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During Joe Biden’s presidency, American taxpayers bore the burden of hundreds of billions of dollars in student loan forgiveness — a costly decision that effectively shifted debt from college attendees to those who chose a different career path. 

That scheme was unfair, fiscally irresponsible, and beyond the scope of executive authority. 

Fortunately, President Donald Trump, Education Secretary Linda McMahon, and the US Congress largely ended it, but some student loan forgiveness lives on in the law.

That’s because of the Public Service Loan Forgiveness (PSLF) program created by Congress almost 20 years ago. PSLF permits borrowers who work in public service, such as nonprofits or government institutions, to have their unpaid student debt forgiven after just 10 years. 

Demand for the program spiked significantly in recent years, costing the federal government almost $30 billion, according to data from the Office of Federal Student Aid. In fact, the average borrower stands to benefit from $78,000 in debt forgiveness at the end of the 10-year period. And with 2.5 million Americans eligible, this program could be quite expensive in the years ahead. 

We should encourage more Americans to enter public service, but there are better ways than through a clunky subsidy program such as PSLF. 

Ideally, Congress would terminate the program entirely for new borrowers because it is effectively a taxpayer-funded subsidy for college graduates. Doing so would save roughly $30 billion over the next decade. This is a sizable amount that can be leveraged for tax cuts, deficit reduction, or even enhancements to workforce development programs that teach in-demand skills.

Aside from the fiscal justification for reforming PSLF, there is a fairness rationale. Bailouts benefit a relatively privileged group of college graduates, many with advanced degrees, who chose to work in industries already known for greater job security and benefits. In essence, blue-collar truck drivers, electricians, and waitstaff — who may have never attended college — are helping to foot the bill for government bureaucrats who earned a college degree.

In today’s America, only about 38 percent of US adults hold a bachelor’s degree. That means a majority of taxpayers did not attend college at all, and yet they’re expected to pay for the loan forgiveness of a minority that did. 

The truth is, borrowers had and still have choices. No one was forced to attend an expensive university or enroll in a low-return graduate program. Many Americans worked while attending college, lived frugally, or made the tough decision not to attend at all to avoid debt. When I took out my student loan more than a decade ago, I did so recognizing that I, not the government, would be responsible for paying it back.

By forgiving loans based on job titles rather than financial need, PSLF turns the concept of public service on its head. A nurse who works at a nonprofit hospital could get loans forgiven in 10 years, but a nurse working for a for-profit hospital would have to repay for a quarter-century. Why should two people with identical debt loads and public-spirited intentions be treated so differently simply because of their employer’s IRS tax designation?

President Trump has thankfully attempted to narrow the eligibility for PSLF beneficiaries, but his method needs significant refinement. His March Executive Order requires the Education Department to exclude “organizations that engage in activities that have a substantial illegal purpose,” but offers limited definitions of “substantial” or “illegal.” This could set a dangerous precedent that could be weaponized by a different administration.

Lawmakers, including President Trump, should instead explore a menu of options that could save billions of dollars. Possible reforms include a limit on the amount of debt eligible to be forgiven, a reasonable income cap that counts toward qualified payments, or narrowing forgiveness to industries facing worker shortages. 

While any of those alternatives would be preferable to the status quo, ideally, the President should work with Congress to end the program and address the real reasons young Americans have such high debt levels. It’s long overdue for colleges and universities to reduce their costs instead of passing them along to taxpayers.

PSLF was a well-intentioned policy that has outlived its purpose. It is regressive, inefficient, and unfairly structured. Eliminating the program would not be an attack on public service, but rather a necessary step toward a more coherent and equitable student loan system — one that doesn’t pick winners and losers based on job title, but helps all Americans who are struggling under the weight of educational debt. 

Let’s put policy over politics and finally graduate from PSLF.

Every time I hear a young person romanticize socialism, I picture them trying to explain it to someone who’s actually lived through it. The pitch is predictable — free rent, free healthcare, free education, correcting capitalism’s inequities — and especially tempting in a world where everything feels more expensive by the day. But we know how the story ends: not in utopia, but in control, censorship, fear, and far too often, violence.

A March 2025 survey from Cato and YouGov found that 6 in 10 New Yorkers between 18 and 29 now have a favorable view of socialism. That’s not a fringe campus fad — it’s a political movement gaining real traction. In some places, like New York City, democratic socialists are rising to power on promises of frozen rent, government-run grocery stores, free bus tickets, and a $30 minimum wage.

To Gen Z, it sounds like compassion. Like justice. Like the answer to capitalism’s “failures.” But to anyone who’s watched socialism play out in the real world — not the classroom, not TikTok, not a campaign poster — it’s the same opening chapter of a story that has taken millions of lives and freedoms. 

And I can’t help but imagine those young supporters trying to defend it to someone who has lost their freedom overnight because of it — including my friend, María Oropeza.

She Was Taken in the Middle of the Night

On August 6, 2024, María Oropeza — a 30-year-old lawyer, activist, and chapter leader of my organization the Ladies of Liberty Alliance (LOLA) — was abducted from her home in Portuguesa, Venezuela by Nicolás Maduro’s regime. No charges. No trial. Just taken in the middle of her livestream. Her crime? Daring to speak out against the socialist dictatorship that has destroyed Venezuela from within.

This month marks the one-year anniversary of her devastating abduction.

María had been working on the presidential campaign of opposition leader María Corina Machado — who, despite winning the 2023 primaries, was banned from running for office and targeted relentlessly by the Maduro regime. As one of her staffers, the younger María became a target too.

For two months, her family didn’t even know if she was alive. When they finally got word, it was to learn that she was being held at El Helicoide — Latin America’s most notorious torture center.

Even after the Inter-American Commission on Human Rights issued precautionary measures for her safety, the regime not only ignored them but doubled down — releasing eerie videos of María’s capture and using psychological tactics to silence the international outcry.

She is still there today.

The Problem With Giving Government “More Power to Help”

This is what happens when you give the government more power to “help.”

When it’s trusted to run industries, set prices, own your wages, dictate your rent, and promise you a life that looks “affordable,” you’ve given government control over every part of your life. And here’s the reality: a government capable of giving you everything… can take everything away.

María’s story isn’t a rare exception. It’s a chapter in the same book every socialist experiment has written. It always starts the same way — with promises of fairness and “free stuff” — and always ends the same way: with less freedom, more control, and a state that punishes dissent with prison… or your life.

Gen Z needs to recognize the two red flags that signal socialism is taking root. Every socialist system begins the same way — with these two moves:

  1. Punishing the “rich” to correct the supposed wrongs of capitalism — redistributing their wealth to “compensate” the poor.
  2. Letting government take over industries deemed “too important” for the free market — healthcare, housing, college — offering them “free” to the public.

Why is this so dangerous? Because the only way to pull it off is by giving government more power. And while it often begins small, even with democratic approval, it never stops there. Power given to government is power it almost never gives back.

And nothing the government “gives” you, it hasn’t already taken from someone else. Government cannot create wealth — it only redistributes it, destroying much of its value in the process, until there’s nothing left to take. Then comes the shock: no new producers to tax, no innovation to drive progress, and an economy stripped of life.

No central authority can run entire industries successfully. Why? Because no single institution can ever hold all the knowledge, incentives, and feedback the free market naturally provides. Without that, the result is inevitable: failure — both human and economic.

At its core, socialism is about government ownership. And when the government owns everything, you own nothing — not even your voice.

