Writing recently at National Affairs, Yale University political philosopher Gregory Collins leveled serious charges against modern economics. Because Collins is an accomplished scholar of the works of Edmund Burke and Adam Smith (among others) — and because he harbors toward the market order none of the knee-jerk hostility that today motivates so many progressives and postliberals — his criticisms deserve to be taken seriously.

Among the economists whose work Collins criticizes is me. Specifically, he criticizes my distinction, expressed in this AIER Explainer, between consumption and production. My respect for Collins and his work fortified me to contemplate his criticisms with an open mind. I nevertheless believe that Collins misses my point. And so while I’ll devote the first part of this essay to addressing some of Collins’s criticisms of other economists, I’ll devote most of this essay to a defense of my distinction between consumption and production.

An Overly Broad-Brush Criticism of Economics

Collins argues that modern economics rests on an impoverished understanding of human nature — one that compresses human beings into creatures seeking to maximize utility by satisfying as many material preferences as possible. Economics, in his view, reduces “the spice and variety of life to the vapid premises of preference satisfaction, utility maximization, and rational-choice theory.” This impoverished understanding, Collins argues, stems from economists’ failure to draw sufficiently on pre-Enlightenment wisdom, especially the insights of Aristotle and St. Thomas.

The best pre-Enlightenment thinkers, Collins argues, understood that human existence involves more than mere preference satisfaction. They recognized that each of us — or at least those striving to live a worthy life — “seeks,” in Collins’s words, “moral purpose and spiritual transcendence.” By ignoring this reality, modern economics misunderstands humanity and, with it, social activity.

I have no interest in defending every tenet of neoclassical economics. Much economic analysis is carried out with too narrow an understanding of human nature. In addition, many economists, focused as they are on quantitative measurement, overlook economically relevant phenomena that cannot be captured in numerical data. But I know of no such flaw in economics that has not been identified and challenged by economists themselves. Although not all of these arguments and discoveries appear in textbooks, they are prominent enough within the discipline to make Collins’s portrayal of economics itself ironically reductionist.

Consider two examples.

The typical neoclassical economist assumes that self-interest encourages individuals to capture as much of the gains from trade as possible, leaving their trading partners with as little as possible. Yet in laboratory experiments of what is called “the ultimatum game,” individuals typically exhibit a sense of fairness and will knowingly sacrifice material gain in order to enforce that sense of fairness.

It’s true that changing the rules of the ‘game’ often changes the outcomes. Indeed, it’s possible to arrange, by changing the rules, for each player to behave more like a narrow-minded homo economicus. But this latter experimental finding itself reveals that narrow-minded homo economicus is, under certain circumstances, an empirical reality — and, thus, attention to both formal and informal institutions is important if we wish to prevent society from being dominated by narrow-minded homines economici pursuing only their short-run material interests.

Another example of work that belies Collins’s description of modern economics is that of the late Nobel laureate Elinor Ostrom. Through extensive fieldwork, Ostrom discovered that individuals in communities often solve collective-action problems, such as creating and sustaining communal irrigation systems, that would never be solved by narrow-minded homines economici.

Of course, one can attempt to describe these behaviors in utility-maximizing terms. But the fact that prominent economic research recognizes human purposes as complex, layered, and often nonmaterial is powerful evidence that Collins’s critique paints economics with too broad a brush. 

On Production and Consumption

Collins explicitly rejects my attempt to distinguish production from consumption. He writes:

Many economists today believe that maximizing consumption should be the aim of political economy. Donald Boudreaux asserts as much in an essay published last summer by the American Institute for Economic Research. Powered by the logic of Ludwig von Mises, Boudreaux insists that “consumption is the end, and production is the means” of economic activity, and that all productive activities are “means to the end of achieving maximum-possible consumption satisfaction.”

Boudreaux’s view represents the first commandment of the economic mind today: Thou shalt study the satisfaction of subjective preferences. This assumption, like the philosopher’s stone, transmutes the complexities of human behavior into the hallowed touchstone of economic analysis, effectively chilling serious reflection of the social and moral dimensions of man’s natural constitution.

Collins misunderstands my point because he overlooks the purpose of my essay. That purpose is not the normative claim that “maximizing consumption should be the aim of political economy.” Rather, my purpose is to expose an analytical error committed by many interventionists, especially protectionists such as Oren Cass and Robert Lighthizer.

Protectionists typically justify their policies by pointing to the particular jobs they save. Economists respond that protectionism also destroys particular jobs. They also note that protectionism reduces the spending power of domestic consumers. In public debates, protectionists often ignore the first point while eagerly seizing on the second to make what they believe is a “gotcha” argument against economists.

“Aha!” protectionists cry. “Economists’ view of humanity is absurdly narrow! Unlike us protectionists, who understand that people are not only consumers but also producers, economists think people are only consumers. How silly! We can therefore ignore economists.”

If economists were guilty as charged, then policy recommendations rooted in our positive analysis would indeed be worthless. But we’re innocent.

To see why requires that the analytical distinction between “consumption” and “production” be made clear. “Consumption” is a label for ends; “production” is a label for means. The particular content of the ends (and of the means) isn’t specified. “Consumption” can refer to the wise pursuit and embrace of the true and the beautiful as defined by Aristotle or Aquinas (or by Adrian Vermeule, Pope Leo, the Dalai Lama, Hasan Piker, Nick Fuentes, whoever) no less than to myopic attempts to gratify the most fleeting desires of the flesh.

