For decades, a small group of oil-producing states has exercised extraordinary influence over the global economy—not through innovation or competition, but through coordinated supply restriction. The Organization of the Petroleum Exporting Countries (OPEC) has long operated as one of the world’s most powerful cartels, managing oil supply to sustain higher prices and shape global energy markets. In a competitive market, producers expand output, compete, and innovate. Cartels do the opposite: they restrict supply, distort prices, and impede the natural functioning of markets.

That system is now beginning to crack. On May 1, 2026, the United Arab Emirates, one of OPEC’s largest and most strategically important producers and a member since 1967, withdrew from the organization, citing “national interests” and a desire for an independent energy policy, thereby removing 10 to 15 percent of the cartel’s production capacity. 

This departure is part of a broader trend: Qatar and Ecuador left in 2019, Angola followed in 2024, and countries such as Gabon and Indonesia have also stepped away. What once appeared to be a cohesive bloc is increasingly fragmenting, a sign that the cartel model itself is becoming harder to sustain.

The Economic Case Against OPEC

OPEC, founded in 1960, remains one of the clearest examples of cartel behavior in the modern global economy. Controlling roughly 40 percent of global oil production and around 80 percent of proven reserves, its members coordinate production quotas to restrict supply and sustain higher prices rather than allowing markets to adjust through competition.

Since the 1970s, the United States has frequently viewed OPEC as both an economic and geopolitical challenge, with presidents from Richard Nixon to Joe Biden criticizing the cartel for driving up energy costs and fueling inflation. President Donald Trump openly described OPEC as a monopoly, while Congress has repeatedly considered antitrust measures against the cartel.

One of the clearest examples of OPEC’s market distortion is its deliberate supply restriction despite soaring global demand. Between the end of World War II and 1973, oil production in future OPEC countries rose from roughly 3 million to 30 million barrels per day, supporting one of the strongest periods of economic growth in modern history. Yet despite global oil demand rising after the 1973 oil crisis to nearly 90 million by 2012, OPEC repeatedly kept its production ceiling near 1973 levels, around 30 million barrels per day, to sustain higher prices. It is therefore unsurprising that economic research generally concludes that oil prices would likely be lower in the absence of OPEC’s coordinated supply restrictions. 

The effects of this policy extend far beyond the oil sector. Because oil is essential to transportation, manufacturing, agriculture, and global trade, OPEC’s supply restrictions raise costs across the entire economy. According to IMF estimates, each sustained 10 percent increase in oil prices can raise global inflation by about 0.4 percent while reducing global economic output by around 0.1–0.2 percent. 

Higher energy prices fuel inflation, weaken purchasing power, and disproportionately harm lower-income households and energy-importing developing countries. In 2022, for example, Pakistan’s oil import bill more than doubled, contributing to a severe foreign exchange crisis that required IMF intervention.

Beyond these immediate effects, academic research has also highlighted the cartel’s broader structural inefficiencies. A major study by researchers at Duke University, the University of California, Los Angeles, and KU Leuven found that OPEC’s production restrictions increased global oil production costs by roughly $160 billion and shifted investment toward more expensive extraction methods such as offshore drilling and fracking. By limiting low-cost production, the cartel distorted investment decisions, reduced market efficiency, and imposed substantial costs on the global economy.

Why OPEC Is Becoming Increasingly Unsustainable

Despite its historical influence, OPEC has always faced a fundamental problem: cartels are inherently unstable. Maintaining coordinated production cuts requires discipline, yet each member has an incentive to quietly exceed quotas and capture additional profit. As a result, quota violations, hidden discounts, and overproduction have been recurring features of OPEC since its founding, exposing the internal contradictions of a system built on collusion rather than competition.

At the same time, external competition has steadily weakened the cartel’s power. The rise of non-OPEC producers — especially the United States shale industry — dramatically increased global supply and reduced OPEC’s ability to control prices. Between 2008 and 2025, US shale production surged from roughly 5 million barrels per day to 13.7 million barrels per day, helping turn the US into the world’s largest oil producer. This wave of competitive production contributed to the sharp collapse in oil prices in 2014–2016 and significantly reduced OPEC’s market share and pricing power. 

Ironically, OPEC’s own strategy helped create the forces weakening it. Years of artificially high oil prices incentivized investment in technologies such as hydraulic fracturing and horizontal drilling, fueling the US shale revolution. By 2014, OPEC was forced to abandon its price-support strategy and flood the market in an unsuccessful attempt to crush US shale producers. Yet technological innovation, growing competition, and expanding investment in alternative energy continue to erode the cartel’s long-term power, demonstrating a broader economic reality: when markets are free to respond to price signals, competition and innovation eventually unravel cartel power.

