One of the largest residential solar installers, Sunnova, went belly up on June 8. The company had over $10 billion in debt and a market cap of over a billion dollars less than a year ago. While aggressive spending on expansion and poor management account for some of Sunnova’s problems, they also faced significant policy headwinds: high interest rates, higher costs due to inflation, uncertainty and higher costs due to tariffs, and freezing of Inflation Reduction Act subsidies.

Those familiar with this space may remember Solyndra, a failed solar company that had received a $500 million loan from the federal government. Some people point to a $3 billion loan guarantee with Sunnova under the Biden administration as a larger version of Solyndra. This is incorrect.

A loan guarantee differs from a loan. The guarantor agrees to make up the difference of what a defaulting borrower agreed to pay and what they actually paid. Furthermore, the $3 billion loan guarantee was for consumer loans to install solar panels, not loans made directly to Sunnova itself. Finally, less than $50 million in loans were made under this loan guarantee program before the Trump administration cancelled it last month. This means, at least at the federal level, that the Solyndra bankruptcy cost taxpayers at least ten times more.

Besides the federal loan guarantee, the Sunnova bankruptcy highlights many of the distortions that governments have created in solar energy. But it is also personal: I installed solar panels on my house in New Jersey using Sunnova and can speak to how government incentives affected my decision.

The solar panel array Sunnova sold me had a sticker price of about $20,000. I estimate it saved me $80 to $120 per month on my electricity bill. So let’s call it $1200/year in energy savings. That’s a 6 percent return on investment. Not bad, but not great either — especially given the significant outlay required up front — and the fact that the panels depreciate over time. But when you incorporate federal and state subsidies, installing solar panels became a no-brainer.

At the time, the federal government was offering a 30 percent tax credit on solar panels. In effect, this reduced the price from $20,000 to $14,000. The rate of return from my $1200 in annual savings jumped to 8.6 percent. Then the state subsidy kicked in.

Some states engage in a practice called net metering where utilities must pay owners of solar energy for any electricity they put back on the grid. There are many complications and problems with this method that we need not worry about here. In my case, NJ required energy producers to “buy” solar power generation. Every additional thousand kilowatts of energy my solar panels generated, for my own benefit mind you, I could also generate something called an SREC (Solar Renewable Energy Certificate) and sell it on an exchange.

The price of SRECs ranged from about $200 to $240 while I owned the system and my system would generate 2-3 SRECS per year. So call that roughly $500/year in additional direct payments to me, the owner of the solar panels, and my rate of return rises to 12 percent — not a bad deal. So I, and thousands of others, bought solar panels.

And that’s the calculation with just two subsidies. Based on the time, location, and nature of the purchase, there are dozens of other forms of subsidies for solar panels. Which brings us back to the Sunnova bankruptcy and the state of solar power in the US.

Solar energy has become an enormous industry over the last decade. Part of this is due to rapidly improving technology and significant versatility. Improving technology has led to solar panels with higher efficiency and lower production costs. There are also solar panels being developed that can capture sunlight from both sides. Improvements in materials like organic photovoltaics and ultra-thin silicon are leading to thin, bendable, and lightweight solar modules that can be integrated into various surfaces — including windows and facades — as transparent solar panels become a reality.

The economic question, though, is not only about how impressive solar technology is, but whether the cost of producing, installing, and maintaining solar panels can be justified based on their direct benefits to consumers. Environmental activists and opportunistic politicians and the solar lobby obscured the answer to this question by asserting massive indirect benefits for the climate from solar energy and subsidizing solar installation at every opportunity they could find — which leads to my story.

Solar power (and wind power for that matter) has several major problems as a large-scale source of electricity for the grid. The most important problem is its intermittent nature. Solar panels don’t generate electricity at night. Nor do they generate much when it is cloudy. Furthermore, power generation is unreliable — it changes over seasons and can’t be dialed up or dialed down based on people’s demand for electricity — such as during severe weather events. The main way to deal with this problem entails massive energy storage (in effect, giant batteries) that are prohibitively expensive to build at scale.

Another oft-overlooked problem is the cost of transmission. The best locations for solar power installations are not necessarily near places with high demand for electricity. In fact, cities with high demand for electricity also have much higher opportunity costs for land than rural areas. But building transmission lines is expensive and not usually factored into the cost/benefit analysis of solar installations because regulators require utility companies (really their rate payers) to foot the bill of building transmission lines.

The explosion of solar energy has been driven by heavy government subsidization around the world. As those subsidies dry up or are cut off, such as with the current administration’s freezing of Inflation Reduction Act funds or the Big Beautiful Bill’s aggressive retiring of renewable energy subsidies, the cost/benefit calculus for solar changes, too. There will still be a market for solar energy without subsidies. It will just be much smaller. If that’s the case, we can expect stormy skies ahead for solar companies of all stripes. Sunnova’s bankruptcy is likely the beginning, rather than the end, of solar investors’ troubles.

People understandably have misgivings when someone injects the Bible into a discussion of economic issues. The Bible certainly is not an economics text. Its treatment of economic themes is desultory and brief, lacking in detail and depth. Not surprisingly, then, the Bible’s economic implications are perceived in many different ways. 

The Bible touches upon economic themes in ways that are sometimes descriptive (value-free) and sometimes prescriptive (value-laden, normative). These distinctions are crucial. 

For example, the Bible is being purely descriptive in relating an episode that features the law of supply and demand in operation during the Syrian siege of Samaria (2 Kings 6:24-7:18). When supply decreases, prices rise; when supply increases, prices fall. The Bible offers no value judgment about the operation of supply and demand. The economic law is neither right nor wrong; it is simply the way the world works, as value-free as to say that fire burns wood. 

The Bible is also merely descriptive in its treatment of voluntary exchanges, treating transactions that buyers and sellers make at mutually acceptable prices as a commonplace feature of life on Earth – e.g., Abraham’s purchase of a tomb for Sarah (Gen. 23:15) and King David’s purchase of supplies for a burnt offering (1 Chron. 21:24-25). Even usury (the charging of interest) is treated in a nonjudgmental way when Jesus, in his parable of the talents, tells the unproductive servant that he should at least have used the money entrusted to him to earn interest (Matt. 25:27). 

It is when we turn to the prescriptive (normative) aspects of economic phenomena in the Bible that controversies about how to interpret the Bible sometimes arise. Central to Bible teachings are what Jesus called the two great commandments (Matt. 22:36-40), telling how humans are to relate to the Deity and how they are to relate to each other. Indeed, those two commandments are a condensed version (early CliffsNotes?) summarizing the Ten Commandments (Ex. 20:3-17), four of which tell us what we owe to God and six which provide rules for how humans are to treat each other.  

