The new issue of Regulation (Vol. 48, No. 1 [Spring 2025]) features, under the rubric “From the Past,” my review of Anthony de Jasay’s book Justice and Its Surroundings (Liberty Fund, 2002). This book may appeal more to political philosophers than to economists, compared with Against Politics (Routledge, 1997) which I recently reviewed for Econlib. We always find a dose of both philosophy and economics in de Jasay’s writings, which is not surprising since any proposal for social organization has moral underpinnings—ultimately requires value judgments as economists say. Against Politics should probably be read before Justice and Its Surroundings, but since both books are collections of articles, the reader can, as it were, choose his level of difficulty within each. And his seminal book The State probably remains the best entrance door to his thought; moreover, it is available online at the Online Library of Liberty. To go back to my latest Regulation review (available online in both html and pdf versions—scroll to p. 55 in the latter case) of Justice and Its Surroundings, here are a few excerpts: Property can be considered as the infrastructure of society and it is, with its consequence of commerce, “prior to political authority, to the state.” All-voluntary private relations and the all-coercive state are at the two extremes of a spectrum. … De Jasay argues that a cooperative game is played in society, not a prisoner-dilemma game, and that subjection to a central enforcer is not necessarily required. … In an original typology, de Jasay considers a right as created by a voluntary exchange with a matching obligation. I lend you $100 for one year, and you agree to assume the obligation of reimbursing me $104 next year; thus, I have a right to $104 at that time. A liberty is something physically feasible that I may do if it is not a tort and does not violate an obligation I assumed. … We can encapsulate de Jasay’s complex theory of justice in a combination of a strong presumption of liberty (or, in fact, liberties), spontaneous conventions as the foundation of law, and a strong respect for private property. … De Jasay does not believe in a general and formal equality before the law as the liberal state is called to provide. This is because there is no state in his theory. He might say that equality before conventions exists as a matter of fact. Many will find this to be a weakness of his theory, at least in a standard classical liberal perspective. Other interesting aspects of Justice and Its Surroundings include its attack on egalitarianism and socialism, including market socialism. De Jasay also criticizes Buchanan’s social contractarianism although he shows much respect for him—as Buchanan expressed much respect for de Jasay’s work. My review covers more and provides more detail. (0 COMMENTS)

As The United States approaches its 250th anniversary in 2026, there is no better time to study the great men and women who built, protected, and improved the nation. Many historians regard Abraham Lincoln as America’s greatest President, for good reason. Lincoln mended the fractured United States, wrote the Emancipation Proclamation, and gave some of the most impactful speeches in American history. Through examining three of Lincoln’s speeches, EconTalk host Russ Roberts and Diana Schaub show how Lincoln’s commitment to the principles of the founding, and vision for a freer and more united future can assist Americans in resisting the current challenges to democratic governance, just as Lincoln did during the Civil War. The three speeches Schaub pegs as Lincoln’s greatest are The Gettysburg Address, his Second Inaugural Address, and the lesser-known Lyceum Address. Schaub emphasizes Lincoln’s ability to blend America’s past, present, and future to address threats to freedom and democracy while affirming the framework the founders set in place. This is most noticeable in Schaub and Roberts’ discussion of The Lyceum Address. Lincoln lauds the founders for providing a system of republican governance and individual freedom while describing how his generation might continue to protect that system. Lincoln’s journey through the speech covers the founding, potential separation, and permanent reconciliation, offering an early preview of the forces that would drive America to the Civil War: It is very early. Lincoln is very young. But it is a comprehensive reflection on the nature, and especially the dangers and threats, to popular government–to democratic government. So, it really is a very comprehensive political reflection. He speaks about founding. He speaks about the possibility of destruction. And then he hints at the possibility of saving a republic or what would be necessary to save a republic… He is opposed to the Democrats, but he does not specifically attack Andrew Jackson or Stephen Douglas. But that’s kind of in the background. So, I think what he shows, instead of making it so explicitly partisan, he really digs deeper and shows these underlying threats to democracy, which might take partisan form, but are more profound. What are the threats to freedom and democracy Lincoln discusses? Lincoln regarded the sharp increase in mob violence and fanaticism during the 1830’s as a signal of a burgeoning rejection of institutions in favor of vigilantism, populism, and demagoguery. Schaub argues that maintaining a republic is more difficult than founding one, and she pinpoints a consistent challenge for democracies in channeling individual ambition. Lincoln articulated how the passion for greatness which helped forge the United States was also leading to its separation, as autocrats sought destroy the principles of the founding and establish their own legacy. Lincoln’s speeches warn against mob rule, not only because of the danger of vigilantism to individual freedom, but also because those not participating in mob violence lose faith in the ability of established