This shift is increasingly visible even within OPEC itself. The United Arab Emirates’ departure reflects a growing recognition that competing freely may be more sustainable than remaining bound to restrictive quotas. As competition, innovation, and new energy sources continue to weaken cartel power, global energy markets are moving toward more open, market-driven production. 

OPEC may still influence prices in the short term, but the broader trend is clear: market forces are gradually overtaking coordinated restriction.

One of the most misleading ideas in American politics is that the United States has a large, fixed class of permanently poor people stuck at the bottom year after year, while everyone else moves on without them.

That story is emotionally powerful. It also happens to be a poor guide for serious policy.

Poverty is real. Hardship is real. Some people do remain trapped for long periods, and that deserves serious attention. But the popular picture of a vast, permanent underclass does not describe most Americans who show up in the bottom income quintile in any given year. As economist Anthony Davies has put it, many are there because of “retirement, homework, and diaper rash.” That line works because it captures something basic: a snapshot of income is not the same thing as a life story.

Students often have very low current earnings. So do many retirees living on savings or Social Security instead of wages. So do young parents working fewer hours, people between jobs, and entrepreneurs in low-cash-flow years. Treating all of them as members of a permanent poor class is not compassion. It is a category mistake.

The data back that up. The Federal Reserve’s Survey of Consumer Finances distinguishes between “actual” and “usual” income precisely because current-year income can be temporarily depressed. In 2010, about a quarter of families reported that their actual income was unusually low relative to normal. That matters because it means many households classified as poor in a given year are experiencing a temporary dip, not living permanently at the bottom. 

In fact, the same survey found that a large share of households in the lowest quintile by actual income ranked higher when measured by usual income instead.

The tax data tell the same story. A Treasury study tracking taxpayers from 1996 to 2005 found that about 56 percent moved to a different income quintile over the decade. More important, roughly half of those in the bottom quintile moved up by 2005, depending on the measure used. About 29 percent moved up one quintile, another 29 percent moved up at least two quintiles, and roughly five percent moved all the way from the bottom quintile to the top quintile. That is not what a rigid caste system looks like. It is a dynamic picture in which many people pass through low-income years rather than remain stuck there permanently.

This is where so much bad policy begins. Politicians see a one-year income snapshot and talk as if they are looking at a permanent social class. They are not. They are often looking at transition.

This does not mean every measure of mobility is strong. A lot of the confusion comes from mixing together two different questions. The first is short-run income mobility: do people move up or down within their own lives? On that question, the evidence clearly shows substantial movement. The second is intergenerational mobility: do children rise above the economic position of their parents? That is a different question, and the answer there is more mixed.

The newer Census mobility data show that income mobility varies significantly by geography, age, race, and sex. And other work has shown that absolute mobility has weakened relative to earlier generations. Those are serious concerns. But uneven mobility is not the same as a large, fixed, poor class.

The latest Archbridge Institute report on social mobility in the 50 states broadens the analysis beyond annual income. Archbridge evaluates mobility through four pillars: entrepreneurship and growth, institutions and the rule of law, education and skills development, and social capital. It also distinguishes between natural barriers such as family instability or social networks and artificial barriers created by policy, such as excessive occupational licensing, weak school choice, or heavy regulation. That is a much better framework than casually conflating poverty, inequality, and mobility. 

The state rankings tell an important story. In Archbridge’s 2025 report, Utah ranked first, followed by Vermont, Montana, Wyoming, and Idaho. At the bottom were Louisiana, Mississippi, Alabama, New York, and Arkansas. That does not prove one policy explains everything. It does show that institutions matter.

Mobility is shaped by the rules, incentives, and social conditions people live under. The poor are not static, but the barriers they face can be.

This is where the free-market case becomes especially important. If you care about mobility, you should care about growth. The AEI “Land of Opportunity” project and its essay on the greatness of growth and the American Dream make the point clearly: growth is not a side issue. Growth is the oxygen of mobility. 

A faster-growing economy creates more businesses, more jobs, more opportunity, more room for incomes to rise, and more chances for people to accumulate wealth over time. A slower-growing economy makes class lines harder and mobility weaker.

That is why policies that burden growth hurt the poor most over time. Heavy regulation, bad schools, housing shortages, excessive licensing, and weak property rights do not just reduce efficiency in the abstract. They reduce mobility in practice.