When economists say that individuals act to satisfy as many consumption desires as possible, we describe a category of human action; we prescribe nothing. We simply mean that individuals act to achieve as many of their ends as possible. When challenging protectionist policies and other government interventions, we explain that such policies increase some individuals’ ability to achieve their ends only by reducing the ability of others to achieve theirs. Economics imposes no restrictions on what those ends are or ought to be, and it makes no value judgment about one set of ends compared with another. 

Nor do economists elevate consumption over production. Rather, we point out that production is a means to consumption, whatever the particular consumption desires might be. To argue for policies that treat production as an end in itself is therefore to commit a category error. 

It is akin, for example, to mistaking an emergency appendectomy for an end on par with the patient’s goal of good health. The successful performance of the surgery has genuine value, and the surgeon may rightly take satisfaction in performing her craft with skill and care. Yet no sensible person would wish to protect the surgeon’s job by opposing a pharmaceutical breakthrough that ensures appendixes never again rupture. The dignity and satisfaction the surgeon derives from her work come from restoring patients to health. If patients are already healthy, the surgeon would be perverse — and most undignified — to insist on performing unnecessary operations. 

No competent economist denies that work has dignity or that individuals find satisfaction and meaning in their work beyond the incomes they earn. What economists deny is the practical possibility of using government to protect some individuals’ pursuit of dignity and other nonmaterial goals without obstructing other individuals’ pursuit of the same. 

Similar reasoning applies to the values people attach to their families, communities, churches, and countless other non-monetary aspects of life. Perhaps “consumption” is an imperfect word to describe the pursuit of both material and higher ends. I am open to suggestions for a better term. But until such a term gains currency, scholars should avoid concluding from economists’ description of “consumption” as the goal of human action that economists either deny or dismiss the human pursuit of truth, beauty, and transcendence.

A university degree once distinguished its holder precisely because few people had one. As degrees spread, employers began demanding them as a baseline, and today many jobs that historically required a high-school education demand a bachelor’s degree, not because the work grew more complex, but because the signal became an entry fee. Everyone pays more; nobody stands out. That sentence describes far more of modern life than credentials.

Replying to email quickly once demonstrated diligence. Then prompt replies became the norm, the advantage evaporated, and what remains is an expectation of perpetual availability. Consultants encounter a version of the same trap: clients rarely read a 300-slide deck, and a concise 30-slide report would usually communicate the recommendations better, but the extra 270 slides signal effort and thoroughness. Psychologists call the instinct behind it the effort heuristic. Even prizefighting has its costume: athletes dehydrate themselves by as much as ten kilograms to make a weight class below their natural size, a practice doctors condemn and many fighters privately hate, yet no one can quit alone without gifting an opponent a size advantage.

The pattern behind all of these is old and well mapped. Michael Spence won a Nobel for showing that a signal can be perfectly rational for each individual and pure waste for the group. Garrett Hardin’s tragedy of the commons is the textbook cousin: each herder benefits from grazing one more animal, so every herder does, and the pasture dies. Individually sensible, collectively expensive. The life cycle is always the same. A practice starts by conferring a real advantage; the advantage is competed away as everyone adopts it; the costs become permanent.

Why does nobody simply stop? Three forces keep these equilibria in place. The first is the first-mover penalty: whoever stops first suffers first and alone. The consultancy that slims its decks does not become worse at analysis, but it becomes different—and different demands an explanation. The second is inertia: practices that have endured for decades acquire a presumption of legitimacy, and some of that presumption is earned, since most new ideas are bad. The third is conformity: visible non-participation unnerves people even when it is harmless. The complaint about the plain-spoken colleague is never, “Communicates too clearly.”

The encouraging part is that these equilibria are not permanent. They end, and history shows how.

Sometimes innovation obsoletes them. Employers are currently dropping degree requirements in favor of skills assessments, portfolios, and work samples, not because they became altruistic, but because better predictors of performance emerged. When a superior alternative changes the incentive structure, an old equilibrium unravels surprisingly fast, and the first mover to kill a hated practice captures real goodwill.

Sometimes coordination does it. People who cannot stop individually can stop together. Volkswagen famously configured its servers to stop routing email to employees’ phones outside working hours. Many firms now enforce hard stops on after-hours messages, a private fix for a private arms race. And sometimes private governance moves where regulators stall: after a fighter died during a weight cut in 2015, the promotion ONE Championship banned dehydration cutting and introduced hydration testing, a reform state athletic commissions in boxing have still not matched.

And sometimes status does it, which is the strangest exit of all. The first-mover penalty is not distributed evenly. Warren Buffett writes his shareholder letters in plain, folksy English while much of finance drowns in jargon, and nobody concludes that he must not understand derivatives. Economists call this countersignaling: when your position is beyond question, refusing to signal becomes the loudest signal of all. The people at the top can abandon a pointless practice at little cost, and when they do, they give everyone below them permission to follow. Casual Fridays did not spread from the interns upward. If you are waiting for one of these equilibria to die, watch the most secure person in the room.

Notice what none of these exits requires: mass moral improvement. These systems rarely disappear because people become more rational or more generous. They disappear because incentives change. The moment participation stops conferring an advantage, or non-participation stops carrying a penalty, the structure collapses faster than anyone inside it expected.

So here is a better question to ask of any practice than, “Why does this exist?”: If everyone could stop doing this tomorrow without consequences, would they? If the answer is yes, you are probably not looking at an efficient institution. You are looking at an equilibrium people maintain simply because everyone else maintains it.