Of particular relevance to economics are the Eighth and Tenth Commandments, “Thou shalt not steal” and “Thou shalt not covet.” Those are unequivocal statements mandating adherence to the principle of private property. (Incidentally, you don’t have to believe in God or the Bible to endorse the principle of private property. Ludwig von Mises, for example, through his entirely value-free economic analysis, concluded that it was logically demonstrable that if people desired prosperity, then an economy based on private property was the most effective means of achieving that end. It is interesting, though, that Mises came to the same conclusion via analysis that Moses came to via revelation – namely, that human beings are better off by honoring private property.) 

Some individuals have invented a concept called “Christian socialism” that is built on sophistries. They cite Bible verses such as Jesus’ statement in the Sermon on the Mount to give your cloak to the person who has stolen your coat, or the passage in Luke where the rich Lazarus suffered in the afterlife because he had not shared his earthly wealth with the poor. It is certainly true that Jesus repeatedly warned us about becoming too entangled in material comforts and that he urged us to be charitable toward others.  

Note, though, that humans were to be subject to the dictates of their own conscience about how much wealth to accumulate and not subject to the dictates of other humans. For example, when a man asked Jesus what he needed to do to inherit eternal life, Jesus told him to give all his wealth to the poor. When the man declined to do so, Jesus let him depart in peace. Jesus had essentially offered him a voluntary contract, and he respected the man’s right not to accept that contract. (See Mark 10:17-23.)   

Similarly, when another man pleaded with Jesus to tell his brother to share his inheritance with him, Jesus declined, saying, “Man, who made me a judge or divider over you?” (Luke 12:14) If the Son of God (or the most loving, moral person who ever lived, if you are more comfortable with that characterization) wouldn’t deny a man his property rights, then who are we to deny anyone those rights? 

Where many self-described Christians err is in regard to helping the poor. They assert that Christians should support government programs, whereby taxpaying citizens are compelled by law to support the less fortunate. Again, Jesus undoubtedly would endorse helping the poor, but the end does not justify the means. Try as you might, for all the exhortations in the Bible to be charitable, you will find no verse telling believers that the way to get into heaven is to make other people perform good works. Charitable deeds are to be done voluntarily, out of an inner impulsion of a loving spirit and heart, rather than in response to external compulsion, such as governments using the threat of fines or incarceration to raise taxes to fund welfare programs. 

Jesus provided the model of Christian charity in the parable of the good Samaritan (Luke 10:30-37).  When he encountered a man who had been badly hurt by robbers, the Samaritan personally attended to his wounds and spent his own money to provide food and shelter to the victim. When he had to leave to attend to his own pre-existing commitments, he promised to pay the innkeeper to care for the man.   

Thus, Jesus illustrated the two forms of Christian charity – first, giving aid personally and directly; second, rendering assistance indirectly by donating to those who have the time and skills to minister to those in need when we can’t do it ourselves. 

Let’s try a thought experiment: Suppose that the Samaritan, after spotting the wounded man, raised the funds he subsequently spent caring for the victim by imposing a toll on passersby on the road – a toll that they had to pay if they didn’t want theSamaritan to bash them on the head with his staff. The man in need still would have received the help he desperately needed, but would we still regard the Samaritan as a paragon of Christian virtue and charity? Is it genuine charity to be generous with other people’s money? Is it charitable to help some by threatening to hurt others? 

This is the murky moral territory into which many Christians stray in the name of “social justice” or the social gospel. The desire to help those in need is laudable, but the means employed by advocates of “social justice” are not. They vitiate a Biblical principle when they call for government to redistribute wealth to the poor, the sick, the widow.  Government necessarily introduces the additional factor of compulsion into the equation, for government is organized force. While it is Christian to be charitable, Jesus never mixed charity with compulsion, nor did he teach his followers to resort to force. 

For the Christian, private property is one of the central pillars of God-directed social morality. For the economist, private property offers maximum utility for promoting social prosperity. In that crucial sense, the Bible and economics do not conflict, but harmonize. 

1984 is back in the news. Orwell’s estate recently authorized a 75th anniversary edition of the timeless classic, with a new introduction by literature professor Dolen Perkins-Valdez. 

Perkins-Valdez’ introduction spends little time talking about authoritarianism, and a lot of time talking about race and gender in the story. She complains about Winston’s misogyny. She bemoans the fact that the story doesn’t focus on matters of race, writing that “a sliver of connection can be difficult for someone like me [Perkins-Valdez is black] to find in a novel that does not speak much to race and ethnicity.”

Perkins-Valdez’ introduction has sparked a firestorm. Novelist and essayist Walter Kirn calls it a “trigger warning” and blasts the imposed “permission structure” of an introduction designed to tell readers how they should feel about Winston’s sexism and Orwell’s statement that racism didn’t exist in Oceania. 

I actually disagree with Kirn’s characterization. Perkins-Valdez does grapple with Winston’s sexism and the lack of nonwhite characters, but in both cases she chooses to press on and gives her reasons for doing so. If that’s a trigger warning, it’s a very strange one. But nonetheless, Perkins-Valdez’ introduction represents an enormous missed opportunity.

The past several years of American life have been some of the most authoritarian in living memory. Online life created a digital panopticon not unlike the two-way televisions in every home in Oceania: everyone is being surveilled, all of the time. Many people, especially on the far left, used this surveillance and the new power of the online mob to silence their political opponents. People were fired for supporting J.K. Rowling or for dissenting from the Black Lives Matter agenda or even for not knowing what a bodega is. Yelp flagged businesses that disagreed with BLM, and PayPal and Etsy froze the accounts of center-right authors. Like the Inner Party, this new online movement punished people for Thoughtcrime. It found and made examples of its own Winstons and Julias, over and over and over again.

And like the citizens of Oceania, most of us were cowed into silence. In 2020, 62 percent of Americans agreed that “the political climate these days prevents me from saying things I believe because others might find them offensive.” 

In an example eerily reminiscent of the Party’s rewriting of history, academic papers were unpublished and memory-holed, not because they were academically flawed, but because they violated certain left-wing shibboleths.