Socialism is a Matter of Life or Death

To the Gen Zers idolizing socialism because it sounds “anti-corporate” or “pro-people,” I urge you: Learn the history. Talk to those who’ve lived through it. María’s story is not fiction. It’s not political theater. It’s happening right now.

We’re at a dangerous crossroads, and movements like Mamdani’s in New York are not as innocent as they seem. They are part of a growing ideology that romanticizes government power under the banner of compassion — without ever accounting for what happens when that power is abused.

María Oropeza is a name you may have never heard before. But she represents millions. Millions who once believed in the promises of socialism… and paid for it with their freedom.

Let’s stop falling for the same lies, packaged with better design and flashier slogans modernized to today’s youth.

Socialism isn’t just a trendy political idea on TikTok and in campaign slogans. In the real world, it’s a matter of freedom or slavery, of life or death.


Read More:

Communism’s Lingering Grip on Soul and Society: ‘Generations of Devastation’

President Trump has, it is clear, upended the global trading system and America’s place in it through his aggressive use of tariffs as a tool of personal power. These actions would have shocked the Founding Fathers as offensive to the spirit of their new Constitution in a variety of ways. The fact that arguments in favor of their use are advanced by people who claim to be the most ardent supporters of the US Constitution might shock them even more. Yet perhaps their checks and balances might yet hold; we shall soon hear from the courts about that (the Federal Circuit Court of Appeals heard arguments on July 31). 

Let us begin, as is traditional, with a long list of abuses and usurpations that the President has perpetrated in the name of raising tariffs. We know that the President believes that “trade is bad” and “tariff is the most beautiful word in the dictionary” (the latter with some minor qualification). So, it should come as no surprise that he has been enthusiastic about raising tariffs.

In his first term, the President stuck to the old protectionist saw of using tariffs purportedly to address national security concerns under established powers used by many Presidents. This term, he discovered a new power, unappreciated by any previous President, in the International Emergency Economic Powers Act (IEEPA), passed in 1977 as a law which did not mention tariffs but allowed the President to “regulate imports” in the event of a national emergency. The President declared several emergencies, but the most important of those for our purposes was when he found “large and persistent annual US goods trade deficits, constitute an unusual and extraordinary threat to the national security and economy of the United States.” 

Based on this emergency, the President announced a package of tariffs on every country in the world, including those with whom the US has a trade surplus, like the UK and Brazil. These “Liberation Day” tariffs were explicitly aimed at addressing foreign countries’ tariff barriers, non-tariff barriers, and “cheating.” They used an objective formula – the values of the trade deficit divided by the countries’ exports to the US, then divided by two, with a minimum of ten percent to address this. As I mentioned earlier in these pages, among other things, this formula punished poor countries for the crime of being too poor to buy US goods. At least, however, these tariffs were tied to the ostensible emergency. 

Since then, however, we have seen revisions to the tariffs in a variety of unpublished deals that do not explain the reasoning behind the revisions. In some cases, the President has seen fit to impose large tariffs for other reasons. In the case of Brazil, which, as mentioned, has a trade surplus with the US, it is because of the supposed persecution of former President Bolsonaro, a Trump ally, and Brazilian censorship of American social media platforms. Ongoing difficult negotiations with Canada have been further complicated by the President’s reaction to Canada’s possible recognition of Palestinian statehood. India has been threatened with very high tariff rates over its ongoing trade with Russia. 

An additional demand also became apparent with the Japanese “deal” and some subsequent ones. The President has said that Japan will invest $550 billion in the US at his personal discretion. Other trade partners, like the EU and Korea, have supposedly agreed to invest similar sums on similar terms, although the EU is denying it. If true, it gives the President what is essentially a trillion-dollar-plus sovereign wealth fund for his personal use. 

By this point, your constitutional hackles should have been raised. To begin with, the founders warned that emergencies provide dangerous pretexts for executive overreach. The Federalist warned in various places that, while powers to deal with crises were necessary, they must be subject to checks and balances like all other executive powers.  So, Congress must control the purse and, alongside the judiciary, guard against executive abuse of emergency power. 

Power of the purse is central to a second aspect the Founders warned about – the Executive must not have the power to tax. That is squarely a Congressional duty to reflect the consent of the governed to taxation (the President, though elected, is more remote from the people.) Nor did the Founders think a tariff was something different from a tax, as some of the President’s supporters maintain. In Federalist 35, for instance, Alexander Hamilton asks what if the power to tax was constrained to import duties (as some anti-federalists were demanding), plainly viewing tariffs as a subset of taxation powers. 

The corollary of this is that the President can have no separate source of revenue from that directed by Congress. In Federalist 58, Madison states clearly, “The House of Representatives cannot only refuse, but they alone can propose the supplies requisite for the support of government.” The idea of a President directing a sovereign wealth fund with monies provided by foreign governments falls manifestly outside this constitutional design. 

Indeed, the Founders were worried about Presidential patronage power in general. They constrained the President’s appointment power with the consent of the Senate and, as Madison said in Federalist 48, “The legislative department alone has access to the pockets of the people,” thereby dissuading “projects of usurpation” by the Executive in this way. 

Congressional silence on the President gaining control over a foreign-funded trillion-dollar fund to dispense patronage would be exactly the sort of thing Madison warned about when he said “a mere demarcation on parchment of the constitutional limits of the several departments, is not a sufficient guard against those encroachments which lead to a tyrannical concentration of all the powers of government in the same hands.” 

A President declaring a “national emergency” over a trade imbalance or overcapacity in foreign markets, leading to his imposing taxes on Americans without Congressional deliberation or scrutiny, and possibly gifting him a massive pool of funds he could use for patronage, is exactly the sort of thing the Constitution was designed to prevent. It violates the separation of powers, eludes democratic accountability, and fits the pattern of emergency overreach our Founders repeatedly warned against throughout the constitutional debates. Even the biggest fan of an energetic executive, Alexander Hamilton, wanted to make sure that most of these powers remained firmly under Congressional control. 

Indeed, Hamilton, supposedly the father figure of American protectionism, made many of the same arguments that free market economists make today about the abuse of tariffs as a revenue source. In the aforementioned Federalist 35, Hamilton says explicitly that “the consumer is the payer,” recognizing that the tax burden falls not on the foreign exporter, but on the American consumer. Indeed, this is why he recognizes that tariffs cannot be the only source of revenue for the federal government, as their burden would fall inequitably on the poor. 

Hamilton recognized the problem of dispersed costs of tariffs — while they may initially seem painless because consumers don’t see the tax obviously, the total cost can become “oppressive.” In other words, tariffs are regressive. They are also therefore self-limiting, deterring imports, and thereby further revenue, when set too high. This provides another reason for the power to tariff to be confined to the legislature, which, as the people’s representative, can quickly respond to economic problems affecting specific sectors.

One final point is worth making about Hamilton. In the “Report on Manufactures,” the ur-text of American protectionism, the tariffs Hamilton proposed were modest by comparison with the President’s proposals, perhaps in consideration of the points he had made during the ratification debates. Indeed, the Report suggests that in many cases subsidies (or “bounties”) were preferable to tariffs as a means of encouraging industries, although Hamilton admits they may become the object of corruption, making it “necessary to guard, with extraordinary circumspection, the manner of dispensing them.” The President’s trade policy goes well beyond any of this. As Samuel Gregg has argued, the Founders wanted America to be a commercial republic. The President’s tariffs and the manner in which they have been used suggest not only a hostility to commercial trade, but to a republic with an executive constrained by co-equal powers. Congress, so far, has failed to guard its privileges. The Courts may not be so quiescent.

