register sharp upticks, echoing levels not seen in years. A small measure of deflation, the actual decline of prices rather than their deceleration (disinflation), enters the US economy.
Financial markets respond in kind. Equity analysts upgrade earnings forecasts, citing restored margins and reduced input costs. The stock prices of retailers, automakers, and manufacturers jump, while capital-goods and logistics firms trade at premiums reflecting renewed investment. Bond yields rise modestly, reflecting expectations of stronger growth. Even the dollar firms up, as global investors interpret the tariff withdrawal as a sign of restored policy rationality.
Productivity Growth
Beyond the immediate uplift in spending and hiring, the tariff rollback opens the door to longer-term gains. Tariffs function as a tax on productivity: firms spend time and money dodging duties, redesigning supply chains, and lobbying for exemptions rather than innovating. With those distractions gone, resources flow back into efficiency-enhancing investments.
Higher capital expenditures translate into a more modern capital stock: upgraded machinery, cleaner energy systems, better software. The productivity boost that follows is not dramatic in a single quarter, but over time it compounds. Economists projecting GDP growth see their models nudge upward as capital deepening accelerates and labor markets tighten. The virtuous cycle of investment, hiring, and spending reinforces itself.
Global Ripples
The world economy, too, feels the aftershocks. Exporting nations that see their trade with the US fall off — Vietnam, Mexico, Germany, South Korea, and others — suddenly enjoy revitalized access to the world’s largest consumer market. Supply relationships stabilize, and retaliatory tariffs imposed on American goods quietly drop. Farmers, who are squeezed by trade disputes, find foreign demand returning. Energy exports — oil, gas, coal — regain lost markets.
Global institutions like the WTO, which have drifted to the sidelines, are once again treated as forums for dispute resolution rather than ignored. Investor confidence abroad strengthens, and multinational corporations, no longer deterred by the threat of sudden tariffs, expand their US-based operations.
The Parallel Universe Lesson
Of course, this universe is hypothetical. In reality, tariffs remain a prominent feature of American trade policy, and the uncertainty they generate continues to ripple through the economy. But the exercise demonstrates just how powerful a single act of deregulation can be. By eliminating tariffs and withdrawing threats of new ones, the administration sets off a cascade of positive effects: higher investment, faster hiring, stronger growth, and renewed global confidence in US economic leadership.
It is worth stressing that nothing in this parallel universe is beyond reach. The tools required to unleash this growth spurt already exist, sitting unused in the hands of policymakers. With a single declaration, the administration lifts the burden of tariffs and lets markets, businesses, and consumers do what they do best: allocate resources, generate wealth, and drive prosperity.
Perhaps a better term for this exercise would be a gedankenexperiment — a thought experiment of the sort often undertaken in physics and philosophy. If others indulge the fantasy that government intervention and the suppression of exchange makes everyone richer, I figure I can take my turn too. For now, it remains an exercise in imagination — but it is one well within the capacity of the current administration to make real.
On October 26, half of Argentina’s representatives and one-third of senators will face voters at the ballot box. This is, on its own, fortunately unexceptional. Indeed, Argentina has been a solid democracy since 1983, when the last generals left the presidential palace.
Nonetheless, these midterm elections represent an existential challenge for Argentina. They are, de facto, a referendum on the economic reforms of President Javier Milei. Milei, who was inaugurated on December 10, 2023, had flamboyantly promised to take a chainsaw to public spending, to tame an inflation rate nearing 300 percent per year, and to set the economy back on the path of growth. As realistic as he is idealistic, Milei promised 18 months of suffering and austerity measures to fix a country that had been ravaged by Perónism. Where does Argentina stand?
A Bit of History
Before looking at contemporary Argentina, it makes sense to offer a bit of historical context. Argentina was the forgotten backwater of the Spanish empire in the Americas; it lacked gold or a local population to be enslaved. After independence in 1816, Argentina suffered through a half-century of pendulum swings between dictatorships and civil wars — neither of which is favorable to economic growth. In 1860, Argentina adopted an almost verbatim translation of the US Constitution of 1787. Miraculous growth ensued. By 1910, Argentina was the eighth richest country in the world, a living laboratory for the economic theories of Adam Smith, Ludwig von Mises, F.A. Hayek, and Douglass North. Economic liberty, defense of contracts, freedoms of speech and religion — in sum, Argentina thrived under institutions that favored entrepreneurship and industrialization. Alas, Argentina didn’t quite have rule of law, but a ruling oligarchy with weak institutional safeguards. The first military coup came in 1930. There would be another 10 throughout the twentieth century, with a total of six military dictatorships (half the time, the military would simply evict the president and hold fresh elections).