It’s not just culture; top government officials have acted in increasing Orwellian ways. The Biden administration and its allies in the media spent years gaslighting Americans about Biden’s deteriorating health. They dismissed videos of Biden acting his age as “cheap fakes” and mocked first-hand accounts of Biden’s decreasing cognitive ability as right-wing propaganda. Why? There were several reasons, but a big stated one was the fear that, if voters knew the truth, then Trump would get reelected in 2024. In Wisdom of Crowds, political philosopher Samuel Kimbriel reported that, right after Biden’s disastrous debate performance, “Mike Madrid, co-founder of the Lincoln Project, gave a hot-in-the face two minute rant about how anyone made uncomfortable by what they’d seen on the debate stage was ignoring the actual danger to democracy.” This was Orwellian doublespeak at its finest: in order to save democracy, we have to lie to the American people. Saving democracy requires not letting the democratic process function.

And then there was the previous administration’s attacks on free speech. The Biden administration leaned on social media companies to blacklist or shadowban prominent opponents of its lockdown policy. The same administration sought to create a Disinformation Governance Board so that the government could decide what was true and what was false. What is that but an American version of Oceania’s Ministry of Truth?

And then there’s the Orwellian behavior on the right. Trump, who ran against political correctness run amok and who put out an executive order proclaiming his support for freedom of speech, has sued news outlets and law firms for the supposed crime of supporting his political opponents. As the right reacquires political and social power, it’s rediscovering the utility of cancel culture and of using the power of government to punish Wrongthink.

And of course there’s the behavior of Trump himself. Orwell describes doublespeak this way: “to know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them.” 

That’s a good description of many of Trump’s antics. As Jonathan Rauch writes in The Constitution of Knowledge:

One day he said his impeachment was hurting the stock market, then the very next day he bragged that the market was reaching new heights. He called government statistics showing unemployment declining under Obama ‘phony,’ but said the statistics showing unemployment declining in his own tenure were ‘very real.’

Believing all of Trump’s contradictory statements at the same time requires the same self-hypnosis as believing that Freedom is Slavery or that 2+2=5. 

On the left and right, in government and in our popular culture, we are starting to manifest disturbing echoes of the world of 1984.

A better introduction to Orwell’s masterpiece might try to grapple with our recent lurch towards authoritarianism. It might ask us questions: what causes a rise in authoritarianism? What psychological conditions led the people of Oceania into totalitarianism, and what psychological conditions kept them there? If we want to curtail so-called “hate speech” (as many Americans do), where’s the line between that and the government persecuting people for Thoughtcrime—or is there a line?

Such an introduction might prompt us to reflect on our own tendency towards authoritarianism. It might talk about the importance of courage, and whether Winston and Julia’s rebellion was wise or ultimately foolish. It might wrestle with that peculiar feature of American exceptionalism, the idea that we and we alone could never fall into authoritarianism; and prompt us to see that for the comforting lie that it is. Such an introduction might prompt us to be more on our guard against authoritarianism, both from the online mob and from the government. It might tie the story’s eternal themes to our current circumstances, so that the novel can help inculcate us against authoritarianism in the way that Orwell intended.

Instead, Perkins-Valdez chose to focus on the novel’s depiction (or lack thereof) of minorities and the main character’s (temporary) sexism. It focused on minutiae that Orwell himself seemed to consider unimportant, rather than on the enduring need to heed Orwell’s warnings and protect ourselves from falling into an authoritarian regime. That’s an enormous missed opportunity.

Last week, Alex Shieh, a student in Brown University’s class of 2027, testified before Congress. The hearing was focused on antitrust violations in higher education and surging tuition prices.

Shieh’s testimony came just weeks after Brown University opened an investigation into him for creating a website that scrutinized how the $93,064-a-year institution allocates its funds.

Shieh, inspired by Elon Musk, launched the DOGE-style project in March. Working from the basement of his dormitory — a “room that floods whenever it rains and thus has plastic tarps, industrial fans, and wet floor signs permanently set up” — he discovered a “small army” of administrative staff who work at the Ivy League school. 

Using AI, he compiled a comprehensive list of university positions, then ranked them by operational importance with a custom-built program. He published the results on a site called Bloat@Brown — but Shieh didn’t stop there. Identifying himself as a journalist, he emailed staff members asking them to describe their roles, detail recent tasks, and explain how students would be affected if their positions didn’t exist. 

Shieh’s project was no doubt cheeky. Anyone who has seen Mike Judge’s movie Office Space knows employees don’t like having to justify their jobs. (Who can forget the Bobs?) And its results were predictable. Only twenty or so employees responded, two of whom told Shieh he could perform a sexual act on himself (one suggested he use “an entire cactus”).

Less predictable was Brown University’s response. 

First, Brown sent out a memo to employees instructing them not to respond. Then, according to The New York Times, officials informed Shieh “he was under investigation for possible violations of the university’s code of student conduct, including its prohibitions on invasion of privacy, misrepresentation, and emotional or psychological harm.”

Though Shieh and his associates were eventually cleared of wrongdoing, the episode is yet another demonstration of the intellectual and bureaucratic rot that afflicts America’s elite universities. As Joshua Pederson, a professor of humanities at Boston University, wrote in Slate, the intent of Brown was clear: “They came to bury Shieh, not to praise him.”

The university took this action even though Shieh was highlighting a genuine problem. Pederson cites a report by Paul Weinstein Jr. of the Progressive Policy Institute, which documents a dramatic rise in non-faculty hiring at the top 50 US colleges. There is now one administrative employee for every four students.

“The results of this research underscore that non-faculty employees at universities, both public and private, have grown considerably and without necessary oversight, under college presidents and their boards,” Weinstein wrote. “While some of this growth may have been necessary, there is no doubt that much of it has not.”

The problem is particularly acute at Brown, where the non-faculty employee-student ratio reportedly is 1 to 3. 

Officials at Brown may not like their hiring decisions being questioned by a mere undergrad, but it’s not outside the boundaries of academic inquiry. Indeed, Pederson says Shieh deserves applause for launching a project that is quite impressive for an undergrad. 

“If I’d had the opportunity to work with Mr. Shieh, I would have begun by praising him for identifying and focusing on a pressing problem for American higher education in a time of rising tuition costs: administrative bloat,” writes Pederson, adding that he doesn’t necessarily agree with Shieh.

Brown, unfortunately, chose another route, opting to launch a clumsy investigation into the rising junior. In doing so, the university elevated Shieh’s research, highlighting the administrative bloat that is putting college out of reach of many students and leaving countless others saddled with immense debt.

The surging cost of higher education stems from various factors, but Shieh’s project homed in on one of them. 