Twenty years ago, a committee led by former Chair of the US Federal Reserve Paul Volcker released its report. The committee had investigated what had been known as the “oil-for-food” program, which began in 1996 as a humanitarian effort to feed the Iraqi people. It was the first United Nations humanitarian program to be financed by the resources of those it was serving: the sale of Iraqi oil. 

In his Senate briefing that year on the committee’s work, Volcker had told the Committee on Foreign Relations about “spreading reports of maladministration, ethical lapses, and growing corruption reaching even into the UN itself have eroded confidence in UN competence and have heavily damaged its credibility.” Eventually, the immense scale of the graft had led to a single “inescapable conclusion from the committee’s work,” which was that the UN “needs thorough reform, and it needs it urgently.” That was in 2005. 

Between then and now, the UN has hardly redeemed itself. There have been bribery allegations over UN peacekeeping contracts in Africa, fraud in procurements, and sex abuse allegations against UN peacekeepers in the Central African Republic. For all these, the UN’s internal oversight mechanisms were deemed to have competence and independence enough to adjudge. 

My affiliation with UN agencies, as a consultant in several subjects* for just over 20 years, has led me to see the merits of a UN, but not this one. 

That familiarity, both with the potential of a UN and the quite obvious and depressingly long series of lapses has often led me to posit two possibilities: that the UN be reformed and continue or that the UN be drastically pared down — and either option will need decisive action by the USA. 

Mohamad Ali Khadra is therefore correct, in my view, to write that the UN and its agencies are perceived to weaken sovereignty while leeching countries of their monies. In his commentary, he mentioned the UN Security Council as being a compelling reason the US should stay within the UN system.

But there are other ways to look at the matter. A calibrated US withdrawal from the UN system could be just the medicine required. From the American point of view, there is good enough reason to acknowledge two truths:

a) the US has contributed to the UN an average of $11.64 billion every year, a portion that has been 22-27.5 percent of its budget, and twice the contribution of the next-largest donor, Germany ($5.4 billion). 

b) for funding just over a quarter of the UN’s work and expenses the US government has negligible control over how that money is spent and why. 

This patently inequitable burden is made more inequitable by the complexity of the system through which the US contribution is spread. Just as worrying are the many interests that exploit our generosity because of the UN system’s apparent inability and clear unwillingness to address gross inefficiencies. 

In contrast to the gravy train running from the USA to the UN, a majority of UN member states (105 in 2023) are assessed at less than $10 million per year for both the regular and peacekeeping budgets (82 under $5 million). The US, however, has a huge financial interest in efficiency and the prudent use of resources, as was stated in a Congressional testimony on ‘Challenges and Opportunities for Advancing US Interests in the United Nations System’ in November 2019. 

It has taken six years more for the USA to act. This July 2025, the US Congress approved a $9 billion ‘rescissions package’ which includes directly cutting about $1 billion to the UN and its agencies (the World Health Organization, the UN Human Rights Council, the UN Relief and Works Agency for Palestine Refugees in the Near East of great recent notoriety, UN peacekeeping, UN Interim Force in Lebanon, UN Children’s Fund, UN Development Program, the Montreal Protocol, and the UN Population Fund are named). 

The Office of Management and Budget, Executive Office of the President, explained in its letter (PDF) accompanying the proposed set rescissions: 

These rescissions would eliminate programs that are antithetical to American interests, such as funding the World Health Organization, LGBTQI+ activities, ‘equity’ programs, radical Green New Deal-type policies, and color revolutions in hostile places around the world. 

The underlying subtext of the explanation has to do with accountability and the setting of agendas. The government of the USA is entirely justified in expecting a rational and detailed answer to its question: How have you decided to use our money and how did you arrive at those decisions? 

Getting a clear answer is difficult, however, because of how the UN works. 

In the UN General Assembly, the Security Council, and the general assemblies of the major UN agencies, one country has one vote. Matters are decided either by a simple majority or a two-thirds majority. For years, efforts have been made to instill proportion in what a UN vote represents, for very good reasons, one of them being population. To put that in perspective, the population of the 25 smallest UN member nations combined is about 1.8 million — about the same as the population of Nebraska. Each of those 25 has a UN vote. The USA, whose national population is more than 200 Nebraskas, has one UN vote. 

Complicating matters is the strong tendency of UN representatives to vote in blocs, whether regional or ideological. The largest of these blocs is the Group of 77 (established in 1964 as representing the interests of developing countries). A second large bloc is the Organization of Islamic Cooperation (57 countries). Currently, 51 G-77 member countries are also OIC member countries. 

Most UN General Assembly resolutions are passed with a simple majority; 97 votes out of 193 member states and where a two-thirds majority is required (such as for budget decisions) it is 129 votes. The arithmetic makes it easy to see how bloc power is used. Countries that have little interest in the substance of a resolution comply with a group position in order to seek future favors, whether in the General Assembly or in a major UN agency.

Financial imbalances and the voting system continue as core UN reforms that should have been attended to at least 20 years ago. A third is the same remedy UN agencies routinely advise: monitoring and evaluation. The UN does not apply these standards to its own system. In 2005, the General Assembly instructed the Secretary-General (PDF) to review — for relevance and effectiveness — its current programs. The review was allowed to quietly become inactive. 

These are contributing reasons for the American Enterprise Institute to have very recently announced its UN Organizations Assessment Project, which determines how the UN and 39 of its agencies and affiliated organizations contribute to US security, foreign policy, and economic interests. This assessment project frames in policy terms what the US State Department is already implementing. 

Where the UN has failed most profoundly is to fulfill the very first line of the UN Charter, which dates to 1945, “to save succeeding generations from the scourge of war.” The roster of organizations (like The Geneva Academy, the Council on Foreign Relations, International Crisis Group) that track conflicts around the world has only grown over the last 25 years, and the lists of current conflicts range from 30 to over 100. Some have lasted over fifty years. 

This failure sets a backdrop for the US decision to cease funding the UN Human Rights Council and the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), a thoroughly odious UN agency that has been shown (most consistently by UN Watch) to run institutions that serve as centers of anti-Israel subversion, to run schools that indoctrinate children into Jew hatred and violence while serving as weapons depots and command posts for the terrorist group Hamas. 

But not only UNRWA. Last month, the US Department of State withdrew from UNESCO, citing continued involvement with the UN cultural agency as being “not in the national interest of the United States” because “UNESCO works to advance divisive social and cultural causes” and also because of this UN agency’s admission of the State of Palestine as a member state in 2011. 

The US resetting of its UN membership reveals a sovereign intent that has been long, if not altogether, missing from countries’ assessments of what the UN holds for them. Smaller countries especially (used as vote banks by the big blocs), both in population and in the available monies they have for multilateral institutions, should read from the US stance an imperative for the next generation: UN review and reform. 

This work lies not in the hands of some high-powered committee but in each UN member state’s external affairs administration. For the majority of UN member states, their assessed contributions to the UN and to each UN agency they attend through an ambassador are but part of the costs. Add to that the costs of personnel and maintaining representation, the costs of administering the country’s UN-related work, and the costs of attending the numerous UN annual conferences. It is an unnecessary burden. The trained personnel and monies can be better spent on constructive bilateral activities. 

The US action has shown what is immediately possible. Sovereign interest may not forever be held hostage to a global club with little on the line. 

*Disclosure: The author is a UNESCO expert on intangible cultural heritage in the Asia region, and has worked on development programs with UNDP and FAO.