A recent article highlights how land-use rules and housing constraints quietly kill mobility by making it harder for families to move to places with better labor-market opportunities. Another essay points to research showing that economic freedom, especially lighter regulation and stronger property rights, is associated with greater intergenerational mobility.

That is the key insight the static-poor narrative misses. If policymakers really want more upward mobility, the answer is not to freeze people into permanent income categories and redistribute more aggressively. The answer is to remove the barriers that keep people from climbing.

That means stronger growth, more entrepreneurship, more housing, better schools, more school choice, lower regulatory burdens, and institutions that reward work, saving, investment, and family stability. It also means respecting people’s freedom to vote with their feet toward states, cities, and communities with better opportunity. Mobility is not just something economists measure after the fact. It is something people actively pursue when they are free to move toward better institutions and opportunities.

The myth of the static poor survives because it is politically useful. It turns a moving picture into a still frame. It makes the government look like the only answer. But it misses the reality that most Americans who are poor at one point in time do not stay there forever, that incomes often rise over time, and that wealth accumulation frequently follows when people are free to work, save, invest, and build.

The real task is not to manage a permanently poor class. It is to build a freer society where more people can rise.

When it comes to economic analysis, price indices are almost everywhere. In fact, the American Institute for Economic Research publishes its own Everyday Price Index. Keeping track of each one would be a full-time job in and of itself. Some, like the Consumer Price Index or the Producer Price Index, receive tremendous coverage and discussion. Others, like the Import Price Index, often go largely unreported and underappreciated.

This Explainer seeks to correct this. Once understood, the Import Price Index, with its ability to summarize the changes in the price of imported goods, is one of the most important tools of economic analysis available. It can help businesses and consumers understand what is happening in the world, how it affects their bottom line, and what steps (if any) they can take to mitigate those effects. It also helps those interested in policy understand where problems may lie and what the effects of various policies have been on the world stage.

Like all statistics, understanding how it is constructed and how to use it in conjunction with other data can provide a rich understanding of the global economy. This also helps us understand where the evidentiary reach of the Import Price Index ends. This matters for trade policy in particular, as changes in the Index are often cited as evidence that one party is paying the cost of tariffs and other duties.

This Explainer proceeds in four parts. First, it provides a brief history of the origins of the Import Price Index and the problems that its creation solved. Second, it describes what the index is — what it is not. Third, it explains what the Import Price Index can tell us about tariffs and their incidence. Finally, it considers the limits of the index and how it can be misinterpreted.

What Is the Import Price Index?

The Import Price Index (IPI) is an official monthly measure of how the prices of goods entering the United States change over time. It is produced by the Bureau of Labor Statistics (BLS) as a part of its International Price Program.

The idea of an import price index was most forcefully proposed by Irving Kravis and Robert Lipsey in their 1971 book Price Competitiveness in the World. Prior to this, economists had typically studied international trade by deriving prices based on reports of total spending and quantities imported — an indirect method that produced what are called “unit values.” By design, unit values are averages, and averages can be misleading. For example, when a child is born, the unit value of household income per person falls, but it would be foolish to treat that as a loss of income. Kravis and Lipsey found that the unit-value measures produced indices that were more volatile and systematically biased than those based on direct price measurement.

The IPI answers a simple question: “Are we paying more or less than we used to for the things that we buy from abroad?”

What Is and Is Not Included in the IPI?

To answer this question, the IPI measures the average change in the price level for a “representative basket” of US imports. To construct this, the BLS looks at the actual prices paid by importers in the US for the goods they import. Survey staff at the BLS collect this information directly from importers through their participant program.

What Is Included

For example, imagine a simple economy that imports steel, aluminum, and bananas. We could record the amounts purchased and prices paid in Year 1 in a table such as this:

Good	Quantity	Price Per Ton	Total Spent
Steel	1.5 million tons	$1,000	$1.5 billion
Aluminum	2 million tons	$3,000	$6 billion
Bananas	4 million tons	$1,250	$5 billion

All told, this simple economy imported $12.5 billion worth of imports.

The following year (Year 2), suppose that the import data is this:

Good	Quantity	Price Per Ton	Total Spent
Steel	1.8 million tons	$1,200	$2.16 billion
Aluminum	2.1 million tons	$2,800	$5.88 billion
Bananas	3.5 million tons	$1,500	$5.25 billion

This time, the economy imported $13.29 billion worth of goods. But what happened to import prices overall? The price of steel and bananas increased, while aluminum became cheaper. The quantities also changed.

To isolate what is happening to import prices, we need to compare the cost of the same basket of goods over time. That requires establishing a representative basket of these goods. For simplicity, let’s use Year 1’s quantities. The key question, then, is: how much would Year 1’s basket cost at Year 2’s prices? The answer: $13.4 billion.