“I discovered that much of the money is being thrown into a pit of bureaucracy,” Shieh wrote at Pirates Wire.

Shieh — as a student, journalist, and taxpayer — was well within his rights to investigate how Brown University spends his and others’ tuition dollars. But instead of defending his academic freedom, Brown University chose to launch a punitive investigation, going so far as to accuse Shieh of trademark infringement for using the word “Brown” in an article headline!

It’s hard to imagine a more self-defeating response. What began as a student research project became a full-blown PR disaster. Brown was publicly rebuked by The Foundation for Individual Rights and Expression(FIRE), which stated that the university’s actions “clearly infringe on his expressive freedoms and further violate Brown’s robust guarantees to protect free expression consistent with First Amendment principles.” Shieh’s work has since attracted national attention, including his invitation to provide congressional testimony.

Like many elite universities, Brown receives hundreds of millions in federal funding each year despite its $7.2 billion endowment. Unfortunately, the university’s response is the latest evidence that US universities are broken, dysfunctional, and unworthy of public trust and support.

In a recent speech delivered in Seoul, South Korea, Federal Reserve Governor Waller offered unique insights into how monetary policymakers should think about the effects of tariffs on both inflation and inflation expectations. His remarks come at a time when trade policy is once again at the center of national debate, and concerns about inflation remain top of mind for households, firms, and policymakers alike. 

Waller focused on three key areas: the immediate inflationary effects of tariffs, why those effects are unlikely to persist, and the divergence between household inflation expectations and market-based measures.

To frame his discussion on tariffs and inflation, Waller revisited the two tariff scenarios he introduced earlier this year: one large and one small. In both cases, he assumed — consistent with standard economic theory — that the tariffs would lead to a one-time increase in the price level, temporarily raising the inflation rate as the economy transitions to a higher price path. Once this adjustment occurs, Waller explained, inflation should return to its underlying trend, based on his view that longer-term inflation expectations remain anchored.

In Waller’s large tariff scenario, he assumed that the trade-weighted tariff on goods imports would be 25 percent, which, he noted, was not far off from where things stood following the 90-day suspension the administration announced on April 9. In this scenario, Waller assumed the tariff would remain in effect for some time, which he predicted would lead to inflation — as measured by the personal consumption expenditures (PCE) price index — peaking at around 5 percent annualized later this year, assuming firms passed through the full tariff to consumers. If, on the other hand, firms passed on only part of the tariff, he projected inflation would peak at around four percent. Regardless of the degree of pass-through, Waller believed that the unemployment rate would rise to 5 percent in 2026 under the large tariff scenario.

In his small tariff scenario, Waller assumed a 10 percent tariff on goods imports that would remain in place indefinitely, with higher country- and sector-specific tariffs falling over time as the administration negotiated trade deals. In this case, Waller predicted that inflation might rise to an annualized rate of three percent but, as before, would eventually return to trend. While output growth would slow, Waller thought it unlikely that unemployment would rise, as it would under the large tariff scenario. 

Given recent developments in trade negotiations, Waller noted that his base case for tariffs is a 15 percent rate on goods imports — splitting the difference between his large and small scenarios. In his view, the likelihood of the large tariff scenario has fallen, given the administration’s recent negotiations. He noted, however, that there remains significant uncertainty about the ultimate outcome of the administration’s trade policy, making it difficult to know exactly what the economic outlook will be.

Making matters more uncertain is the divergence between “hard” and “soft” data on the tariffs’ effects. Waller observed that the hard economic data so far is generally positive, showing little evidence that tariffs have meaningfully affected inflation or overall economic activity. By contrast, surveys of households, firms, and investors point to slower growth and higher prices. Waller appears to share those concerns, noting that he sees downside risks to both sides of the Federal Reserve’s dual mandate in the second half of this year — especially on the employment side, as tariffs are likely to reduce spending and prompt firms to cut payrolls. He emphasized, however, that these risks will depend on how the administration’s trade policies evolve in the coming months.

On the price-stability side of the mandate, Waller noted that before the recent upheaval in US trade policy, the Fed had been making progress — albeit uneven — toward bringing inflation back down to its 2-percent target. Waller now expects that tariffs will push inflation higher later this year, but observed that the surge in imports earlier this year makes the precise timing of that increase difficult to predict. Nonetheless, whatever effect the tariffs have on inflation, Waller expects it will be temporary. The size of the rise, he emphasized, will depend not only on the ultimate scale of the tariffs, but also on how both importers and exporters respond — something that remains highly uncertain.

One aspect of that uncertainty is the extent to which firms will pass on the cost of tariffs to consumers. Based on his conversations with business leaders, Waller expects the burden of a 10 percent tariff would be shared roughly equally among consumers, importers, and exporters. Under that assumption, the tariffs would temporarily raise inflation by 0.3 percent. If tariffs end up being higher than 10 percent, however, he expects firms will pass more of the cost on to consumers — which he sees as likely, given the limits on how much of the additional cost businesses can absorb. In that case, the effect of tariffs on inflation would be greater.

Waller also addressed concerns that firms might use tariffs as an excuse to opportunistically raise prices — i.e., “greedflation.” He argued that such behavior is unlikely, since firms that raise prices without justification risk losing market share to competitors and alienating loyal customers. In short, Waller does not see greedflation as a significant driver of inflation beyond the direct effects of the tariffs themselves.

The term “transitory” has become something of a dirty word in inflation debates, Waller acknowledged, given the controversy surrounding the Fed’s use of the term during the post-pandemic inflation surge. Nonetheless, he believes that any inflation caused by the tariffs will, in fact, be transitory. He pointed to three factors that contributed to both the severity and persistence of COVID-era inflation — none of which, he argued, are likely to apply in the current context. First, the pandemic led to a significant and prolonged reduction in labor supply, which drove wages — and prices — higher. Second, the associated supply chain disruptions lasted much longer than expected. Third, the scale of fiscal stimulus, combined with the Fed’s accommodative stance, overstimulated aggregate demand.

Waller concluded his remarks with a discussion of diverging inflation expectations. He noted that surveys of household expectations differ significantly from both market-based measures and the projections of professional forecasters. Recent surveys suggest that households anticipate inflation as high as seven percent in the near term. If those expectations were accurate, Waller argued, we would expect to see workers demanding higher wages, along with a rising quits rate as they search for better-paying jobs. We would also expect to see a pickup in household spending as consumers try to make purchases before prices rise further.