The key factor for understanding the last century in Argentina is Perónism, a corporatism imported from Mussolini’s Italy, and given an Argentine flavor by Colonel (and future president) Juan Domingo Perón. Redistribution of wealth to buy friends and votes, populism, a corporatist balance of the country’s interest groups with an interventionist state as arbiter, five-year economic plans, and heavy regulation — these formed the new constitutional order. The eighth richest country in the world in 1910, Argentina suffered through a century of chronic hyperinflation, routine monetization of budget deficits, and economic crises — and fell to the rank of 68th richest country in the world today. Argentina has also garnered the dubious honor of being the IMF’s greatest debtor (it now owes $57 billion). Despite the obvious economic damage, the Perónist instinct dies hard; in the decade before Milei’s election, the Perónists doubled down on their policies. Intervention after intervention, regulation, redistribution, all took their toll. The poverty rate, which had fallen to 20 percent in 1993, hit a high of 58 percent before settling at 45 percent in 2023. The debt-spending was financed by printing money to feed friends and clients; hyperinflation, which had been tamed in the 1990s, returned, and rose to almost 300 percent per annum by 2023. Worst of all, the Perónists systematically destroyed the country’s institutional checks and balances.
Milei was elected in 2023, with a mandate to solve the economic consequences of Perónism. But the Perónists remain powerful: they hold 108 seats (of 257) in the lower house and 33 (of 72) in the Senate, along with 16 governor’s mansions (out of 23 provinces). This past September, the Perónist candidate won 47 percent of the votes in the Buenos Aires province gubernatorial election (against 33 percent for Milei’s party). To be sure, this province has long been a stronghold of Perónism… but this still represents a challenge to Milei’s reforms.
Halfway Through Milei’s Term, Where Is Argentina?
On December 10, 2023, Javier Milei inherited an economic and institutional disaster. He has — of course! — not been able fully to fix a century of interventionist damage in the span of two short years. But, 22 months into his presidency, where does Argentina stand?
Because he lacks a congressional majority, Milei has had to impose reforms by emergency decree. Such decrees, according to the Argentine constitution, are valid for one year, and must have the consent of one the two legislative chambers.
Milei was thus able to cut public spending, notably by reducing the number of cabinet agencies by half, from 18 to 9. By taking a chainsaw to government spending, Milei eliminated the budget deficit, a chronic feature of Perónist Argentina. Public debt, which had reached 155 percent of GDP in 2023, has now fallen to 83 percent.
Perónism’s fiscal profligacy had dire monetary consequences, because the budget deficit was routinely monetized by the central bank, which had effectively become an arm of the Treasury. Milei inherited an annual inflation rate of 294 percent — which he has reduced to 34 percent (this would be unthinkable in the US, but is quite healthy by Argentine standards).
As a good economist (and economics professor), Milei has not focused exclusively on macroeconomics. He has also attacked microeconomic impediments, by removing the heaps of regulation that blocked growth and suffocated the economy. By emergency decree, Milei removed import controls and price controls. Notably, the real estate market was paralyzed by rent controls, mandatory three-year leases, and the inability to sign a lease using dollars (or any currency but the Argentine peso). One does not need a doctorate in economics to predict that the sad combination of regulation and hyperinflation would erode supply, as landlords faced the very real possibility of evaporated rents. Since Milei suspended rent controls, the price of rental housing in Argentina has fallen by 30 percent, and housing supply has increased by 212 percent.
Argentina’s risk premium has tumbled dramatically, and foreign investment has returned. After years of recession, economic growth is now at an enviable 6.3 percent. The middle class has surged, in two years, from 23 percent to 39 percent of the population. The 45 percent poverty rate Milei inherited from the Perónists temporarily rose to over 50 percent — Milei had indeed promised the pains of austerity — but has already fallen to 31 percent.
This is but a summary of Milei’s success.
There’s One More Thing
Unfortunately, there is one glaring omission in Milei’s reforms.
He has allowed contracts to be signed in foreign currency and cryptocurrency. He has also imposed an amnesty for depositing the dollars that had been hidden in mattresses because of currency controls and the past freezing of dollar-denominated accounts. These are steps in the right direction. But he has not crossed the last Rubicon: the complete abolition of Argentina’s central bank — even though he had promised to wield his terrible swift chainsaw on it too. Closing the bank would have gotten rid of chronic hyperinflation, and opened the door to dollarization (which already exists de facto), or even currency competition, to replace the monetary cash cow.
Beyond the immediate economic benefit of taming and preventing hyperinflation, shutting down the central bank would represent the final nail in the coffin of Perónism. Indeed, all the good that Milei has brought to Argentina over the past two years could evaporate with one simple law or presidential decree if the Perónists return to power. Argentina would then relapse back into its perennial bad habits, with favors and votes purchased by redistribution, and budget deficits financed by the monetary printing press — in sum, a return to the predatory state of Perónism. Economist Emilio Ocampo (who had offered his services as the last president of Argentina’s central bank) explains that closing the central bank is the only method for Milei to show credible commitment to his reforms, and the only way to end the profligacy of Perónism.
These midterm elections are not merely a political footnote in the history of a troubled country. They are a veritable existential struggle between two forces. On one side, we have intervention, privilege, and a poverty that is as absurd as it is preventable. On the other, there is hope, progress, freedom, and prosperity.