With this, we can construct an index. Year 1 serves as the base year — the year to which all others are compared. The index for Year 1 is calculated as follows:

Since Year 1 is the base year, this works out to be:

For Year 2, it would be:

From this, we can say the price of the representative basket of imported goods increased by 7.2 percent from Year 1 to Year 2.

This example is obviously contrived and simplified. For starters, economies do not import just steel, aluminum, and bananas but tens of thousands of goods. They also import goods from many countries under different conditions, and for a variety of purposes. Some, like bananas, are imported for final consumption by consumers. Others, like steel and aluminum, are used in domestic manufacturing. The BLS tracks all of this.

Within their monthly figures, they also break imports down by type of good, country of origin, and stage of processing — that is, whether a good is a raw material, an intermediate good, or a final good. This degree of granularity gives the IPI significant strength. If we want to know how the price of, say, household appliances imported from China has changed over time, we can find the answer.

To do all of this, the BLS collects data by surveying thousands of companies, asking them to voluntarily report the actual price of a specific item they imported that month. To construct an accurate index, the goods in question must be fixed across multiple dimensions. In an ideal world, the goods would have identical specifications, come from the same trading partner, and be shipped the same way over time.

Unfortunately for the BLS, almost none of this holds in a world that is constantly innovating. Products evolve, sometimes in fits and spurts and other times by leaps and bounds. Consider the iPhone over just the past ten years. Phones have gotten thinner, more powerful, and, since 2022, no longer include a charger in the box. This latter change means that not only has the product changed, but it’s also shipped differently than before, owing to smaller boxes that allow for more iPhones to be packed in a shipping container.

The BLS tracks all of this, too, adjusting prices as necessary to reflect changes in quality. To do this, it must decide how much of a price change reflects an actual price movement and how much reflects buyers receiving a different product than before. These decisions matter greatly — different choices can produce meaningfully different measurements of price changes.

What Is Not Included

The Import Price Index covers changes in the price of imported goods, but not imported services. But even saying that it covers only goods requires further clarification. For example, any costs incurred after the goods arrive at the port are not included in the IPI. These would include costs associated with warehousing, distribution, wholesaling, and any retail markups. The IPI only considers the price the importers pay at the water’s edge. All other costs for the imported goods come later.

This matters for trade policy because, as the BLS notes, “the prices for the items used to calculate the Import/Export Price Indexes exclude duties.” In this context, duties are taxes or tariffs placed on imported goods. This makes sense because the legal incidence — who actually pays the US Treasury — falls on Americans. As a result, import duties are applied after goods arrive at the port.

Additionally, because the IPI is measured in US dollars, exchange rate movements are automatically baked into the index. When the dollar strengthens, American buyers will pay fewer dollars for foreign goods even if prices abroad do not change. Conversely, when the dollar weakens, import prices in dollars tend to rise. This matters because when there is significant exchange rate movement, the currency effect on the IPI can be large enough to impact the index. Anyone using the IPI to make claims about trade policy must account for exchange rate movements.

Who Pays the Tariff?

At its core, a tariff is a tax on the importation of goods. When the US imposes a tariff on, for example, steel, that tax raises the cost of bringing steel into the domestic market. Like any tax, there is a distinction between the legal incidence (who writes the check) and the economic incidence (who bears the cost). The question of who bears the economic incidence of a tariff is of genuine interest to policymakers when assessing the impacts of trade policy.

In practice, there are three parties that can absorb a tariff, and any combination of them can bear some of the total burden:

1. The foreign exporter can absorb the tariff. In this case, the exporter lowers its pre-tariff price and sells the goods to the US market at a discount. After the tariff is applied, the final price paid by the importer remains roughly unchanged, inclusive of the tariff.
   
2. The importer or domestic business can absorb the tariff. Should this happen, the foreign exporter keeps prices steady, and the American importer pays the tariff on top of that price. The cost is then absorbed somewhere in a supply chain, such as reduced profits for domestic manufacturers, wholesalers, or retailers.
   
3. The US consumer can absorb the tariff. Under this scenario, the cost of the tariff is passed through to the end consumer in the form of higher retail prices.

Using the IPI to study the incidence of the tariff is relatively straightforward. If foreign exporters lower their dollar prices in response to US tariffs, we would see the IPI fall in the affected product categories after the tariff takes effect.

If, however, foreign exporters keep their prices the same, the IPI would remain relatively flat, or even rise. This would indicate that the full cost of the tariff is being paid by the US importers, who must then decide how much of the added cost to pass on to domestic manufacturers and consumers.