As Waller explained, these patterns are not evident in the data. Although wages are rising, they are doing so at a pace consistent with long-run trends. Moreover, the quits rate is now below its pre-pandemic level, and Waller notes that his business contacts have not reported an uptick in wage demands. Similarly, there has been no surge in consumer spending; in fact, it is growing more slowly than in the second half of 2024.

Market-based measures of expected inflation, along with projections by professional forecasters, are much lower than those reported in household surveys. These indicators point to inflation averaging between 2.2 and 2.4 percent over the next few years. Waller explained that financial institutions have strong incentives to forecast inflation accurately, since their profitability depends on incorporating expected inflation into the interest rates they charge. If they were failing to do so, he argued, we would expect to see a surge in loan demand for interest-sensitive goods like homes, automobiles, and other durable goods. But current data from the financial sector shows no such surge. For these reasons, Waller places greater weight on market-based measures and professional forecasts.

The upshot is that, in Governor Waller’s view, inflation expectations remain well anchored — despite the divergence across different measures. Given that, and his expectation that any tariff-induced inflation will be temporary, he believes the Fed should look through the effects of tariffs on the price level when making policy decisions. He concluded by stating that, if tariffs settle closer to his small-tariff scenario and underlying inflation continues converging toward the Fed’s 2 percent goal, he would support cutting the policy rate later this year.

There is no more important international relationship than that between the United States and People’s Republic of China. At stake is not just the present but the future, especially relations between rising generations in both nations. The Trump administration has put this at risk by targeting Chinese students.

Relations between the two countries have declined sharply since controversies over COVID and battles over trade during the first Trump administration. Security concerns, highlighted by Beijing’s pressure on Taiwan, raised fear of actual conflict. Ties seemed close to rupture in April when President Donald Trump launched a dramatic assault against Chinese commerce, but the two governments drew back from the brink after talks in May, agreeing to reduce the debilitating tariffs imposed by both sides. Observers expressed cautious optimism about the two governments stabilizing their relations. Trump even described the relationship as “important” and said he was ready to travel to China to meet President Xi Jinping.

However, at May’s end the administration declared war on the 277,000 Chinese students, down nearly 100,000 pre-Covid, attending US universities, and the many more hoping to come to America in the future. Secretary of State Marco Rubio announced: “Under President Trump’s leadership, the US State Department will work with the Department of Homeland Security to aggressively revoke visas for Chinese students, including those with connections to the Chinese Communist Party or studying in critical fields. We will also revise visa criteria to enhance scrutiny of all future visa applications from the People’s Republic of China and Hong Kong.”

Trump downplayed the significance of his administration’s plans, but the Chinese government denounced Washington for “unjustly” barring students based on “the pretext of ideology and national security.” Chinese students have seen the administration’s ruthless immigration enforcement elsewhere and many applying to study in America were distraught. 

Reported The New York Times: “In the hours after the Trump administration announced that it would begin ‘aggressively’ revoking the visas of Chinese students, the line to apply for new visas at the United States Embassy in Beijing still stretched down the block on Thursday. But for many of the hopefuls — including some who walked out of the embassy with their visa applications approved — any celebration was laced with a mix of anxiety and helplessness.”

The administration’s campaign will discourage Chinese students from even considering America. An 18-year-old whose application was approved observed that “in the future, if I can avoid going to the United States to study, I will. They make people too scared.”

The new restrictions will compound the administration’s previous decision to deport critics of Israel’s Gaza war and more recent plan to review visa applicants’ social media accounts. Reported Reuters: “The US administration ordered its missions abroad to stop scheduling new appointments for student and exchange visitor visa applicants as the State Department prepared to expand social media vetting of foreign students.”

Even students from US allies are at risk. Some South Korean applicants have been unable to schedule interviews. One who was studying in America and had hoped to find work after graduation worried about the future.

“I think what is now the United States is a lot different than the United States in the past,” he lamented. 

Students are the most obvious victims of the Trump administration’s escalating war against foreigners, irrespective of their home country. However, in the long-term the most significant victim will be the US. The economic benefits of hosting foreign students are obvious. Taking advantage of this revenue inflow is ever more important after Trump began imposing massive taxes on trade.

Education autarky will be costly in other ways. Reported the Association of American Universities: “International students, scientists and engineers help drive cutting-edge research and development, fill job openings in critical STEM fields, advance national security and bolster the US economy by generating new domestic startups and businesses.” Other nations’ universities are already preparing to take advantage of Washington’s act of educational seppuku. Unfortunately, the administration is closing America’s door precisely when many disillusioned young Chinese want to go abroad.

Most Chinese PhD students want to remain in America. Beijing, though criticizing Washington, may actually welcome the administration’s move, since the PRC is attempting to attract well-educated Chinese home. Reported The Washington Post: “Over the past two decades, China has ramped up efforts to lure home students and scholars educated abroad. Known as haigui, or ‘sea turtles,’ these returnees are prized as vital assets in Beijing’s push for industrial and technological dominance.” Beijing is even approaching non-ethnic Chinese scholars. Driving Chinese home proved costly in the past — as the Eisenhower administration discovered after it deported Qian Xuesen, who became the celebrated “father” of the Mao regime’s missile and space programs.

America’s gains from hosting foreign students go far beyond financial and technological. For decades, much of its international influence came from its attraction to people from around the world. For some the US offered seemingly unbounded economic opportunity; for others, human liberty, especially freedom of speech and democratic governance were paramount. The result was a steady flow of students from around the world, many coming for high school as well as university.

They often end up as America’s best friends. For years I’ve participated in a summer economic education program at a Chinese university. We avoid politics for obvious reasons, but many students hope to study in America. They would enrich the lives of those they meet and befriend. Some would adopt the US as their own, contributing to their adopted nation. Others would return to their homelands, changed and revitalized. Zichen Wang, a research fellow at China’s Center for China and Globalization who studied in America (and who I’ve met) told CNN: “Many of China’s officials, entrepreneurs, and scientists — especially those who played key roles during the era of reform and opening-up — received their training in the US.”

Of course, there are legitimate concerns about admitting people who might encourage violence or engage in espionage. However, that does not justify anything approaching a ban. Even law enforcement admits that the number of problematic students remains low and Rubio offered no evidence of significant threats. Yet, noted the Washington Post, experience indicates that “the rules are applied opaquely and — in some instances — indiscriminately.” And elsewhere the administration has failed to tailor its immigration restrictions to address genuine problems. Indeed, membership in the Chinese Communist Party or associated organizations doesn’t necessarily reflect anything sinister. Even Beijing recognizes that many people join the party for career advancement rather than out of ideological commitment and has stepped up efforts at political indoctrination in response. Accepting party members as students also allows Americans to engage the PRC’s future rulers.