Apply the question with care; G.K. Chesterton’s rule about fences still holds, and some practices that look pointless are quietly load-bearing. But apply it. Many practices we now consider absurd were once perfectly normal, and many we currently accept will one day receive the same treatment. Progress rarely comes from convincing people to be better. It comes from changing incentives until the sensible thing and the individually rational thing become the same thing.

Imagine being stranded alone on a deserted island. You’ve developed basic survival skills such as fishing and foraging, although you are better at the latter than the former. You built a functional shelter and have enough food to survive. But life could be better. 

One day after gathering coconuts, you suddenly see another human on the beach. That individual, who is carrying a basketful of fish, spots you as well. You both pause, staring at one another in surprise. 

This “Robinson Crusoe” scenario is a common in many Economics 101 courses to advance the discussion of market exchange. If you’ve ever taken this course, you know what happens next. Both individuals instantaneously realize it is in their mutual interest to exchange goods, agree to specialize, and construct a chart summarizing their comparative advantages. You, being better at climbing trees, become the coconut collector, whereas your new trading partner becomes the expert fisherman. Your quality of life improves with the increased efficiency arising from specialization and trade. 

This logic arises directly from Adam Smith and David Ricardo. In The Wealth of Nations, Smith argues that the division of labor improves productivity by allowing individuals to enhance dexterity and avoid “sauntering” between activities. But if one devotes more attention to one task, it is necessary to rely upon others to supply those things you no longer produce for yourself. Fortunately, humans are natural-born truckers, barterers, and exchangers. An expanded market that promotes exchange with an increasing number of individuals thus allows for more specialization, productivity, and wealth. Even if some individuals are better at all tasks, division of labor still works if people specialize in the things they are relatively best at. This is the concept of comparative advantage articulated by David Ricardo in The Principles of Political Economy and Taxation.

Thus, on our formerly-deserted island, two people leveraging comparative advantage increases both individuals’ welfare. Cooperation improves living standards.

Not So Fast: Relations Before Transactions

But is this really what would happen if two strangers met for the first time on what was believed to be a deserted island? Confronted with this situation, would you automatically draw a comparative advantage chart? And would you honestly expect the stranger you just encountered to agree without question that specialization and exchange are the obvious solutions to a fruitful (and fish-filled) standard of living? Is it obvious that cooperation would spontaneously emerge? 

I propose that the answer to these questions is emphatically “No!” Rather, the first reaction of each individual is more likely to be confusion, distrust, and fear. Granted, both castaways may be excited to meet someone else; companionship is often a desired good. But what if the stranger is hostile, plans to attack, and steals all your hard-earned coconuts? And what if the other person is part of a larger tribe that views intruders with suspicion? With little knowledge of the “other,” it may be prudent to expect conflict, and not cooperation, as a possible outcome. Uncertainty about the intentions of strangers clouds the possibility of cooperation. 

The initial moment of contact between two strangers creates a fundamental choice. Even before mutually advantageous exchange can occur, each party must decide whether to attempt friendly interaction or run away in fear. Choosing the latter option would leave you “alone” on the “deserted” island without any gains from trade to improve your living standards. Things wouldn’t be the same as before, however. Now, you face trepidation that the “other” might sneak into your camp, pilfer your goods, and possibly cause you harm. What a horrible, Hobbesian world this would be – solitary, poor, nasty, brutish, and (alas) probably short! 

You might surmise that mutually advantageous exchange and cooperation are the better choice in this scenario, but how does one convince the other party of your peaceful and productive intentions? You probably aren’t the only one thinking this; the other person is likely engaged in the same thought process. As such, something else must happen before we create a comparative advantage chart. Cooperative relations don’t spontaneously occur. Uncertainty must be alleviated. Trust must be built. Relations must precede transactions. But how? 

Fellow-Feeling Builds Trusting Relations

While Smith is best known for explaining how specialization and market exchange lead to prosperity, he also gave us the recipe for solving the initial problem of uncertain intentions in his other magnum opus, The Theory of Moral Sentiments (TMS). Indeed, he lays it out clearly in the first sentence of the work: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” Smith calls this “fellow-feeling.” From here, Smith builds a theory of morality based upon prudent and propitious decisions under conditions of uncertainty. 

Smith accomplishes this task by positing the mechanism of the impartial spectator. When making important decisions affecting others, we step outside of ourselves and consider how others would react to such choices. One should choose the option that best improves the well-being of all individuals affected, and one that is socially propitious – that is, in keeping with accepted norms and values. Choices are not merely about satisfying our immediate material preferences, as simplified neoclassical economic models assume; such decisions include considerations about how society views our choices. Our social reputation matters. We want not only to be loved, but to be lovely; not only to be praised, but to be praiseworthy. This takes human choice beyond immediate and direct gratification, embedding it within a context of long-term reputations and relationships, the things that are crucial for extending markets. Before markets, we must forge trusting relationships. Fellow-feeling becomes the foundation of the wealth of nations. 

The Gift of Sacrifice 

Let us return to our “deserted island.” When we last left our two castaways, they were both staring at one another, wondering furiously whether the person across from them was friend or foe. The answer to that question will determine whether there will be any bartering, exchanging, specialization, and increased prosperity. What to do now? 

Cooperative exchange first requires a desire for peaceful relations. Achieving this likely necessitates a sacrificial offering – a gift – to signal one’s intentions are not hostile. If you offer up several coconuts by laying them on the ground and motioning with your hands that they are for the stranger to take, you have shown a willingness to give up valuable resources to forge an ongoing relationship. Michael Thomas and I have argued that sacrificial gift-giving is historically common as a means of building trust among strangers and alleviating uncertainty surrounding contractual exchange.