Researchers have used this exact logic, especially in the last ten years, to analyze the effects of the Trump tariffs imposed in 2018 and 2019, and are now doing so for tariffs in 2025. The results have been fairly consistent: once exchange rate movements are taken into account, foreign exporters largely kept their prices steady.

This is an important finding in its own right. It indicates that, rather than foreign entities paying these tariffs, Americans faced nearly the full burden — either through reduced profitability in downstream industries due to higher material costs or higher prices paid by households.

What the IPI Cannot Tell Us

For all its usefulness, the IPI alone cannot tell us everything we might want to know about the effects of trade policy.

Because it measures prices at the water’s edge, it does not tell us what happens to prices at the cash register. Tracing the full pass-through from import prices to consumer prices requires combining the IPI with the Producer Price Index and the Consumer Price Index. It also requires a model of how supply chains respond to these cost pressures — specifically, which costs are passed along and which are absorbed. The IPI is the beginning of this chain of analysis, not the end.

As noted earlier, the IPI also does not account for exchange rate movements, which can either amplify or obscure the effects of trade policy. During the tariff escalation of 2018 and 2019, the US dollar became significantly stronger against the Chinese yuan. This was in part due to the tariffs, which foreign countries can respond to by devaluing their own currency, but also because of Chinese state policy designed to monetize their growing debt problems. A weakened yuan will automatically lower the dollar price of US imports from China, which would show up in the IPI as falling import prices. But again, this is not evidence that China was “paying the tariffs.”

The IPI also does not capture product switching or supplier substitution. When tariffs make imports from one country more expensive, firms often adjust to avoid them. When the US imposed tariffs on South Korean washing machines in 2012, Samsung and LG simply moved production to China and continued exporting from there. Likewise, US importers shifted their purchases to Vietnam and Mexico. Tariffs on Chinese steel redirected purchases to Canada and Brazil. In these cases, the IPI remained largely unchanged because the now-tariffed products were rerouted through alternative countries not subject to tariffs. Yet the actual costs that Americans paid for these products rose, as production shifted to less efficient and more distant suppliers.

Finally, the IPI cannot measure trades that did not happen. Because tariffs impose costs, they necessarily reduce the volume of trade by preventing transactions that otherwise would have happened and made both parties better off. In the absence of these trades, domestic resources are redirected toward less efficient uses. The IPI reflects none of this, capturing only the price of goods that were actually imported. It remains silent on the economic welfare costs of goods that were not imported because the tariffs made them too costly.

Reading the Import Price Index Responsibly

The IPI is a genuinely valuable tool — well-constructed and useful when applied appropriately. It becomes even more powerful when used alongside other data, such as exchange rates and consumer and producer price indices. For economists, business analysts, central bankers, and policymakers, it can provide important insights into the effects of trade policy.

Every tool has proper uses and improper ones. A thermometer is a great tool for determining if someone is sick, and your doctor carries one for good reason. However, a thermometer alone is not a good tool for distinguishing between the flu and a common cold. Likewise, using the IPI to claim that foreign countries are “paying the tariff” is like using a thermometer reading alone to declare that someone is healthy.

Fortunately, the data needed for this kind of analysis and others like it are freely available online. The IPI, the consumer and producer price indices, and exchange rate data are all publicly available and updated regularly. Understanding what each measure captures is not just important for economists and their students taking exams. When trade policy is changing rapidly and justified with sweeping claims, an informed public that knows how to read the evidence is essential.

What the IPI is not, however, is a complete answer to the question of who bears the cost of tariffs. It tells us what happens at the water’s edge, not on the factory floor, not at the warehouse, and not at the cash register. It cannot capture the effects of currency movements or supply chain shifts, nor can it tell us anything about trades that did not happen.

On June 5, 2026, Baku, Azerbaijan, the “Land of Fire,” will host World Environment Day. The UN Environment Program reports that “Azerbaijan is pursuing green growth and renewable energy at pace” and, as a party to the Paris Agreement, has committed to reducing emissions by 40 percent by 2035. Yet Azerbaijan’s economy remains deeply tied to hydrocarbons. Global Finance reports that petroleum and natural gas account for more than 90 percent of export revenues and roughly half of the state budget. Recent GDP growth reflects this dependence, as energy markets shifted after Russia’s invasion of Ukraine. 