President Donald Trump and his fellow economic nationalists never tire of insisting that ordinary Americans have been harmed by free trade. Mr. Trump sounded this theme in his first inauguration speech, when he alleged that “for many decades, we’ve enriched foreign industry at the expense of American industry…. We’ve made other countries rich while the wealth, strength, and confidence of our country has disappeared over the horizon…. One by one, the factories shuttered and left our shores, with not even a thought about the millions upon millions of American workers left behind. The wealth of our middle class has been ripped from their homes and then redistributed across the entire world.”
A more recent appearance of this theme is in his administration’s brief to the US Supreme Court in support of the “Liberation Day” tariffs — a brief that reads in part as if it were dictated by Mr. Trump himself. That brief declares baldly that “without tariffs, we are a poor nation.” Because tariff rates generally fell for the 80 years prior to Mr. Trump’s first term in office, it follows from the president’s logic that Americans have been made poorer over those years — and especially since the mid-1970s when the United States began running what will soon be a half-century-long uninterrupted string of annual trade deficits.
Here at TheDailyEconomy and elsewhere, serious researchers have long and repeatedly offered straightforward evidence against this Trumpian thesis. For example, inflation-adjusted per-capita GDP is today at an all-time high, as are real wages. Also today at, or very near, their all-time highs are US industrial production, industrial capacity, and exports.
The rate of unemployment is quite low.
These facts alone suffice to discredit assertions that crafty foreigners have taken advantage of unpatriotic or weak officials in Washington to inflict economic depredations on ordinary Americans.
Yet no matter how unambiguous the data, or how frequently they are repeated, they seem unable to unseat the myth that Americans have been impoverished by free trade. Perhaps these data are too abstract, too ethereal, too academic.
So to assess the trend of American living standards over the past several decades, let’s look instead at data that are more concrete.
Ordinary Enrichments
Life Expectancy
Start with what is perhaps the single most important feature of living standards, namely, the amount of time we live to enjoy those standards. Life expectancy has risen. Life expectancy today is three percent longer than in 2000, five percent longer than in 1990, eight percent longer than in 1980, 12 percent longer than in 1970, and 13 percent longer than in 1960.
In light of this happy trend it’s no surprise that the percentage of the US population who are age 100 and older is today (2020) 78 percent larger than in 2000, twice as large as in 1990, 4.2 times larger than in 1980, 6.3 times larger than in 1970, and 8.3 times larger than in 1960.
Because life expectancy rises when wealth increases, Americans’ rising living standards are not only themselves a component of wealth, they also reflect Americans’ rising wealth.
Housing
Today, the average floor size of a new single-family home is 2,408 square feet. The floor size of this home is 6.3 percent larger than that of a new single-family home in 2000 (the year before China joined the World Trade Organization). It’s 16 percent larger than in 1990 (four years before the North American Free Trade Agreement was launched), 38 percent larger than in 1980 (five years after America last ran an annual trade surplus), 61 percent larger than in 1970, and 90 percent larger than in 1960.
This positive trend is even more impressive when accounting for the fall in the number of people who live in the average American household. Today, each resident of that household has 11 percent more square feet of living space than did a resident of an average new single-family home in 2000, 22 percent more space than in 1990, 53 percent more space than in 1980, 102 percent more space than in 1970, and 149 percent more space than in 1960.
I’m unable to find reliable data on the cubic footage of the average American home, and of how this measure has changed over time. (If you know of a source of such data, please share that source with me.) I’m willing to bet (literally!) that the average US home today not only has more square footage than it did in the past — say, in 1975 — but also more cubic footage.
Some of this increase in living space might be due to land-use restrictions that promote the building of single-family homes and discourage the building of multiple-family complexes. But because living space is a desirable good, the demand for which increases as people become wealthier, undoubtedly, some of this increase in living space reflects ordinary Americans’ increased prosperity. (Keep in mind also, however, that insofar as land-use restrictions result in the building of fewer houses, these restrictions make per-person housing occupancy higher than it would otherwise be.)
Automobiles
What about personal transportation? Today, just eight percent of US households own no automobile, while 59 percent own two or more automobiles. These figures are much better than in the past. In 2000, nine percent owned no car, and 57 percent owned two or more. In 1980, 13 percent of households were automobile-less, while 52 percent had two or more. In 1970, almost one in five US households (18 percent) owned no automobile, while only 35 percent owned two or more vehicles.
Groceries
Supermarkets today carry many more items than they did in the past. Estimates vary, but supermarkets now carry roughly 32,000 different items (with some estimates being over 40,000 items, and some even as high as 50,000), while in 1975 the number was around 9,000.
Innovation and Everything Else
One could go on, of course. Almost needless to say – but I’ll say it nevertheless – in 1975 almost no one owned a personal computer, and absolutely no one owned a smartphone. There was no Internet for ordinary people. Commercial air travel (which was still heavily regulated) was a luxury. Automobiles had no backup cameras, navigation screens, or keyless features. There was no streaming music. Most Americans had a choice of a whopping four broadcast television channels – and all television was low-def. Coffee quality was poor and the selection of beer was minuscule. There was no LASIK surgery. And luggage was true to its name: unable to roll, it had to be lugged. This list could be greatly extended.
There is simply no truth to the countless claims that Americans have been economically impoverished over the past few decades by freer trade and globalization.