Gifts also encourage reciprocity, a needed ingredient in economic exchange. Even a simple “thank you” signals a gracious desire for a relationship. This seed of reciprocal obligation underlies all commercial relations. 

Island Earth: Ritualistic Gifting, Civility, and Prosperity 

The “deserted island” example is instructive, but is it realistic? Very few people are stranded on desolate atolls; we are born into societies populated by millions of individuals. We encounter dozens of people daily, some of whom we’ve never known before. Now consider that each time you meet a stranger in a commercial environment, you are essentially in the same scenario as our hypothesized island. Without some level of certainty whether a potential trade partner is honest and reliable, we are unlikely to exchange. Without generalized trust, the extent of the market shrinks drastically, and we are the poorer for it. 

Unfortunately offering coconuts to every stranger we meet is cost-prohibitive. So how could society recreate the fellow-feeling and beneficial sacrificial behavior witnessed on our island? The answer is public ritual. 

To overcome the difficulties of giving gifts to every stranger we encounter, societies invest in ritualistic forms of gift giving. Christmas, Hanukkah, Valentine’s Day, and even Halloween are infused with gifting practices, reinforcing the values of sacrifice and reciprocity. These ritualistic gifting practices are celebrated publicly. People visibly adorn their residences and businesses with decorations and dress in fancy attire during holidays. Such frivolous expenditures indicate willingness to sacrifice resources to be seen as lovely and praiseworthy. We celebrate businesses and households that decorate for the enjoyment of others. 

To put it another way, public gifting rituals help build key components of civility — sacrifice, graciousness, and reciprocity. This is the basis for the Golden Rule, a simple yet effective decision-making heuristic that allows two strangers on a desolate island realize gains from trade and benefit from specialization. Adam Smith would approve!

Relations before transactions. Trust before trade. Our moral sentiments before the wealth of nations. 

The lesson extends beyond the classroom. We should all remember that the simple act of freely giving a coconut can initiate and enhance the power of voluntary exchange and comparative advantage to create common prosperity.

A recent interview in Foreign Affairs acknowledges: it’s hard to name someone alive today who has had more of an effect on how America thinks about trade policy than Robert Lighthizer. In “The New Trade Order,” he lays out the case against free trade. For decades, he says, Washington chased a free-trade fantasy. The “trifecta of stupid” (his phrase for NAFTA, the WTO, and permanent normal trade relations with China) exposed our markets, caused the “China shock,” and shipped millions of manufacturing jobs overseas. The narrative result is a hollowed-out heartland where wages stagnated while coastal areas like San Francisco and New York City boomed, $27 trillion in wealth signed over to foreigners, and industrial towns so broken that men without college degrees now die eight years sooner than those with them. 

By Lighthizer’s account, our pursuit of free trade has caused all of this. “Nobody really believes in free trade,” he told Foreign Affairs last week, “with the exception of the Harvard economics faculty and a few Anglophone politicians.” This harkens back to US Trade Representative Jamieson Greer’s indictment of economic models being a product of “elite consensus,” as opposed to real world evidence.

There’s just one problem. Today, with mountains of evidence, the verdict is in. As we’ve understood for 250 years now, protectionism has not led to the reindustrialization of America, has raised hardly any revenue, and has made us less safe, not more. 

The Public Isn’t Buying It

The American people seem to have noticed the pernicious effects of tariffs and other forms of protectionism. New polling among 3,000 registered voters in late July finds that support for free trade beats the opposition by more than four to one in every single income bracket. Further, it’s popular with Republicans, Democrats, and Independents, and those with and without college degrees. Navigator Research finds that 59 percent of Americans view tariffs unfavorably against just 29 percent favorable. YouGov finds 72 percent of Americans understand that tariffs raise prices while just three percent think they lower them. And another poll finds that 64 percent of Americans disapprove of how the president has handled tariffs.

As if that weren’t enough, a new Reuters/Ipsos poll finds that, for the first time in decades, “Democrats lead Republicans 37 percent to 36 percent on stewardship of the US economy.” While a great deal of that can be attributed to high gas prices and the war with Iran, the public’s verdict on protectionism is not in doubt.

Tariffs were sold as a means of supporting the “forgotten man at the bottom of the economic pyramid” against the “coastal elites.” Despite this, the forgotten man wants free trade and overwhelmingly so. Non-college voters, the very people that Lighthizer is concerned about and wants to help, back free trade. Why have the supposed beneficiaries of tariffs turned against the very policy that was promised to deliver jobs, wealth, and security? The answer is simple: on all three counts, tariffs are not working.

Jobs: Are We More Industrialized?

Start with the promise of reindustrialization. On April 29, 2025 President Trump held a rally in Michigan celebrating his hundredth day in office. There, he made several claims about how his administration was going to completely revitalize the state and its economy. As he said, “And a lot of auto jobs coming [sic]. Watch what’s happening. The companies are coming in by the tens. You got to see what’s happening. They all want to come back to Michigan and build cars again. You know why? Because of our tax and tariff policy.”

Automotive manufacturing employment in Michigan today is unchanged since Liberation Day. Nationwide, the automotive sector has shed over 22,000 jobs over the same timespan and manufacturing writ large in the US is down 64,000 jobs. Sixteen months after Liberation Day, the oft-promised boom in manufacturing hasn’t shown up in the data.