Global environmental politics carries a familiar irony. Azerbaijan’s nickname is not merely poetic. CNN describes Yanar Dag, translated as “burning mountainside,” as a natural gas fire that has burned for 4,000 years, making the “Land of Fire” a fitting host for a climate event in a world still powered by hydrocarbons. Diplomats, officials, activists, and international organizations will gather in Baku to discuss climate change, but many will likely arrive by plane rather than by Zoom. The campaign to save the planet still travels through the infrastructure of energy-intensive modern life. 

California may be nearly 7,000 miles from Azerbaijan, but the two “lands of fire” reveal the same truth: energy remains central to modern life, and environmental policy cannot ignore the cost of living. California has embraced some of the most ambitious green mandates in the United States. Yet housing remains unaffordable, gasoline and electricity remain expensive, and the policy conversation too often treats centralized mandates as the only serious form of environmental action. 

Housing: Green Mandates and the Cost of Shelter 

California’s housing market already stands far outside the national norm. In April 2026, California’s statewide median home price reached a record $914,810, while the national median existing-home price was roughly $417,700. The Golden State also requires most new homes and low-rise multifamily buildings to include solar photovoltaic systems. The California Energy Commission estimated that the new energy-efficiency and solar requirements would add an average of $9,500 to the cost of building a new home. Costs are not the only problem. California also makes housing slow to approve and build. 

San Francisco, for example, took a median of 280 days to process housing building permits between January 2024 and August 2025, roughly three times Austin’s 91 days and more than twice Seattle’s 133 days. Los Angeles fares no better. A UCLA study found an average total development time was 1,413 days, or 3.9 years, and the average dwelling unit took 1,784 days, or 4.9 years, to complete. The rebuilding process after the 2025 Los Angeles fires shows the same institutional sluggishness: of roughly 13,000 homes destroyed, fewer than a dozen had been rebuilt a year later, with only about 900 under construction. 

In addition, California has a property tax rate of 0.69 percent, which may not appear as a large sum but does add up. The tax bill on an average-value California home was about $5,388, compared with an average US property tax bill of about $2,459. Homeowners might ask: what are they getting in return for paying so much? Los Angeles mayoral candidate Spencer Pratt’s conversation with Joe Rogan after the Palisades fire captured frustrations about rebuilding delays, public services, homelessness, and visible disorder. The episode gave voice to a broader concern: expensive public systems do not always protect homes, communities, or property values. 

Energy: Gasoline and Electricity 

The same pattern appears in energy. California’s gasoline prices are not just a story about oil markets. They are shaped by taxes, environmental requirements, refinery constraints, special fuel rules, and an isolated petroleum market. The US Energy Information Administration’s gasoline price breakdown shows how crude oil costs are layered with refining, distribution, taxes, margins, and regulatory costs before reaching consumers. This helps visualize how a crude-oil component of $1.84 can become a retail gasoline price of $4.59 after other costs are added. 

This helps explain why on May 29, 2026, AAA listed the national average price for regular gasoline at $4.391 per gallon, while California averaged about $6.06 per gallon. SFGate also reports, “The state already surpassed its record for diesel on April 9, hitting $7.75 per gallon.” These prices are not merely the result of private markets. They reflect a state energy model that repeatedly adds policy costs to ordinary consumption. 

Rocking down electric avenue, California has some of the highest electricity prices, with 32.47 cents per kilowatt-hour, 95.7 percent higher than the US average of 16.59 cents/kWh. The trend has worsened over time. The Public Policy Institute of California noted that electricity prices went from being 10 percent above the national average in the 1980s, to 30 percent higher in 2015, to now 80 percent higher in 2024. This creates the central contradiction in California’s environmental model: the state wants residents to electrify cars, homes, appliances, and transportation while electricity itself remains far more expensive than in the rest of the country. 

The America First Policy Institute helps explain why this is not merely a price problem, but a planning problem. California’s renewable mandate was set to rise from 30 percent in 2020 to 60 percent by 2030. Mandates can require utilities to buy more renewable power, but they cannot make the sun shine during peak evening demand. AFPI notes that in 2021, non-hydroelectric renewables provided 34 percent of California’s utility-scale net generation, and when small-scale solar photovoltaic generation is included, renewables supplied 40 percent of total in-state electricity generation. Nuclear energy, by contrast, accounted for only about 8 percent of California’s electricity. 

The “duck curve” shows this mismatch clearly. Solar generation can flood the grid during the middle of the day, when electricity demand is lower, but then drops sharply in the evening, just as households return home, turn on appliances, charge vehicles, and use air conditioning. AFPI points to EIA data from 2015 to 2023 showing that California’s duck curve has grown deeper over time, meaning the gap between daytime solar generation and evening electricity demand has become more difficult to manage. 