On August 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law. The program was designed to give private sector retired workers old-age benefits. In the ninety years since, the program has grown in both size and scope. It is currently the single largest expenditure in the federal budget, and nine out of 10 Americans age 65 and older are receiving a Social Security benefit.  

But a just-released survey of 2,200 Americans from the Cato Institute shows that most know very little about how the Social Security program works. Many do not understand, for example, its pay-as-you-go funding approach. They incorrectly presume that the program has accumulated assets on their personal behalf like a traditional pension. 

In an effort to remedy this and other misconceptions, this article will examine the program’s history and how the evolution of Social Security led to the challenges it currently faces.

The Push for a Social Safety Net 

We can infer from both words and deeds that FDR’s primary goal in creating the Social Security program was to provide social insurance, a phrase he used many times that had already come into widespread use since being introduced by Otto von Bismarck in 1889. FDR also made it clear that his goal was not to produce a utopian outcome, but to ensure that no one would have to suffer terribly from “…the vicissitudes of life.”  

From the very beginning, however, the goal of having the government provide insurance against bad outcomes was conflated with the goal of increasing equality. This tension is evident from debates among the program architects of Social Security, as documented in economist Sylvester Shieber’s 2012 book The Predictable Surprise. This debate was never settled. Bargaining among the program’s architects simply continued until the program achieved a mutually acceptable balance between these two goals.  

From 1937 until 1940, Social Security paid benefits in the form of a single, lump-sum payment for those who paid into the program but did not participate long enough to be vested for monthly benefits, with monthly benefits beginning in 1942. The earliest reported applicant for one of these lump-sum benefits was Ernest Ackerman, who retired one day after Social Security began in 1937. During his one day of participation, a nickel ($1.12 in current dollars) was withheld from his paycheck for Social Security. Upon retirement the next day, Ackerman received a lump sum payment of 17 cents ($3.81 in current dollars), more than triple the value of what he paid into the program!  

The first recorded recipient of monthly benefits was Ida May Fuller. She paid into the program for three years, a total of $24.75 ($570.24 in current dollars) by 1939. Her first monthly check, issued January 31, 1940, was worth $22.54 ($519.32 in current dollars), collecting a total of $22,888.92 in benefits by the time of her death in 1975, a 925 percent return on what she paid into the program.

Social Security’s Growth in Size and Scope 

FDR insisted that the program be a fully self-funded pension program. Although he understood that initially self-funding was impossible, he strongly opposed the use of extracurricular federal funding as an ongoing practice. His primary goal was not redistribution but to use government to provide a social insurance mechanism to ensure that no American would be impoverished in old age. Except for short-term budget smoothing, once the program was in balance it should stay that way. 

By 1939, Social Security was extended to spouses of retired workers, children, and survivors of deceased workers.  

Contrary to FDR’s wishes, not long after his death, the program expanded its scope and its size and emphasis on income redistribution. The program did, however, continue to rely on pay-as-you-go budgeting. 

In 1956, Disability Insurance was added, covering workers aged 50-64 who became permanently disabled as well as disabled adult children of retired, disabled, or deceased workers. Then, in 1960, disability coverage was expanded to disabled workers of any age if they met work and disability criteria. Soon thereafter, the old-age insurance was expanded to include farm workers, domestic workers, self-employed, as well as state and local government employees.  

In 1972, the federal government passed P.L. 92-336, which authorized a 20 percent cost-of-living adjustment (COLA) effective in September of that year and established the procedure for issuing automatic COLAs each year beginning in 1975. Finally, federal employees hired after 1983 were eligible to receive reduced Social Security benefits in addition to their federal pension. This changed in 2024, when the Social Security Fairness Act was passed, allowing federal employees to receive full old-age insurance benefits along with their federal pension. 

As promises proved to be more generous than what payroll taxes could cover, the threat of insolvency continued to grow.  

The Current Crisis 

Although Social Security was meant to be a self-funding program, to quickly begin providing benefits to the elderly poor pay-as-you-go budgeting was required. Given the high ratio of workers to citizens over the age of 65 at the time, this was politically palatable because only a small payroll tax was required to fund the program. 

But this opened the door to insolvency from increasingly generous promises that could not be covered out of payroll tax revenues when demographics became less favorable (by 2021 the ratio of workers to recipients and fallen to 2.8). Even after 20 payroll tax increases from 1950 to 1990, the irresponsible expansion of benefits left the program with a persistent operating deficit that now threatens the ability to deliver genuine social insurance.  

Even in years when the so-called trust fund was being drawn down to cover the operating deficit, additional borrowing by the Treasury was required because the funds in the Social Security trust fund were illusory (The Entitlement Collapse Is Worse Than It Looks).  

The slew of recent revisions to when the Social Security trust fund would run out in the aftermath of the Social Security Fairness Act and the enactment of the One Big Beautiful Bill Act (OBBBA) are therefore a distraction. We are already increasing the federal debt each day to cover the redemption of assets in the Social Security and Medicare Part A trust funds, so when the funds run out that process can simply continue as before – until it can’t. 

The real problem is the remaining unfunded obligation problem, which has also jumped in response to these two most recent events. Over the next 75 years, its unfunded obligation problem has jumped up to $28 trillion. 

Moody’s recent downgrading of the US government’s long-term debt instruments is but one piece of growing evidence that we are entering a debt cost spiral due to the increasing debt burden feeding on itself as rising interest rates increase the cost of servicing the debt, requiring more debt, and so on.  If one thing is clear, Social Security in its current form is not sustainable. Fortunately, there are numerous solutions available to stop a catastrophic meltdown of the program (and the US government at large). The challenge of implementing solutions is overcoming those both in government and the private sector who have strong incentives to maintain the status quo.

Inflation eased slightly in July, according to the Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI) rose 0.2 percent last month, down from 0.3 percent in June. Core inflation rose 0.3 percent in July, up from 0.2 percent in June. On a year-over-year basis, headline inflation held steady at 2.7 percent, while core inflation climbed to 3.1 percent from 2.9 percent.

The CPI is a weighted average of many goods and services, so breaking it down by category helps explain July’s results. For example, shelter — which accounts for about one-third of the index — rose 0.2 percent and was, according to the BLS, “the primary factor in the all-items monthly increase.” Food prices were flat overall, with a 0.3 percent rise in food away from home offset by a 0.1 percent decline in food at home. Energy prices fell 1.1 percent, driven by a 2.2 percent drop in gasoline.

The slowdown in headline CPI reflected falling energy prices and flat food costs. Core CPI moved in the opposite direction as several categories saw faster price gains, including medical care services, transportation services, and used cars and trucks. In short, categories excluded from core inflation pulled the overall index down, while many within the core pushed it up.

Among core categories, prices rose 0.3 percent in July. Medical care services and transportation services posted the largest increase, up 0.8 percent, followed by used cars and trucks, which rose 0.5 percent. Prices increased for airline fares, recreation, and household furnishings and operations, while lodging away from home and communication services declined.

Given concerns that tariffs could raise consumer prices, a 12-month average may obscure their effect. A better gauge is the recent three-month trend: inflation averaged 0.19 percent per month in May (0.08 percent), June (0.3 percent), and July (0.2 percent), which is equivalent to a 2.29 percent annual rate. That is well below the year-over-year figure of 2.7 percent.

Recent core CPI data tell a similar story. Core prices rose 0.13 percent in May, 0.23 percent in June, and 0.32 percent in July — an average monthly gain of 0.23 percent, which is equivalent to a 2.75 percent annual rate. That’s lower than the year-over-year core figure of 3.1 percent, meaning core inflation has cooled in recent months compared to its year-over-year pace, as well.