Now more than ever Americans should connect with the Chinese people, maintaining communication, contact, and cooperation even as the two governments increasingly confront one another. Rubio’s visa announcement cements his ironic role as the administration’s chief isolationist, seeking to wall Americans off from the world contrary to their values and interests. Confronting the Beijing government is a significant but necessary challenge. However, Chinese and Americans together will suffer from needless US barriers to entry.

To listen to some people, you’d think that America had been run by economists — and specifically free-market economists — for the last fifty years or so. Of course, this isn’t really true, as any glance at the ever-climbing nature of federal spending or regulations would show you, but whatever influence economists might have had is being jettisoned in favor of what my late friend, the British economist David Henderson, called “Do It Yourself Economics.” 

Henderson’s concept was developed during his time at Her Majesty’s Treasury and at the Organization for Economic Cooperation and Development, where he was Chief Economist, after keen observation of the actions of political actors across the developed world. He describes “Do It Yourself Economics” (DIYE) as “economic policies [that] have been influenced or decided by firmly held intuitive economic ideas and beliefs which owe little or nothing to economic textbooks or treatises, or to the evidence of economic history.” 

He also pointed out that the “leading ideas and beliefs that go to make up DIYE are sincerely held, and voiced with conviction, by political leaders, top civil servants, chief executives of corporations, general secretaries of trade unions, well known journalists and commentators, eminent religious persons, senior judges, and established professors across the whole range of academic disciplines (not excluding economics itself). That is why they have to be taken seriously as an influence on events.” In other words, DIYE is like an endemic intellectual disease. One must ensure regular inoculation against its spread. 

That’s because DIYE has a long record of leading good intentions into bad outcomes. Henderson gives as examples that profit-seeking is questionable, that the state has a role in any cross-border transaction, and that goods and services can be ranked in order of importance. Each of these beliefs is contradicted by economic thinking, yet their persistence gives rein to interventionist governments and to restrictions on freedom. What characterizes them is a reliance on central direction and even collectivism. 

What free market economists might actually have done well over the past few decades is hold back some of the worst excesses of this tendency for a while. Adam Smith told us that the economic world is governed by largely unseen forces like incentives, prices, and information that rarely coincide with our instincts, and recognizing those forces might have helped put a brake on instinctive politics. Yet today those forces are dismissed as inconvenient, and intuition is heralded over analysis. 

We see this most obviously in the return of mercantilist thinking. We are told by no less a figure than the President of the United States that a trade deficit is a bad thing and represents unfairness, and that reducing that deficit through the tool of tariffs will bring back jobs. Many, if not most, people agree with this.  

Yet economic thinking tells us otherwise. It tells us that we get substantial value for that deficit, that tariffs will do little to reduce deficits and may indeed increase them, and that tariffs kill jobs as well as create them. The objections of economists to the administration’s tariff policies are, however, dismissed as “free market fundamentalism” or worse.  

While the reaction of markets to the policies seems to have induced continuous pauses and resets in the policy, the direction of the policy remains towards much higher tariffs, despite predictions of price rises, job losses, and supply shortages. Although DIYE could never be properly described as dogmatic (it is too instinctual for that), it does seem that blind adherence to it in this case veers closer to fundamentalism than any careful warnings of empirical economic analysts. 

Yet the problem is not confined to the administration. In New York, a prominent mayoral candidate is calling for rent control and freezes. The DIYE idea is that this will make housing more affordable for everyone and prevent displacement of poor households from their neighborhoods. Yet nearly all economists, from left to right, agree that rent control leads to housing shortages, reduces investment in maintenance, hurts newcomers, and makes housing less affordable in the long run. One Swedish socialist economist once said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city except for bombing.” 

Just as with tariffs, the careful collection of evidence on the effects of rent control and its analysis are quickly forgotten when a prominent, charismatic individual emerges to champion the DIYE idea. The ill effects of the policy are easily predicted, yet economists share the pain of Cassandra when they make those predictions — always right, always disbelieved. 

We do not want for examples. Inflation has been blamed by politicians of both parties on corporate greed — and price controls are the DIYE solution. Yet economists know that inflation is caused by monetary policy, as too much money chases too few goods. Price controls lead to shortages instead. We learned this painfully in the 1970s, yet the lesson is already forgotten.  

In this case, the DIYE diagnosis of “greedflation” doesn’t even stand up to a moment’s thought. If prices rising are the result of corporate greed, aren’t falling prices the result of corporate generosity? Economic pushback does not have to include complex econometric analysis. Simply applying the economic way of thinking can be enough to cause those tempted by DIYE to think again. 

Another bipartisan example is the idea of industrial policy — that requirements of domestic sourcing and government-led reshoring can lead to more jobs, higher wages, and prosperity for all. This can be portrayed as a patriotic policy, a pro-labor policy, or even a pro-environment policy; all three were present in the glut of spending bills at the end of the Biden administration. 

Yet economics again should have given pause. These measures, whether “buy American!” or a “green new deal,” raise costs, reduce competitiveness, and, like tariffs, invite retaliation abroad. The economic literature finds government industrial policy to be largely inefficient. When we learned that lesson in the last century, rules were put in place to require rigorous cost-benefit analysis and the like, but over time those were diluted and then eventually ignored or dropped entirely. 

Back on the left, another example from the Biden administration was student debt cancellation. The DIYE idea was that college graduates were earning decent wages but this was all going into paying off student debt, so canceling it would free up their resources to boost economic growth, to the benefit of all. 

Economic thinking said otherwise. Cancellation would be a classic example of dispersed costs and concentrated benefits. The people who benefited were those already doing reasonably well, while those without college degrees (or those who had them but had paid off debt in accordance with the terms they agreed to) would see no benefit. As an economic stimulus, it would be poorly targeted. 

DIYE remains influential because it conforms closely to political instincts and moral intuitions. Moreover, its tenets are sincerely held, often by people of high status whose affirmation gives the ideas an authority (or even sanctity, when professed by religious leaders) that is hard to counter. Thus, economists might be dismissed as bean counters, people who know “the price of everything and the value of nothing,” or even followers of “the dismal science.” 