But perhaps those jobs are coming in the future. To that end, the President has assured us that countries are investing in the US to the tune of trillions of dollars. The White House lists all of the investments that the President has secured, pointing to trillions of dollars in “manufacturing and industry” alone. At this time, it’s not clear where that money is going. Total construction spending on manufacturing remains high by historic norms, but has fallen precipitously throughout 2025 and 2026. Arguing that things would have been worse if it weren’t for Trump and his ability to secure investments undermines the argument that tariffs are working even further.

Revenues: Are We Reducing Deficits?

In 2024, then-candidate Trump floated the idea of an “all-tariff” federal revenue system, whereby tariff revenue would replace revenue raised from income taxes. There are two problems with this idea. First is the gargantuan sum of money collected from income taxes alone in the US: an estimated $2.7 trillion in 2025. Even under Peter Navarro’s bombastic claim that tariffs would generate some $600-700 billion in revenue per year, actual revenues fell grossly short of this, coming in around $190 billion — before the refund window opened.

Tariffs would need to raise another $2.1 trillion this year just to eliminate our annual deficit. That figure is projected to rise in the coming years, and tariff revenue would need to rise commensurately. The level of taxation required to raise that kind of revenue would very quickly put us on the “wrong side” of the Laffer curve.

Tariffs were never going to simultaneously promote jobs and raise tremendous revenue. A tariff can only raise revenue if imports are coming into the country. Thus, tariffs can protect some domestic producers and raise revenues at the same time, but it cannot maximize both objectives simultaneously. Revenue requires a stream of taxable imports while protection works by reducing that stream. The more successful a tariff is at one of these, the less successful it must be at the other.

National Security: Are We Safer Among Nations?

In 2025, as in 2018, many of the tariffs that President Trump imposed appealed to “national security.” The Section 232 tariffs on steel, aluminum, and copper, for example, were justified along these grounds. Production of these materials is so important, the logic goes, that we should willingly overpay to promote domestic production, in support of America’s army and fleet.

To be clear, domestic production is one way to ensure that America has a ready supply of these materials. By the same logic, every family could ensure a ready supply of food if they grew their own vegetables and raised their own livestock. What matters is not protecting domestic production, but making sure that domestic access continues unabated in times of war.

Let’s take steel as an example. The question we should ask is “how dependent on foreign steel are we, really?” The American Iron and Steel Institute reports that only 23 percent of finished steel in the US was imported; the remaining 77 percent was produced domestically. The Association for Iron & Steel Technology finds that the US is currently the third-largest steel producer in the world, behind only China and India. And the US International Trade Administration reports that the US imports steel from, in order of most-to-least: Canada, Brazil, Mexico, Korea, Germany, Taiwan, Japan, Vietnam, India, Turkey, and 68 other countries. In other words, if Canada decided to stop selling steel to the US, we would still have 78 other countries, each with plenty of steel firms within them, from whom to buy this critical material.

Still, national security is a legitimate concern and promoting it is perhaps among the most legitimate functions a government can perform. To that end, free trade and globalization have done far more to promote a safer nation than any protectionist policy. A report from the Center for Strategic & International Studies evidences that increased trade between nations reduces the likelihood of war in the first place. Globalization, likewise, ensures a robust and diverse web of potential suppliers such that if war were to break out, access to critical materials would continue largely unabated.

Compare this to the 2026 experience. After a tumultuous 2025, which saw tariffs and other trade restrictions levied or threatened against virtually every country in the world, the US has had to largely go it alone in the current conflict in Iran. When President Trump threatened to cut off trade with Spain after they refused to assist in the Iran conflict, Spain (and Italy, for that matter) responded by closing their bases and airspace to the US for military operations. The same is largely true of Europe writ large. In other words, the tariffs and other forms of protectionism have pushed our friends and allies away.

The Verdict

Today’s protectionist program, architected in part by Robert Lighthizer, set out to rebuild American industry, fill the Treasury with new revenues, and make the country safer. Two years of evidence demonstrate the opposite. We have shed tens of thousands of manufacturing jobs, the promised factories exist almost exclusively in press releases, and the tariff revenue is a rounding error against a $2.1 trillion deficit and $2.7 trillion in income tax revenue. Turning abroad, the tariff wall meant to protect us from the world accomplished something our adversaries could only dream of: turning our allies against us, closing airspace to American forces, and leaving us to face Iran largely alone.

Rather than being an elitist viewpoint, free trade is the preferred policy of Republicans, Democrats, Independents, Americans with and without college degrees, and the “forgotten man” Lighthizer claims to champion. If anyone is clinging to a lonely and unpopular faith, it’s the protectionists.

I believe in free trade. I believe in it because 250 years of theory and evidence combined with what we have witnessed over the last two years all point in the same direction. And as it turns out, I’m not alone. Most of America believes in free trade, too.

According to a new report from Advancing American Freedom’s Plymouth Institute for Free Enterprise, tariff lobbying revenues reached $9.9 million for the second quarter of 2026, a 690 percent increase over the same quarter in 2024 and a 956 percent increase over 2016 (pre-Trump) levels. The number of registered tariff lobbying disclosures has jumped 230 percent in just two years. At least 22 contracts listed “tariffs” as their sole lobbying issue.

The surge is not surprising. When the federal government arrogates to itself the power to decide who receives carve-outs and exceptions, it transforms a free and open market into a system of cronyism and influence currying. The tariff schedule becomes a menu of favors, and the favor-seeking industry grows accordingly. Gordon Tullock famously documented this phenomenon, later named rent-seeking. Private resources that could fund payrolls, invest in equipment, or lower prices are instead diverted toward securing benefits from the government.