The OLY Alternative: Ostrom, Lofthouse, and Yonk 

The alternative to California’s model is not anti-environmentalism. The alternative might be called the OLY framework: Ostrom, Lofthouse, and Yonk. Elinor Ostrom gives the institutional foundation. Her work on polycentric governance rejects the false choice between centralized command and doing nothing. Polycentric systems rely on many overlapping centers of decision-making: households, firms, local governments, utilities, civic associations, property owners, and entrepreneurs. In environmental policy, this matters because housing, energy, water, land use, and conservation are too local and complex to be solved by one statewide mandate.

Jordan Lofthouse, a senior research fellow at the Mercatus Center, builds on this logic by applying economic reasoning to environmental problems. In An Economist’s Guide to Environmentalism, he argues that “effective mitigation and adaptation for climate change will involve a large degree of action from the bottom up, and we cannot simply rely on policies from the top down.” That is exactly what California’s green-policy model often ignores. Solar mandates, renewable targets, EV subsidies, and fuel rules do not abolish costs; they shift them into housing prices, utility bills, gasoline prices, and grid constraints. 

AIER’s Ryan Yonk completes the framework with a public-choice warning. Nature Unbound asks a blunt question: “What if environmental laws often make things worse?” That is the California problem in one sentence. Environmental policy is not implemented by neutral angels, but by agencies, regulators, politicians, and interest groups with incentives of their own. A serious environmentalism should therefore favor technology-neutral standards, faster permitting, property rights, competitive energy markets, nuclear power, grid modernization, and local experimentation over one-size-fits-all mandates. The goal should not be green scarcity by decree, but clean abundance through institutions that allow people to adapt, experiment, and innovate. 

Clean Abundance, Not Green Scarcity 

Friedrich Hayek described the market order, or catallaxy, as “not a single economy but a network of many interlaced economies.” Environmental policy should learn from that insight. Households, firms, utilities, local governments, entrepreneurs, and civil society should be allowed to experiment with cleaner ways of living rather than being forced into the same political blueprint.

World Environment Day should not become another ritual for demanding more centralized control. Azerbaijan reminds us that development still depends on energy, and California reminds us that green mandates can raise the cost of ordinary life while ignoring housing, prices, reliability, and local conditions. The better lesson is not to abandon environmental concern, but to abandon the assumption that every environmental problem requires a top-down mandate. The OLY framework points toward a more serious alternative: polycentric governance, economic realism, and institutional humility. On a day meant to celebrate the environment, the real test is not ambition, but whether policy helps people live cleaner, freer, cheaper, and more resilient lives.

On September 2, 1929, a reporter phoned Evangeline Adams, an astrologist, to ask her opinion of the stock market. The publisher of a successful newsletter, the matronly, pince-nez-wearing Adams often dispensed investment advice from her Carnegie Hall office. Her clients reportedly included A-list celebrities such as Mary Pickford and Charlie Chaplin, as well as, before his death, the legendary financier J.P. Morgan.

“The Dow Jones could climb to heaven,” Adams told the reporter.

The next day, the market hit an all-time high. But, as Andrew Ross Sorkin chronicles in his book 1929: Inside the Greatest Crash in Wall Street History—and How it Shattered a Nation, less than two months later, the Dow Jones dropped into hell, pulling the rest of the nation down with it.

Sorkin’s book is a deeply researched, highly readable account of the most famous market panic in history. It bursts with rich scenes and vivid characters. But its greatest strength is its humility. Sorkin is interested in telling a story rather than Monday-morning quarterbacking. And what commentary he does indulge in is more compelling for its restraint. The result is an entertaining read that avoids using the crash and the subsequent Great Depression to advance a present-day political agenda.

Financial markets have long attracted large egos. In William Faulkner’s The Sound and the Fury, published in 1929, the villainous Jason is bitter about a hardware store job he feels is beneath him. He spends his workdays speculating in cotton markets with stolen money, an activity at which he mostly fails.

At the other end of the success spectrum, the real-life speculator Jesse Livermore rose from poverty to become one of Wall Street’s leading wizards in the 1920s. As Sorkin notes, Livermore “kept the thin paper strip that fed from [a stock ticker] running through his fingers throughout the day. …He studied the numbers with the intensity of a scientist, as if he were trying to solve an eternal mystery.”