In a polarized and populist climate, the ideas of DIYE often provide a more powerful narrative than textbook economics. This makes them even more potent and, respectively, harder to counter. 

Economists must therefore have their own stories to deploy alongside their models and theories. For every rust belt town where a factory has closed, they must point to a Spartanburg, South Carolina, where trade has opened new opportunities. For every family staying in their home thanks to a rent cap, they should point to the unseen family kept out of the neighborhood, or the apartment closed for rent as unaffordable to the landlord. 

Ideally, these stories should appeal to the same values that the DIYE proponent purports to serve. A critique of green industrial policy will do no good if the critic seems not to care about the environment; an appeal to halt tariff policy will have no appeal if it fails to acknowledge the values of patriotism that motivate the mercantilist. 

Sometimes, stopping a DIYE policy once will be impossible. But stopping it from happening again is more within reach. Even just delaying a harmful program by injecting a quantum of doubt can be valuable. As Ronald Coase said, an economist who “is able to postpone by a week a government program which wastes $100 million a year (what I consider a modest success) has, by his action, earned his salary for the whole of his life.” In the face of the DIYE onslaught, then, free market economists may need to adopt a Fabian approach. This may disappoint those of us who think of ourselves as radicals or revolutionaries, but it may be the surest way to win this battle for freedom.

In his novel Ignorance, the late Milan Kundera called nostalgia “the suffering caused by an unappeased yearning to return.”

Nostalgia is a powerful force, particularly so today. 

For years, Hollywood has tapped into our desire to return to the past to cash in. Though Disney’s 2025 flop Snow White shows the formula is far from foolproof, reboots, sequels, and “requels” have dominated at the box office the last two decades: Batman Begins (2005) Transformers (2007) Mad Max: Fury Road (2015), Rise of the Planet of the Apes (2011) Spider-Man: Homecoming (2017), Star Trek (2009), Jurassic World (2015), It: Chapter One (2017), Halloween (2018). 

I could go on, and this list doesn’t even include Disney’s live-action remakes of hits like Aladdin and The Lion King. It’s not just movies, though. 

Take a look around and you’ll see that 1980s and ’90s fashion cycles are back. Driven by Gen Z and Millennial interest in “vintage cool” mom jeans, crop tops,and bucket hats. Even mullets are in again, as are retro sneakers and brands like Abercrombie & Fitch. And while ​Taylor Swift’s “Eras Tour” set a record with its $2.2 billion ticket sales over two years, most of the top-selling tours in recent years were dominated by legacy acts like Metallica, The Rolling Stones, and Elton John, whose  “Farewell Yellow Brick Road” tour in 2023 banked a not-too-shabby $939 million in gross sales.

Unsurprisingly, nostalgia has also infiltrated our politics and economic policies. The renaissance of American protectionism has confused many, but it’s a phenomenon some saw coming. 

A decade ago, the late economist Steve Horowitz quipped that left-wing politicians had been bewitched by “nostalgia for the economy of the 1950s.” But he added that a Republican upstart appeared intent on stealing from the Democrats’ populist playbook. 

“It is more than a little ironic,” Horowitz wrote, “that modern progressives are nostalgic for the very economy that GOP front-runner Donald Trump would appear to want to create.”

Horowitz wrote these words in the summer of 2015 when Trump’s candidacy was still considered a joke by the experts. (A panel of 538 experts pegged his odds of winning the GOP nomination at “2 percent, 0 percent and minus-10 percent, respectively.”) But he secured the GOP nomination in 2016 by breaking from the party’s traditional platform — most notably by opposing immigration and free trade. 

Trump’s rise was puzzling. America’s open economy had created new jobs, lifted millions into higher-paying work, and delivered cheaper goods and services to households across the country. Yet Trump’s populist message, centered on economic nationalism, won him both the nomination and the presidency — largely by tapping into a widespread longing to return to a supposed manufacturing Golden Age.

Trump framed his trade agenda as a matter of economic fairness. If other countries use tariffs and trade barriers to boost their industries, why shouldn’t America? But the underlying goal was more ambitious. 

“Jobs and factories will come roaring back into our country,” Trump promised on “Liberation Day,” as he announced tariffs that shocked global markets. “We will supercharge our domestic industrial base.”

It’s a vision that appeals to Americans, who have visions of their grandfathers toting lunch buckets to smokestack-studded plants of the 1940s and ‘50s — a supposedly simpler time when work was steady, dignity came with a paycheck, and the factory floor looked and felt like home. 

The appeal of “nostalgianomics” is not new.

In his 2009 paper, titled “Paul Krugman’s Nostalgianomics,” Cato scholar Brink Lindsey critiqued the Nobel Prize-winning economist Paul Krugman’s perspective on the rise of income inequality in the United States since the 1970s

“Krugman looks back to the America of his boyhood and sees a society that combined energetic, activist government management of economic affairs with vigorous growth and converging incomes,” Lindsey wrote. “Entranced by that vista, he imagines a Golden Age — not just of economic performance, but of economic policies and social norms as well.”

Trump’s policies with nostalgia for an economy of the past. 

In his 2009 paper “Paul Krugman’s Nostalgianomics,” Cato scholar Brink Lindsey critiqued Nobel Prize-winning economist Paul Krugman’s romanticized view of mid-twentieth-century America. “Krugman looks back to the America of his boyhood and sees a society that combined energetic, activist government management of economic affairs with vigorous growth and converging incomes,” Lindsey wrote. “Entranced by that vista, he imagines a Golden Age — not just of economic performance, but of economic policies and social norms as well.”

Lindsey called this view a case of “ideologically motivated nostalgia,” accusing Krugman and other progressive leaders of cherry-picking history to paint the postwar era as a model of enlightened policymaking and social harmony. Whether through stronger labor unions (Krugman), trade protectionism (Nancy Pelosi), or expanded labor regulation (Hillary Clinton), the common thread was a belief that shielding Americans from the free market could restore that imagined past.

Trump’s own protectionist formula is slightly different, it combines a hostility toward immigration with his disdain of trade and love of tariffs. Regardless, the formula has worked with voters who have long been skeptical about the benefits of free trade and immigration. 

Americans were lukewarm on NAFTA when it was ratified in 1993 and remained so during Trump’s first term. Many still long for the economy of the 1950s — even though wealth per person has quadrupled since the Truman days, in large part because of global trade. 

It would be a mistake to blame the resurgence of protectionism purely on nostalgia. Other forces are at work, too. 

Yet nostalgianomics plays a large role, and its growing influence would seem to stem from a sense that there is something deeply wrong in America, something politicians must fix.