These lobbying contracts specifically target the administration’s tariff programs. They include at least 15 references to Section 232 tariffs, 13 to Section 301 tariffs, and 4 to the IEEPA tariffs that the Supreme Court struck down in February. In Learning Resources v. Trump (2026), the Court held 6–3 that the International Emergency Economic Powers Act does not authorize the president to impose tariffs, reaffirming Article I, Section 8 of the Constitution. The power to “lay and collect Taxes, Duties, Imposts and Excises” belongs to Congress, yet the administration has simply reached for other statutory shelves. On July 20, it announced new Section 338 tariffs on Canadian cars, alcohol, dairy, cement, and, in an almost comical fashion, hockey sticks. 

During the Liberation Day IEEPA tariff regime, the economy shed roughly 5,000 jobs per month. Since those tariffs were struck down, it has added 137,000 jobs per month. AAF’s analysis attributes a monthly cost of 75,000 to 80,000 jobs to the Liberation Day tariffs. These tariffs did not “make America rich again,” as President Trump anticipated, but instead created instability in the labor market while contributing to ever-higher prices for American families.  

The deeper distortion is the one defenders of free markets should care most about. Tariffs are regressive twice over. The first regression is familiar: import taxes fall hardest on families and small businesses, who pay the full duty at the register. The second is subtler and more corrosive. Large corporations can afford to advocate on K Street, while the little guy cannot. When exemptions are available to connected players with lobbyists and unavailable to those without, trade policy becomes a system of patronage, of government by the highest bidder. This is what Adam Smith himself referred to as the “wretched spirit of monopoly,” or what is now politely called regulatory capture or corporate welfare.  

Defenders of the tariff program will argue that the lobbying boom is merely a transitional cost — the friction of a necessary realignment. But the friction is the program. A discretionary tariff regime cannot function any other way. The 690 percent increase in lobbying revenue is not a bug in the system Washington has built; it is an example of the incentives working exactly as expected. As James Madison warned in Federalist No. 62: 

Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens.

Over the twentieth century, Congress steadily delegated portions of its constitutional tariff authority to the executive through statutes such as Section 338 (1930), Section 232 (1962), and Sections 122 and 301 (1974). Each abdication of responsibility has become a lever for executive improvisation and a profit center for the influence industry. The Supreme Court’s IEEPA ruling closed one door, but the administration, in typical fashion, walked through four others within days. Until Congress reclaims the taxing power the Framers assigned it, the carve-out economy will keep growing, because the incentive to seek favors grows with the discretion to grant them.

Free enterprise does not mean the absence of rules. It means rules that apply equally to everyone. A trade regime in which prosperity depends on proximity to power is closer to pre-industrial mercantilism than to the dynamic and meritocratic ideal that has characterized America. While big business pays K Street for carve-outs, families and small businesses pay the full tariff tax. The Framers gave the taxing power to Congress precisely so that prosperity would never depend on proximity to power; it is past time Congress took it back.

Texas has expanded competition in college admissions testing. On July 22, the Texas Higher Education Coordinating Board determined that the Classic Learning Test meets the same standards of rigor and reliability as the SAT and ACT. The board is moving forward with rulemaking to include the CLT as an accepted admissions exam for the state’s public universities.  

Texas joins the public university systems of Florida, Iowa, Indiana, Arkansas, Georgia, and North Carolina, along with the Universities of Oklahoma and New Mexico, and the US Service Academies.  

This expansion of test choice is essential to restoring merit in higher education admissions. For decades, the College Board and ACT have operated as a near-duopoly. That concentrated power allows them to lower standards over time with little consequence. Students and families face intense pressure to post the highest possible scores for admission to selective colleges. When the primary tests control the market, the incentives tilt toward making the exams easier rather than better at distinguishing students by true academic ability.  

The SAT has undergone repeated softening. In 1995, the College Board recentered scores, inflating results so that previously rare high marks became far more common. Analogies and antonym questions that demanded precise verbal reasoning disappeared. The 2016 redesign eliminated the guessing penalty, further boosting scores. The new digital SAT shortens reading passages from several hundred words to as few as 25, grants more time per question, and adapts difficulty mid-test.  

Research using large language models as consistent test-takers has documented a clear decline in math section rigor over the past 15 years. These changes make it harder for colleges to separate genuinely high-ability students from those who simply benefited from an easier instrument.  

High-school grade inflation compounds the problem. Nearly half of seniors now graduate with A-range GPAs, up sharply from earlier decades, even as national assessments show stagnant or declining proficiency in reading and math. Admissions officers relying on inflated transcripts and softened standardized scores are impaired in their ability to identify students who are prepared for rigorous college work.  

A competitive market of entrance exams begins to invert these pressures. Colleges that want to admit students capable of excelling will favor tests that actually differentiate. Providers that maintain high standards and predictive validity will gain market share. Providers that dilute content will lose market share. The Classic Learning Test, with its emphasis on classic texts, grammar, and quantitative reasoning, offers one clear alternative. Its growth already demonstrates demand for assessments that reward genuine academic preparation rather than score inflation.  

Test choice pairs naturally with school choice. Families who can select schools that prioritize rigorous classical or traditional curricula produce graduates ready for demanding college work. Those same families then need a testing marketplace that accurately signals their children’s readiness. When both K–12 and college admissions operate under competition, educational attainment rises and students find better fits for the next stage of life, whether university or career.  