The slowdown in inflation, combined with sharp downward revisions to job growth, suggests the Fed’s policy is likely too tight. Over the past three months, both headline and core inflation have been running close to the Fed’s 2 percent target, while the labor market is losing momentum. Keeping the federal funds rate at its current level risks slowing the economy more than necessary. With real (inflation-adjusted) interest rates rising as inflation falls, the Fed should be thinking about cutting its federal funds rate target soon to prevent an avoidable downturn.

Although the Fed officially targets the personal consumption expenditures price index (PCEPI), CPI data provide timely and relevant information for policymakers. The two measures generally track each other closely, though CPI tends to overstate inflation relative to the PCEPI. That makes the latest CPI readings a useful — if slightly higher — signal of where underlying inflation is headed.

With inflation easing and the labor market cooling, the risks of keeping policy too tight are mounting. The CME Group now puts the implied odds of a September rate cut at 92.2 percent, reflecting growing expectations in the fed funds futures market that the Fed will respond to the softer data. 

The Fed was slow to act when inflation first accelerated. It should avoid making the opposite mistake now. Waiting too long to cut could mean falling behind the curve again — this time, by letting policy become overly restrictive and pushing the economy into a preventable recession.

Uber announced last month that it plans to roll out a new feature that would allow female drivers and riders to avoid being paired with men. The feature will be piloted in Los Angeles, San Francisco, and Detroit beginning in a few weeks, the company says. 

With this update, women will have a few different ways to coordinate their trips. Female riders can specifically request a female driver when requesting a trip on demand or in a reservation, or they can set a preference that will increase their chances of being matched with a woman driver. Female drivers, meanwhile, will have the option to toggle on Women Rider Preference in their app settings, which means they will only be matched with female riders. 

“Across the US, women riders and drivers have told us they want the option to be matched with other women on trips,” said Camiel Irving, Uber’s VP of Operations for the US and Canada. “We’ve heard them — and now we’re introducing new ways to give them even more control over how they ride and drive.” 

Though this is the first time Uber is introducing these options in the US, the company has been experimenting with female preferences in other countries in recent years. Specifically, the Women Rider Preference option for drivers was first launched in Saudi Arabia in 2019, and due to an “overwhelmingly positive” response, the company says that feature has since expanded to 40 countries, completing over 100 million trips. 

A Competitive Market 

Part of the motivation for this move seems to be that Uber is trying to get ahead of its competitor Lyft, which introduced a similar feature in 2023 for female and nonbinary drivers. “Unlike the Uber version, Lyft doesn’t guarantee that drivers or riders will be paired with a woman or nonbinary person; it merely prioritizes these matches,” Forbes notes. “Nonetheless, Lyft claims that 67 percent of eligible Lyft drivers have opted to use the feature.” 

This is a prime example of what economists call non-price competition, where businesses compete by changing their products rather than by lowering their prices for the same product. The Austrian economist Israel Kirzner discussed this kind of competition in a 1971 lecture on advertising. “Competition takes the form not only of producing the identical product which your competitors are producing and selling it at a lower price,” he said. “…Competition means sometimes offering a better product, or perhaps an inferior product, a product which is more in line with what the entrepreneur believes consumers are in fact desirous of purchasing.” 

As a business, if you can offer people a better product than your competitor for a similar price, you will gain more sales. In fact, you can even gain sales by making a slightly inferior product and offering it for a lower price, which is the competitive strategy of many discount stores. 

Kirzner emphasizes that there are countless ways entrepreneurs can change their products to fit consumer tastes. “With freedom of entry, every entrepreneur is free to choose the exact package, the exact opportunity which he will lay before the public,” he says. “Each opportunity, each package has many dimensions. He can choose the specifications for his package by changing many, many of these variables. The precise opportunity that he will lay before the public will be that which, in his opinion, is more urgently desired by the consumer as compared with that which happens to be produced by others.” 

The Uber app illustrates this idea well. There are dozens of features that Uber could offer, each of which would differentiate the Uber “product” from other ride-share services. But Uber doesn’t just create whatever features it wants. Its design decisions are driven by the profit motive, and thus, consumer demand. And this is an ongoing process. As ride-share companies gain data and experience, they are constantly looking for ways to improve their product so that consumers will be more satisfied. 

Over time, the companies that don’t cater well enough to consumer preferences will be outcompeted by the ones that do. Thus, through a kind of Darwinian selection process, only the companies that serve consumers the best tend to survive and grow. 

Given these clear benefits to consumers, one would think that policymakers would want to encourage competition in the transportation industry, along with every other industry. Unfortunately, they are often the chief enemies of competitive markets. 

Government-Imposed Barriers to Entry 

Through much of the twentieth century and into the twenty-first, certain municipal governments in the US have imposed taxi medallion schemes. Under these systems, taxi drivers require a medallion (essentially a license) to operate, and, critically, the number of medallions is held constant or only grows slowly. As a result, taxi medallions have been known to sell for up to $1 million. 

Medallion systems are some of the most egregious examples of government-created cartels. By restricting entry into the market, they give existing medallion holders an unfair advantage at the expense of consumers and aspiring taxi drivers. “These licenses are negotiable, so that any new firm must buy from an older firm that wants to go out of business,” economist Murray Rothbard notes in his 1970 book Power and Market. “Rigidity, inefficiency, and lack of adaptability to changing consumer desires are all evident in this arrangement.” 

Why haven’t these systems been relegated to the dustbin of history, given their blatantly anticompetitive effects? The Washington, DC finance office studied this question in 2009 when that city was considering a medallion system of its own. Their conclusion should not be surprising to those familiar with these kinds of policy battles. 

“A taxi medallion system is nearly impossible to end even if it proves to be providing unfairly high gains to a limited number of original medallion owners,” their report concluded. “Medallion owners fiercely resist any possible threat that may challenge their advantage.” 

As many will recall, this fierce resistance became particularly pronounced when Uber and Lyft first came on the scene in the early-to-mid 2010s. Taxi companies were furious that cities were allowing their monopoly position to be challenged, and some even sued their municipal governments for not placing restrictions on ride-share companies. 

Ilya Shapiro and David McDonald discussed two lawsuits from that period in a 2016 article for the Cato Institute. 

“In both cases,” they wrote, “the plaintiffs’ arguments more-or-less boiled down to: ‘We made a deal with the city years ago where we were promised monopoly control over this market. The government’s failure to protect that monopoly constitutes an eminent domain-style taking.’ This is, of course, as the court described, an absurd argument… No one is entitled to a government grant of monopoly power.” 

In the following years, with Uber and Lyft taking considerable portions of the market, the price of medallions plunged, leading to no shortage of aggravation for those who had invested in them. 

Now, over ten years since they first came on the scene, Uber and Lyft have become regular players in the transportation industry. Judging by their success, the benefit to consumers has been immense. And their continuous innovation — no doubt spurred by market forces — has been a testament to the power of competition to not only bring prices down but also to improve customer experiences. 

And yet, in this world of twenty-first century technology, twentieth-century taxi medallion systems are still with us, systems that continue to restrict competition in this space. 

It makes one wonder, how much more evidence of competition’s virtues do we need before we finally set it free?

Don’t look now, but free-market economics is coming back into vogue.