Unlike long-term investors such as Warren Buffett, such speculators had a compressed field of vision. They cared about what stocks would be worth next week, not next year. And they were more concerned with crowd psychology than business valuation. In the frenzy of the 1920s, there was no shortage of such “operators,” to use a term of that era. Stock investing had recently been democratized, and the market became, according to Sorkin, “a spectacle that drew Americans to it like moths to a flame.” Everyone from newspaper boys to Groucho Marx was getting in on the action, expecting quick gains. When such easy optimism combines with loose credit — many investors were buying stocks on a razor-thin 10-percent margin — the ingredients for financial panic fall into place.

As Sorkin notes, some prognosticators, such as Roger Babson, economist and founder of Babson College, saw the crash coming. Others, such as Irving Fisher, the Yale economics professor, did not. When the bottom fell out on October 29, Black Tuesday, people on Wall Street “walked around like zombies,” according to industrialist and financier Arthur A. Robertson.

“It was like [the play] Death Takes a Holiday,” Robertson added.

Winston Churchill was in New York City at the time. That night, from his hotel window, he noticed that a man had jumped from the building and been “dashed to pieces” on the street below. Whether this was market-related or even a suicide rather than an accident is uncertain. Contrary to popular belief, suicides in the months following Black Tuesday actually declined from the preceding summer. But as the depth and severity of the Great Depression became apparent, that changed. In 1932, the nationwide suicide rate reached an all-time high of 22.1 per 100,000 people.

The real problem, which Sorkin’s book clarifies, was not the crash itself. Such things had happened before. It was the stubborn inability of the nation to recover from it, what Sorkin terms a “relentless unraveling.” By the late spring of 1930, almost half the market losses of the previous October had been made up. Yet optimism didn’t rebound, and credit didn’t loosen. Unemployment spread, and banks began collapsing like dominoes.

Where can we lay the blame? Communists, whose numbers swelled during the Great Depression, said it was the free market system. An inexorable cycle of financial collapses would grow progressively worse until the impoverished were united in violent revolution to usurp the means of production. Subsequent economic history safely refuted this claim. Capitalist economies have only grown progressively richer across the oscillations of the business cycle.

British economist John Maynard Keynes, on the other hand, said the capitalist system was sound but needed government management in the form of expansionary spending during downturns. This appeared to be borne out when World War II finally put the Great Depression into the world’s rearview mirror. And while the failures of Keynesian economic thought in the 1970s damaged its theoretical prestige, the general belief remains common today. In the twenty-first century, both Republican and Democratic administrations have tried to juice the economy through expansionary fiscal policy, with mixed results.

Writing three decades after the Great Depression, Milton Friedman and Anna Schwartz laid the blame at the marble steps of the Federal Reserve, which had contracted the money supply between 1929 and 1933. And their case remains as strong as ever. In a 2002 speech at the University of Chicago on Friedman’s 90th birthday, Federal Reserve Governor Ben Bernanke fessed up on behalf of the institution: “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

And what of the Smoot-Hawley Tariff Act, which increased US tariffs an average of 59.1 percent? President Herbert Hoover, under heavy political pressure, signed it into law in the summer of 1930. Retaliatory tariffs from other nations followed. By 1933, global exports had fallen 64 percent from 1929 levels.

Sorkin doesn’t use much ink analyzing these causal factors. He stays focused on the story. But in the years after the crash, the American public was hurt and wanted human villains. Chief among these, in the popular mind, was Charles Mitchell, president of National City Bank (today’s Citibank). Known as “Sunshine Charlie” for his inveterate optimism, he was, at the time of the crash, one of the stock market’s biggest promoters.

Eventually, the federal government brought Mitchell up on criminal charges. He was acquitted; a jury could not find that he had broken any laws. His actions as president of National City, however, helped set the stage for the Glass-Steagall Act of 1933, which forced banks to separate commercial and investment banking.

Today, the 1929 crash is remembered as a historic challenge to capitalism. But financial corrections are arguably a feature of the system rather than a bug. Unlike dictatorial and collective economies, free markets remain tethered to reality. When things get out of balance, market forces trigger a reckoning from which healthy growth can restart.

Winston Churchill understood this. Shortly after the crash, he wrote of the “strength of the American speculative machine. It is not built to prevent crises, but to survive them.”

“No one could doubt,” he continued, “that this financial disaster, huge as it is, cruel as it is to thousands, is only a passing episode in the march of a valiant and serviceable people who, by fierce experiment, are hewing new paths for man and showing to all nations much that they should attempt and much that they should avoid.”

In 1945, the United States emerged from World War II as the strongest economy in the world, a position it has yet to relinquish. The crash of 1929 was a bump in the road rather than a brick wall.

Sorkin’s account of it is a fair and balanced addition to the literature.