Competition also guards against ideological capture. A monopolistic testing organization can embed progressive assumptions with limited accountability. The College Board has repeatedly revealed such leanings. Its initial pilot framework for Advanced Placement African American Studies incorporated queer theory, intersectionality, and Black Lives Matter as core content before political pushback forced revisions.  

The organization publicly criticized the Supreme Court’s 2023 decision ending racial preferences in admissions. Earlier AP US History (APUSH) frameworks drew criticism from dozens of historians for downplaying American ideals and elevating transnational critiques. When one entity dominates both admissions testing and high-school advanced coursework, these biases shape the entire pipeline. Multiple independent exams force every provider to focus on objective academic measurement or lose customers.  

Expanding the Classic Learning Test further strengthens this competitive discipline. Additional state university systems should follow Texas and recognize the CLT on equal terms. Doing so gives classical and homeschool students a fair shot at public institutions while pressuring the incumbent tests to raise their own standards. Policymakers can accelerate the process by ensuring scholarship programs and automatic admissions pathways treat all rigorous exams equally. Private colleges already accepting the CLT have shown the model works; public systems should not lag.  

A marketplace of tests rewards excellence instead of gaming. Students prepare for the most accurate measure of ability. Colleges receive clearer signals. Families gain tools that align with the schools they choose. The Texas decision is a concrete step toward that system. Other states should follow Texas’s example.

Even though the Fourth of July is officially in the rearview mirror now, the country is still basking in the glow of Two-Hundred-And-Fifty. The United States declared independence 250 years ago. Britain recognized that independence eight years later, 242 years ago. Our current governing document, the US Constitution, was ratified 238 years ago. All three could be called our “founding,” but July 4 has stood in for all three. Good enough, as it were, for government work. 

The Declaration of Independence enumerates twenty-seven grievances against the British Crown, reasons for seeking independence. Many were political, juridical, even economic, concerns. 

Whatever the reasons, “a ragtag volunteer army in need of a shower somehow defeats a global superpower.” Ask your average fellow American, and I imagine their constructed timeline runs something like this:

Declare Independence → Defeat the British → George Washington becomes president.

This, of course, glosses over the Articles of Confederation, which was adopted by the Continental Congress in 1777 and governed America from March 1, 1781 until the Constitution replaced them on March 4, 1789. 

School children are taught hardly anything about the Articles of Confederation. The typical narrative is that it was an ineffectual document that caused an economic crisis immediately after the Revolutionary War, necessitating its replacement with the eventual Constitution. The stronger, centralized but limited government formed by the new document saved the republic, the story goes, creating a foundation for prosperity in a way the Articles never could. 

Economists Murray Rothbard and Patrick Newman tell a different story. Their research demonstrates that, whatever political virtues the US Constitution contains, it was a step backward in several areas of economic freedom, compared to the Articles. 

First, the myth of the Articles causing an economic crisis must be dispelled. There was, indeed, an economic crisis following the War. That is not in dispute. It can hardly be laid at the feet of the Articles, though.

As Newman notes, “strong evidence suggests that the American economy did not return to its pre-war levels until the beginning of the nineteenth century.” The reason for this lies in at least three places. One, industries needed time to recover from the destruction caused by the war. Infrastructure needed to be rebuilt, and until it was, output was going to suffer. Second, American industry was in competition with Great Britain again once the war was over. In many instances, Great Britain produced higher quality and lower-priced goods, goods that came back to the US once the war ended. This meant a readjustment period was needed for the American economy as it settled into its place in the global economy. 

Finally, our displaced rulers chose to restrict American exports back to the motherland, exacerbating the pain of readjustment. 

This situation was met with raising taxes and money creation by states as they attempted to pay off their war debts. Massachusetts, for example, raised its taxes to the point of consuming 10 percent of the average citizen’s income, when it had previously landed at two percent. States like Georgia and New York chose to just print more money. For these reasons, Newman concludes that “the depression inevitably resulted from a destructive war and government policies —  foreign trade legislation, high taxes, debt monetization, and bank inflation. A stronger central government would not have been able to change any of these factors.”

If the Constitution was not created to save the Republic from ineptitude, then, what were its economic goals? Further consolidation of economic power. The federal government granted itself independent taxing power, control over national commerce, and Hamilton’s new national financial system.

Under the Articles, the Congress had no taxing power. That authority stayed at the state level, causing Congress to be financially dependent upon the states for revenue. Given that any proposed amendment required unanimity from the states for ratification, attempts to grant Congress taxing power failed. Without means of coercively gathering wealth from the states, the federal government found itself incapable of much growth in size, unable to enter deeply into the economic realm. 

This was changed under the US Constitution. Article I, Section 8, Clause 1 gave DC the power to “Lay, and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”

A big reason for this was the phrase “to pay the Debts.” The federal government assumed the states’ Revolutionary War debts. While seemingly noble, by this point the debt was owed to speculators who purchased the claims at pennies on the dollar — speculators begging the federal government to bail them out when state governments struggled to. By assuming the debts, wealthy creditors and speculators found themselves tied to the federal government. 

This choice, of course, simply shifted the debt burden to taxpayers. The federal government has no means of generating revenue, except euphemistically. Every dollar it gave to speculator Paul it had to take from citizen Peter. The result was a massive wealth transfer from the average American to a small group of speculators. As noted by Murray Rothbard, by 1790, “the top seven percent of all subscribers [in Massachusetts] owned 62 percent of the federal debt, while the lowest 42 percent of holders owned less than 3 percent of the debt.” Not only did the Constitution facilitate this wealth transfer, it created the tax mechanism that led to the rapid expansion of the federal government the country has seen. 