For the last decade, mainstream economists of both the right and the left have begun to flirt with statist ideas that previously were beyond the mainstream: industrial policy, protectionism, massive deficits, anti-”bigness” antitrust, a rejuvenation of unions, and unprecedentedly high minimum wages. These policies look remarkably like the strategies adopted by developing-world populists and nationalists of the 20th century like the Peronists in Argentina, the Kemalists in Turkey, and the PRI regime in Mexico. But for whatever reason, these ideas — or some subset of them — became au courant, while free-market economics was seen as passé.

But the experience of the last four years, featuring the failures of deficit spending, industrial policy, and protectionism, has started to turn the zeitgeist around. Economists are returning to their bread-and-butter skepticism of the ability of central planners to outperform the market.

For evidence of this, look no further than economics blogger Noah Smith. Smith’s mainstream credentials are impeccable — he studied at the University of Michigan, taught at Stony Brook, and then wrote for Bloomberg before setting up his own Substack: Noahpinion.

Smith exemplified the discipline’s turn toward embracing policy prescriptions once viewed as heterodox. While never an advocate of across-the-board protectionism or fruity ideas like modern monetary theory, Smith did endorse industrial policy and deprecated “libertarian” concerns about government intervention. He was always an interesting and provocative commentator, and I enjoyed reading his challenges to my thinking. 

I long associated him with the atheoretical turn in economics that happened around 15 years ago: just run the regressions, with proper causal identification, of course, and the results give you truth. It doesn’t matter if you can’t find monopsony power in unskilled labor markets, speculation seems to go, the minimum wage doesn’t reduce employment. We don’t know why, but if the data say so, it must be true. The effects of a price control in industry X tell you nothing about the effects of a price control in industry Y.

The anti-theory turn in economics seems to have run its course since then. The replication crisis in the social sciences showed us just how much even methods with strong causal identification, like experiments, can be manipulated. Instead of taking each empirical finding at face value, we need to read whole literatures that show how different empirical findings fit within a theoretically coherent whole.

Even the empirical minimum wage research has come back around to standard theoretical predictions, with a twist. It seems that employers respond to “small” minimum wage increases by raising prices and reducing job perks, benefits, and scheduling flexibility and consistency, while waiting for inflation to erode the hike. But they respond to “large” and inflation-indexed minimum wage increases by shedding hours and even headcount, in addition to the listed strategies.

Smith has paid attention to these shifts in the discipline. A self-described “liberal” in the modern, left-of-center sense, Smith isn’t naturally sympathetic to free-market economics. In the 2010s, he dedicated a lot of time to criticizing libertarianism, largely for ignoring, in his view, the need for government provision of public goods. 

But since 2023, his tone has changed. It started with a post in June of that year in which he noted how libertarian critiques of regulation were starting to bear fruit again, citing the problems of the National Environmental Policy Act (NEPA), restrictive zoning regulations, Europe’s tech regulations, and policies that did not work during the pandemic, like the FDA’s slow-walking of drug approvals. Moreover, he saw the disappearance of libertarian ideas from policy discussions as a real loss of a counterweight against annoying, paternalistic regulations: “I also think libertarianism should retain some of its zeal for battling regulations that impose undue burdens on our daily lives, even if those burdens ultimately don’t affect economic growth. Pointless plastic straw bans and rules that make children use car seats through the age of seven aren’t going to change our descendants’ standard of living a thousand years from now, but in the present these little things can add up to a very annoying blanket of social control.”

Smith’s change of heart continued this year. In April, in a post titled, “I Owe the Libertarians an Apology,” Smith argued that the weakness of libertarian ideas in the national Republican Party has allowed the Trump Administration to pursue a destructive protectionist agenda without any internal checks. It would have been far better, Smith says, if libertarians had maintained a leading role in the Republican Party. (Yes, he thinks libertarians once had a leading role in the Republican Party!)

But Smith also recognizes the failures of progressives in the Biden Administration. In particular, Biden’s industrial policy agenda worked far more poorly than Smith had anticipated at the time, with the federal government struggling “to build high-speed rail, EV chargers, and rural broadband, despite throwing tens of billions of dollars at these things.” And he recognizes that many left-wing wonks seem to support government regulatory barriers as an end in themselves, despite the harm they do to progressive objectives like decarbonization.

Journalists Ezra Klein and Derek Thompson have made a similar discovery. Although not trained as economists, they have found that government red tape often ties down entrepreneurs and builders in ways that hurt progressive goals. In their bestselling book Abundance, Klein and Thompson offer a policy agenda they call “supply-side progressivism.” Their left-wing critics call it “neoliberalism repackaged,” and the left is probably right to see it that way. It’s been over a decade since libertarian-ish political theorist John Tomasi explored how a free-market agenda could achieve progressive goals much better than social democracy, but if rebranding these ideas makes them more acceptable to voters and politicians, so much the better.

Just last month Smith wrote a post titled, “Free-Market Economics Is Working Surprisingly Well,” pointing out that libertarian Javier Milei’s Argentina has performed far better than left-wing economists predicted.

Smith really shouldn’t have been surprised. The evidence in favor of free-market economics is overwhelming. The more free-market a country is, the faster its economic growth. At the U.S. state level, the more free-market a state is, the more people it attracts from other states and the faster its personal income grows. We don’t know the limit at which it is possible for an economy to have too much freedom, but what we do know is that no polity on earth has reached that limit in recent decades.

Smith still doesn’t understand libertarianism very well. That is evident from his repeated invocations of the George W. Bush Administration as a test of free-market policy. Yes, the same Bush Administration that exploded federal deficit spending, added a new entitlement program, nationalized airport security, raised the minimum wage, and signed into law one of the most costly regulatory expansions of this century in the Sarbanes-Oxley Act. The reality is that the era of neoliberal reform in the US lasted only from about 1975 to about 2000, and we’ve been in a period of statist retrenchment ever since. Economic freedom scores support this timeline (Figure 1).

Figure 1: Economic Freedom in the United States, Fraser Institute Measure, 1970–2022

Economists’ changing attitudes toward free-market policies are welcome. Time will tell if this is just a two-year blip or the beginning of a trend. Smith is right: the world needs a hefty dose of free-market libertarianism right now, if we’re to avoid an economic Dark Age of protectionism, dirigisme, and stagnation.

In July 2025 the AIER Everyday Price Index (EPI) rose to 296.1, a rise of 0.10 percent. This is the eighth consecutive monthly increase in the index, which has risen 1.79 percent since January 2025. Fifteen of the twenty-four components of the index saw price increases, eight saw declines, and one was unchanged. 

The largest price increases this month came in the categories of gardening and lawncare, fees for lessons or instructions, and postage and delivery services. In residential telephone services, motor fuel, and cable satellite and live streaming services, price declines were steepest.

AIER Everyday Price Index vs. US Consumer Price Index (NSA, 1987 = 100)

(Source: Bloomberg Finance, LP)

On August 12, 2025, the US Bureau of Labor Statistics (BLS) released its July 2025 Consumer Price Index (CPI) data. The month-to-month headline CPI rose 0.2 percent while the core month-to-month CPI number increased by 0.3 percent, both of which met forecasts.

July 2025 US CPI headline and core month-over-month (2015 – present)

(Source: Bloomberg Finance, LP)

The shelter index rose 0.2 percent in July, making it the primary contributor to the overall monthly gain. Food prices were unchanged, as a 0.3 percent increase in food away from home—driven by full-service meals (+0.5 percent) and limited-service meals (+0.1 percent)—offset a 0.1 percent decline in food at home. Within grocery categories, dairy products rose 0.7 percent, led by milk (+1.9 percent), and meats, poultry, fish, and eggs gained 0.2 percent, with beef up 1.5 percent but eggs down 3.9 percent. Offsetting declines included other food at home (-0.5 percent), nonalcoholic beverages (-0.5 percent, including a 1.3 percent drop in juices and drinks), and cereals and bakery products (-0.2 percent), while fruits and vegetables were unchanged.