To be fair, there is indeed a great many things wrong in America today: public education in many cities is failing by every measurable standard; drug overdose deaths have reached historic highs; marriage and birth rates are declining; and rising numbers of young people are detached from both work and community. Throw in a growing (and deserved) distrust in institutions — from government and media to higher education — and it’s understandable that Americans feel agitated and untethered. 

These problems, however, do not stem from global trade, which has benefited both Americans and their trading partners. 

To continue prospering, Americans must confront some uncomfortable truths — starting with the notion that assembling widgets on a factory line isn’t inherently more meaningful than making lattes in a café, writing code, or designing marketing campaigns.

They must also recognize certain truths about manufacturing. Despite the narrative US manufacturing has been “hollowed out” by trade agreements, capacity has increased more than 50 percent since NAFTA was signed and remains at near-historic highs. 

While it’s true that manufacturing jobs as a percentage of over nonfarm employment has declined substantially, the rate of the decline has slowed significantly since China became a member of the World Trade Organization in 2001. Moreover, the decline in manufacturing jobs has far less to do with trade than with technological advancements that have automated production and increased output with fewer workers — much as they did with farming, which once employed a third of the workforce but now requires less than 2 percent to feed the nation.

Whether Americans are willing to accept these realities is unclear. A reccent Cato poll found that 80 percent of Americans say the country “would be better off if more people worked in manufacturing.” Yet the same poll found that just 25 percent of Americans say they themselves would be better off working in a factory job.

“America would be better off if more people worked in manufacturing.”

• 80% of Americans agree
• 20% disagree

“I would be better off if I worked in a factory.”

• 25% of Americans agree
• 73% disagree
• 2% currently work in a factory

👉🏻 https://t.co/ycnHVZ1gT1 pic.twitter.com/4NXb0GLK5L

— Frank Luntz (@FrankLuntz) April 13, 2025

The poll reveals a telling disconnect between the romanticized idea of manufacturing and its present-day realities, beginning with the fact that industrial jobs don’t pay nearly as well as people think. This demonstrates a serious challenge to policymakers.

Economists have struggled to counter nostalgianomics precisely because its appeal is rooted more in psychology than economics. It offers a comforting narrative: that America once had an economic system that worked for everyone — and with the right top-down policies, it can again.

In a world increasingly steeped in nihilism and searching for greater meaning and purpose, that’s a message that resonates with a lot of people — even if it’s false.

Disinflation is no longer a blip, but a trend. The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.1 percent in May, down from 0.2 percent in April. The annual rate of change of 2.4 percent was almost identical to April’s and slightly lower than March’s. 

Core inflation, which excludes volatile food and energy prices, also rose 0.1 percent last month. It has risen 2.8 percent over the past year.

As with previous months, shelter prices pulled up the average. “The index for shelter rose 0.3 percent in May and was the primary factor in the all items monthly increase,” the BLS noted. Much (if not all) of the excess shelter inflation can be attributed to measurement error: the shelter index lags market rents. As a result, the index for shelter tends to overestimate the rise in actual shelter prices during the later phase of a tightening cycle. 

Ongoing disinflation presents a challenge for central bankers. Monetary policy passively tightens when inflation slows down. That’s because a given market (nominal) rate of interest corresponds to a higher real (inflation-adjusted) rate of interest when prices rise less quickly.

The current target range for the federal funds rate is 4.25 to 4.50 percent. Adjusting for inflation using the 12-month headline inflation figure yields a real interest rate range of 1.85 to 2.10 percent. If we use the annualized three-month figure (0.8 percent) instead, the range becomes 3.45 to 3.70 percent.

Fed estimates for the natural rate of interest — the real interest rate that equilibrates supply and demand in short-term capital markets — suggest monetary policy is currently tight. The New York Fed estimates the natural rate of interest was between 0.78 and 1.37 percent in 2025:Q1. The Richmond Fed’s median estimate for the same quarter is 1.76 percent. Inflation-adjusted market rates are higher than these estimates using the year-over-year price data, and much higher than these estimates using the annualized three-month data. This certainly looks like restrictive monetary conditions.

We must also consult monetary data. If the money supply is growing faster than money demand, monetary policy is loose; if slower, tight.

The M2 money supply is growing 4.45 percent per year. Broader measures of the money supply, which are liquidity-weighted, are growing between 3.99 and 4.03 percent per year. Money demand, which we estimate by adding population growth (1 percent according to the most recent census figures to real GDP growth (2.06 percent in 2025:Q1), is growing about 3.06 percent per year. It looks like monetary policy is loose because the money supply is growing faster than money demand. 

But remember, the first quarter’s GDP figures were artificially low because of a one-time import spike. A better estimate would incorporate expectations for 2025:Q2. The Wall Street Journal’s average forecast is 0.8 percent next quarter, 0.6 percent in the third quarter, and 1.1 percent in the fourth quarter. Hence it is likely the US economy is currently growing much faster than the 2025:Q1 figure would suggest. Higher real GDP growth means higher money demand growth. We are probably close to neutral, as measured by money supply and money demand.

The new CPI data reinforces recent Personal Consumption Price Index (PCEPI) data: inflation is falling, which makes monetary policy tighter. The Federal Open Market Committee (FOMC) next meets June 17-18, but they are unlikely to loosen policy. FOMC members have indicated they will keep the fed funds target range where it is. Tight money will continue for a while longer.

Restrictive monetary policy is appropriate in some sense. Inflation has been higher than the Fed’s two-percent target for three years. Furthermore, there is a worrying trend that inflation is settling into the 2.25-2.50 percent range. That would be unacceptable. The Fed cannot permit a long-run inflation rate that exceeds its target between 12.5 and 25 percent without losing major credibility.

Yet FOMC members must also worry about the opposite prospect: keeping money too tight for too long risks a recession. Prices, including those embedded in contracts, likely reflect the higher-than-average inflation rates we’ve experienced for the past three years. Should total spending on goods and services prove insufficient to justify those higher prices (due to excessive monetary tightening), the result might be reduced production and rising unemployment.

I would not want to be a central banker right now. Top Fed decision makers have some difficult times ahead. But they wouldn’t be in this situation if they hadn’t bowed to fiscal pressures during the coronavirus pandemic. Today’s frustrating policy tradeoffs reflect yesterday’s short-sighted deviation from sound policy. Until we change how the Fed works at a fundamental level, it will continue to find itself in pickles like this.