Next there was the federal control over commerce. One area of dispute in the early years of the country was tariff policy. Without the congressional power to set a uniform rate, states found themselves in competition for trade. Southern rates were often lower than Northern rates, much to the chagrin of Northern manufacturers. The Constitution “amended” this “problem,” allowing Northern manufacturers and shippers to “outlaw state competition and set one large net to ensure uniform protection” for themselves. Here we see one of the consequences of granting Congress taxing power: the snuffing out of market competition to enrich Northern businessmen at the expense of the average American. An average tariff rate rose from 12.5 percent in 1790 to 30 percent by 1800. 

To watch over this new financial situation, we were given a central bank. This centralized the control of money in the capital, making it an invaluable tool for domestic policy and those connected with the government. The proposed “limited” government suddenly was partnered with the ever-centralizing financial sector. With the power to tax and regulate commerce, protectionism through tariff and subsidy policy entered the entire American economy. 

The Constitution’s broad language like “general welfare” and “necessary and proper” allowed for such economic interventions well beyond what the Articles of Confederation could have ever allowed. It was precisely the weakness of the Articles that kept the federal government at bay. It was for this reason, as Rothbard and Newman explain, that there was fierce opposition to the US Constitution from Founding Fathers like Thomas Jefferson, Patrick Henry, Samuel Adams, and George Mason. 

In the economic realm, the Constitution gave us a central government with the power to tax, regulate commerce, impose tariffs, subsidize industry, and pay off public debt to benefit speculators. Compared to the Articles, granting the political elites fiscal, commercial, monetary, and legal tools to use against the entire nascent country cannot be seen as anything but a step backward for economic freedom.

At its most recent meeting, the Federal Reserve held rates constant, as most investors were expecting. Prior to the meeting, which resulted in a split 9–3 vote, there were rumblings of discontent among members of the Federal Open Market Committee (FOMC), mostly over Chairman Warsh’s controversial views on inflation, interest rates, and the Fed’s balance sheet.

What do we know about Warsh’s views? In a 2018 paper, he argued that “the central bank and the academic community should engage in a fundamental rethinking of the Fed’s strategy, tools, governance, and communications.” In this article, I discuss three points made by Warsh as well as the evidence from economic research.

The Tyranny of Forward Guidance

Fed officials try to make their future plans clear to the public, a policy known as forward guidance. Setting the public’s expectations can, at least in theory, improve the efficiency of monetary policy. One problem, however, is that the more specific Fed officials are about their plans, the harder it is to change them.

This was a major problem in the post-pandemic period. Chair Powell promised “ample warning” before any changes in policy, but when it became clear in late 2021 that loose monetary policy was driving the highest inflation in 40 years, Powell was reluctant to change course. His failure to act made inflation worse, which eroded the value of the dollar and reduced the real incomes of average Americans.

To prevent the lock-in effect of forward guidance, Warsh has argued that the Federal Open Market Committee (FOMC) should have a long-term strategy that is not altered by fluctuations in short-run economic conditions. “It would scarcely require Fed speakers to rush to update their guidance to market participants,” allowing them the flexibility to adopt the best policy in the face of a changing economy.

Groupthink at the Fed

The FOMC relies on discussion and debate to formulate its monetary policy decisions. At each meeting, the members share their opinions about the state of the economy and are briefed by Fed staff economists who share their economic forecasts. According to Warsh, however, the staff presentations may lead to excessive conformity among FOMC members. “The most common forecasting error,” he says, “is groupthink.”

“There is a tendency to try to find an anchor,” Warsh describes, “and FRB/US — the dynamic, stochastic, general equilibrium model that has served at the core of the Fed’s thinking for decades — ends up being the leading device through which a lot of discussions are conducted in formulating policy.”

The problem of groupthink is evident from the FOMC’s Summary of Economic Projections. Four times per year, the FOMC members publish projections of what they expect in the coming years for the rates of inflation, unemployment, and GDP growth. Despite some recent dissent, Warsh rightly notes that their projections have historically tightly converged on the economic forecasts presented by the Fed staff. “The dot forecasts from members of the FOMC are nearly on top of one another.”

Indeed, groupthink has become a serious problem at the FOMC. Research confirms that the projections by FOMC members conform closely to the forecasts of the FRB/US model. The lack of intellectual diversity has likely led to suboptimal monetary policy decisions. In addition, the FOMC’s forecasts have been very wrong, which may also have led to policy mistakes.

Rethinking the Fed’s Tools

Warsh wants to reconsider the Fed’s use of its monetary policy tools, especially its large balance sheet. The payment of interest on reserves that banks hold at the Fed and the rate on overnight reverse repurchase agreements have caused the Fed’s total assets to explode from less than $900 billion in 2007 to almost $9 trillion in 2022, which Warsh notes is “markedly different than projected” when this policy was first proposed.

Warsh has argued that the Fed’s “bloated” balance sheet gives it an outsized footprint in financial markets, which inhibits financial intermediation and distorts market prices. “We should not encourage the financial markets to be the handmaiden of the central bank,” he said. “We should allow asset prices to be an independent source of economic insight and discipline.”

Overall, Warsh seems correct on all three points. It is refreshing to see a Fed Chairman take an objective look not only at Fed policy but at the institutional arrangements that hinder good policy decisions. Warsh’s criticisms are fair and supported by evidence from economic research. Now, we will see if those insights will translate to better policy.