The energy index fell 1.1 percent in July, reflecting a 2.2 percent drop in gasoline, a 0.9 percent decline in natural gas, and a 0.1 percent decrease in electricity. Excluding food and energy, the core index rose 0.3 percent after a 0.2 percent gain in June. Shelter components showed rent and owners’ equivalent rent both up 0.3 percent, while lodging away from home fell 1.0 percent. Medical care advanced 0.7 percent, with dental services surging 2.6 percent, hospital services up 0.4 percent, and physicians’ services up 0.2 percent, partially offset by a 0.2 percent decline in prescription drugs. Additional increases were seen in airline fares (+4.0 percent), recreation (+0.4 percent), household furnishings and operations (+0.4 percent), used cars and trucks (+0.5 percent), and personal care (+0.4 percent), while communication declined 0.3 percent and new vehicle prices were unchanged.

In the year-over-year data, the headline Consumer Price Index increased 2.7 percent in July 2025, slightly less than the 2.8 percent forecast. The year-over-year core index, however, was slightly hotter than anticipated, registering a 3.1 percent gain versus the expected 3.0 percent.

July 2025 US CPI headline and core year-over-year (2015 – present)

(Source: Bloomberg Finance, LP)

The food index increased 2.9 percent year-over-year, with food at home up 2.2 percent and notable gains in meats, poultry, fish, and eggs (+5.2 percent), including a 16.4 percent surge in eggs. Nonalcoholic beverages rose 3.6 percent, other food at home gained 1.2 percent, cereals and bakery products were up 1.0 percent, dairy products increased 1.5 percent, and fruits and vegetables edged 0.2 percent higher. Food away from home climbed 3.9 percent, led by full-service meals (+4.4 percent) and limited-service meals (+3.3 percent).

The energy index fell 1.6 percent over the year, with gasoline down 9.5 percent and fuel oil off 2.9 percent, partially offset by gains in electricity (+5.5 percent) and natural gas (+13.8 percent). Core services and goods continued to show upward pressure: shelter rose 3.7 percent year-over-year, medical care increased 3.5 percent, household furnishings and operations advanced 3.4 percent, motor vehicle insurance jumped 5.3 percent, and recreation gained 2.4 percent.

Core consumer price inflation accelerated in July to its fastest monthly pace since January, driven primarily by a rebound in services prices. Goods inflation remained subdued, with categories most exposed to tariffs showing moderated price pass-through. Interestingly, some tariff-exposed categories even posted declines (major appliances, personal computers, and apparel) while gains in items like infant apparel and photographic equipment rose substantially.

The slowdown in tariff pass-through is notable given that the US has now entered its third postponement of implementing new levies on China, potentially fostering complacency about their eventual inflationary impact. Firms appear to still be working through inventories stockpiled earlier in the year, giving them latitude to experiment with means of absorbing or mitigating tariff impacts rather than passing them directly on to consumers. Diffusion measures indicate broader core price pressures: the share of CPI components rising at an annualized pace above 4 percent climbed to 48 percent in July, up from 46 percent in June and 40 percent in May, while the share with outright declines in price fell to 27 percent from 33 percent last month. These dynamics highlight that lag effects remain a key factor — policy actions, whether interest rate changes or trade measures, filter through the economy unpredictably and with varying intensity across sectors.

Market reaction to the CPI release reflected both the firmness of the data and evolving macro risks. Fed funds futures now imply roughly 24 basis points of easing in September and a cumulative 62 basis points by year-end, undoubtedly incorporating the recent, massive downward revision to nonfarm payrolls into the calculus of the Fed’s decision-making. The persistence of service-sector inflation, even as goods prices cool, complicates Powell & Company’s path: while tariff-related pressures have moderated for now, the combination of broadening price gains, lagged policy effects, and a still-softening labor market leaves the timing, scale, and certainty of future rate cuts very much in play.

To those who know some economics, the phrase “Foundations of Economics” leads them to expect to hear about things like the rule of law, property rights, contracts, supply and demand, and so forth. These are indeed among the most foundational ideas in economics. Rest assured that this explainer series will cover them and more, with enthusiasm.

But cooperation is where the real story of economics actually begins.

It is by understanding the nature of cooperation that one can see how the evolution of all the other foundations of economics, and even the free market economy itself, was driven by the societal benefits from ever more effective cooperation. Yet cooperation’s basic logical structure and its central and continuing role in driving the development of free market institutions are largely underappreciated. Our free market economy is the most effective engine of cooperation ever achieved by humans. Every economist – indeed every citizen – should be able to clearly explain why. We’ll begin by exploring why human cooperation is so much more effective than in all other species.

What Makes Human Cooperation Different?

Cooperation is common in nature. Social insects such as ants and bees dominate our planet in number and biomass. They cooperate through almost perfectly coordinated behavior derived from genetically encoded “if-then” protocols. But while such cooperation is powerful, it is also very inflexible.

Suppose a fungus wiped out all the clover in a given area and a flower, whose nectar was perfectly good food for bees, replaced the clover. If the new flower’s scent is not recognized by the bees as an “if” predicate, so it can be followed by a “then” response to collect its nectar, most of the hives in the area will die.

Other species like wolves and orcas are able to cooperate in flexible ways that allow for behavioral adaptation to changing circumstances within the same generation. They are not effectively cooperating solely through genetically programmed coordination. They are consciously cooperating by thinking about what they do. But with the exception of humans, this kind of consciously rational cooperation only works for very small groups.

Humans also teach new behavioral responses to their neighbors and their children. New forms of behavior therefore don’t have to be relearned each generation. When Spaniards’ horses arrived on the American continent, Comanche parents didn’t just adapt behaviorally, devising new strategies for hunting and waging war. They also changed what they taught their children, developing an all-new culture of horsemanship and husbandry.

Unfortunately, the larger the group, the more likely individuals will be tempted to promote their welfare at the expense of the group. This is because in a large group, one individual’s opportunism (say, cheating on his taxes) can be so small relative to the group that the group is not noticeably harmed.

Obviously, if undetected, the individual gets 100 percent of the benefit from promoting his welfare at the expense of the group. But the larger the group, the more likely it is that the cost to any one individual is too small to notice.

The problem is that if all individuals think and act this way, it leads to disaster. If one individual cheats on his taxes, he benefits greatly, and society marches on because the effect on tax revenues is less than a rounding error. But when everyone cheats, the government will collapse.

This free-rider problem explains the tradeoff between flexibility and scale of cooperation: the more behaviorally flexible individuals are, the more opportunities to engage in opportunism. Such opportunism can end up destroying some or all of the gains from cooperation. This is a pervasive problem for species that live in large groups, as Garrett Hardin demonstrated in his memorable 1968 masterpiece The Tragedy of the Commons.

This tradeoff nearly always keeps species that have the ability to cooperate flexibly from being able to cooperate flexibly in large groups at the same time.

Consider this table:

 LARGE GROUPSMALL GROUP
FLEXIBLE?Wolves
INFLEXIBLECaribouWasps

Are there any species that can be put in the LARGE GROUP/FLEXIBLE category? The answer is yes, but only one – Sapiens.

Flexible large-group cooperation has existed for our species, Sapiens, for a long time. But while Sapiens cooperated in groups that were large compared to other flexibly cooperating species, they were not large compared to the groups humans frequently cooperate in today.

After Malcolm Gladwell discussed his work in the bestselling book The Tipping Point, anthropologist and evolutionary psychologist Robin Dunbar became an international scientific celebrity for his finding that human groups function best at around 150 people.

Luckily for us, culture, in the form of knowledge passed from generation to generation by teaching and learning, provided a way of overcoming this tradeoff. Because humans are uniquely gifted at teaching and learning, we were able to use our extraordinary capacity for culture to stretch flexible cooperation far beyond Dunbar’s number.

For many important behaviors, where consistency is paramount, culture also gave us a means of encoding behavior that provided regularity, as we see with social insects. But since behavioral responses aren’t hardwired, it still allows for flexibility, like being able to teach your children differently than how you were taught.

Our pre-Sapiens ancestors competed intensely with each other. They became locked in a kind of arms race of improved ability to culturally encode behavior to improve cooperation. Traits that supported the ability to do this were reinforced in the gene pool until modern humans prevailed.

The link between the evolution of the traits that support culture and those that support cooperation is so strong that there is now a consensus among anthropologists and evolutionary psychologists that the genes that make us unique arose from the evolutionary payoff of using culture rather than genes to facilitate cooperation.

A Tale From a Fishing Village

Picture a fishing village on the banks of a small river about 25,000 years ago. One morning, two cousins were spearfishing about 100 yards apart on the river. They stood perfectly still, waiting for a fish to swim by. If a fish was big enough and close enough, they threw their spear. In this way, they normally speared about three fish per hour.

The younger of the two cousins threw at a fish that was too far away, so his spear skipped across the water and was now floating downstream. He waded out to get it, but he could barely keep up with the current. Meanwhile, his cousin was now spearing fish after fish.

Later, they conjectured that while wading after his spear, the younger cousin was herding fish toward the older one, dramatically improving his odds.

The next day, they took turns herding and spearing and got 12 fish per hour! This is twice as many fish per person per hour! Doubling the productivity of fish spearing in a village whose way of life depends on eating fish is an incredible thing. They became the talk of the tribe. Almost immediately, others began copying them. By fishing in this cooperative fashion, many more fish were harvested for the group.

This is a wonderful outcome, but it also presents new challenges. (In a future explainer, we’ll employ the argument Garrett Hardin made in The Tragedy of the Commons to explore how humans were able to use culture, institutions, and government to protect the growing benefits of cooperation from the growing temptation to be opportunistic.)

How Cooperation Works

Suppose that, working alone, I make 10 units of something, and you can, too. But by cooperating we can make 26 units. Not 20, which is what your mind was expecting, but 26. This is because when we cooperate, we are more effective than when we work alone.

Think about making birdhouses. Having two people work together makes it possible to divide the tasks. Adam Smith called this specialization through the division of labor. As he explained in 1776 in his masterpiece The Wealth of Nations, dividing up tasks can dramatically increase output per person. As a child, you may have built a fort in the woods with your friends. The first thing you and your friends did was to divide up the tasks because it was so obvious that doing so would be more effective.

Smith then argued that the larger the group, the more finely labor can be divided. He argued that this should increase output per person even more. Smith was indeed the first to precisely understand why large group cooperation is so much more effective.

Returning to our first example, the main point is that the value of the whole, 26, is clearly greater than the value of the sum of the parts (10 + 10). This difference of 6 is so important that we give it a name. We call it the cooperative surplus.

The cooperative surplus is the key to it all. It’s how humans create exponentially more value together than they could alone—so that everyone benefits at the same time. And since having more per person is the first step to increasing general prosperity, it follows that cooperation is what ultimately makes societies prosper.

Even a toddler understands that he can make himself better off by taking what someone else has, but that obviously makes the other person worse off. This sows the seeds of hate, conflict, and revenge. But when we cooperate, we do better than toddlers. With cooperation, there’s a cooperative surplus that can be divided among cooperators, making it possible for everyone to benefit—so no one has to lose. This sows the seeds of friendship, harmony, and peace.

The cooperative surplus is the key to all cooperation. Countless books and studies explore cooperation, but none of it matters without a cooperative surplus. Because without one, there’s no real advantage to cooperating at all.

Dividing Output

Some ideas are simple yet powerful. Cooperation is one of them. Another is the idea of opportunity cost from economic theory.

The opportunity cost of doing something is everything that must be given up to do it. So the opportunity cost of going on a date is not just the cost of dinner and a movie. It also includes the cost of gas and even the money you won’t earn because someone else covers your shift at work.

People who are good at thinking in terms of opportunity cost do a better job of imagining all the possible costs of taking actions. This leads to better decision-making.

So what does opportunity cost have to do with cooperation?

It’s the first step to understanding how to divide the fruits of cooperation. That might seem obvious at first—especially in simple examples where the answer feels intuitive. But be patient.

Soon we’ll be able to use this procedure to understand how to divide output in more complicated settings in which the best way to divide output is often far from obvious.

Before we begin, let’s be clear: we’re not talking about coerced cooperation. We’re assuming that everyone involved is genuinely free to decide whether or not to cooperate.

So, how should the final 26 units from our example be divided? Your gut might say “split them evenly”—and in this case, you’d be right. But chances are, you’d be right for the wrong reason. And not understanding why an equal split is correct can lead to mistakes with devastating consequences for free societies.

So what’s the right way to think about it? First, both you and I must receive at least 10 units each. Why?

Because we can each produce 10 units on our own if we choose not to cooperate. That makes 10 the opportunity cost of cooperation for both of us. And since we’re free to walk away, it follows that neither of us would agree to cooperate for less than our opportunity cost.

So of the 26 units to be divided, 20 are already spoken for in a free society. That leaves 6 units—the cooperative surplus.

These 6 units wouldn’t exist without cooperation, so they belong to neither of us individually. They are, in fact, ours. And because neither of us has a stronger claim to them, the only fair way to divide them is equally.

If, for example, I got 4 and you got 2, you could reasonably ask: “Why do you get more than me, when your claim is no stronger than mine?” By sheer logic, we arrive at the conclusion: each of us should get 3 of the surplus.

So I get 10 for my opportunity cost and 3 as my share of the surplus—13 in total. The same goes for you. Since 13 + 13 = 26, this division is both fair and efficient. It accounts for every unit of output and doesn’t waste anything.

Your first reaction might be: “That’s just splitting 26 in half—so why go through all these steps?” And you’re right that in this simple example, the result is the same as an even split.

But in the next explainer, we’ll see that when the example becomes just a bit more complex, this method no longer yields an even split. That happens when two principles we deeply value remain true:

  1. Everyone is free to cooperate however they choose, as long as they don’t coerce anyone.

  2. Everyone is treated equally.

References

Boyd, Robert, and Richerson, Peter J. 1985. Culture and the Evolutionary Process. Chicago: University of Chicago Press.

Dunbar, Robin I.M. (2016). Human Evolution. New York: Oxford University Press.

Gladwell, Malcolm. 2000. The Tipping Point. Little, Brown and Company.

Harari, Yuval Noah. 2015. Sapiens: A Brief History of Humankind. New York: HarperCollins Publishers.

Hardin, Garrett. 1968. The Tragedy of the Commons. Science, 162(3859), December 1968, 1243-1248.

Henrich, Joseph. 2007. Why Humans Cooperate: A Cultural and Evolutionary Explanation. Oxford University Press.

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