democratic and legal institutions to promote justice and security. This opens the door for an autocrat: So, he says that the lawless in spirit will become lawless in practice. And then, the more worrying effect is that: What about the good citizens? What effect does this have on them? And he says: When they see government breaking down in this way and not holding people to the law, they will become alienated from the government. He says: This alienation can go so far that they become alienated not just from a particular government or a particular administration, but they become alienated from the very form of government. In other words, they give up on popular government. What they want is safety and tranquility, security of person and property. And, when they see this happening around them, they are likely to turn to the strongman–the demagogue who promises that he can get things back in order. In The Second Inaugural Lincoln showed his deep commitment to principle. Schaub and Roberts go over how Lincoln won election during wartime and issued the Emancipation Proclamation not out of his own abolitionism, but due to his belief that emancipation was necessary to save the union. In these examples, Lincoln’s adherence to institutions is clear, particularly democracy and the rule of law. Lincoln stressed using one’s rights, such as speech and assembly, to democratically change unjust laws and warned that breaking the law- even for a good purpose, diminishes reverence for the rule of law and undermines the legitimacy of democratic decisions. Because all men are created equal, because there are no natural rulers, the only way we can rule is through the consent of the governed. We are bound by the determinations of the majority. As I say, that is not to say that the majority is always right. They are often wrong, but we have democratic mechanisms to change democratically arrived-at law. Lincoln says, ‘You’ve got to use speech.’ Free press, free speech, right of assembly, right of petition. So, we have all kinds of avenues to reach our fellow citizens and convince them that they are wrong and that things need to be changed. But Lincoln says that is the only allowable method. To go outside that is actually to deny majority rule and to deny the equality principle on which majority rule is based. So, he is emphatic about this: Civil disobedience is destructive of civil government. The last key point in the podcast concerned the impact of rhetoric on the character of the nation. Roberts finds current political rhetoric in America to be far below the standard of Lincoln (Schaub agrees), but warns against the dangers of rhetoric. Rhetoric can be a powerful weapon in the hands of tyrants and demagogues. Schaub’s solution is referential of Lincoln’s: it is necessary to study the blueprint that the patriotic and democratic rhetoric of past American leaders. This blueprint is in the founding documents, and the very speeches Schaub and Roberts are discussing, which are key to fulfilling Lincoln’s project to build American pillars of self-governance, freedom, and equality which reaffirm and protect the themes of the founding My only solution is we still have the annals of political rhetoric. It is what shaped a great writer like Lincoln, and it’s always possible for people to go back to that and steep themselves in it. There must be people out there capable of doing that, and then figuring out what would be the kind of rhetoric for our moment and our democratic audience.   Related EconTalk Episodes: Injustice and the “Letter from Birmingham Jail” (with Dwayne Betts) Bruce Bueno de Mesquita on Democracies and Dictatorships Bruce Bueno de Mesquita on the Spoils of War  Jill Lepore on Nationalism, Populism, and the State of America How the Constitution Can Bring Us Together (with Yuval Levin)   Related Liberty Fund Network Content: Lincoln’s Lessons for Turbulent Times, by Carson Holloway, at Law and Liberty Understanding Lincoln’s Cardinal Principles, by Tyler MacQueen, at Law and Liberty Lawerence Reed on Best and Worst American Presidents, The Great Antidote Podcast, at Adam Smith Works The Elusive Goal of Political Stability, by Arnold Kling, at Econlib How Libertarian Was the Civil Rights Movement? by Bryan Caplan, at Econlib (0 COMMENTS)

As I write this, much digital ink is being spilled on inflationary pressures from Trump’s latest round of tariffs on Mexico, Canada, and China.  These are our three biggest trading partners, representing vast amounts of goods over many industries and sectors, affecting both American consumers and American firms alike.  Price concerns are legitimate.  But we must differentiate between changes in prices and inflation.  Tariffs will cause a one-time increase in prices, but all else held equal, prices will not continue to rise.  The 2018 tariffs on washing machines present a good example. In 2018, President Trump imposed tariffs on washing machines.  Prices naturally jumped in 2018, both on the consumer side (as measured by the CPI) and the producer side (as measured by the PPI).  The full amount of the tariff was passed along to Americans.  After this initial jump, however, prices returned to the long-run trends of generally falling.  Tariffs did not cause a long-run increase in prices.  Once the tariff was fully capitalized into the price, market forces once again took over and the long-run trend returned.  This is exactly what we should expect.  A tax shifts the curves, causing a one-time jump in the price, but then once the shock passes, the long-run trend resumes.   This is a chart I created from the Consumer Price Index of Washing Equipment (source: Bureau of Labor Statistics, series ID: CUSR0000SS30021): Note that, starting in 2013, washing machine prices started falling, a trend that would be uninterrupted until the tariffs were imposed in 2018.  The tariff was imposed and prices jumped.  Once the tariffs were fully incorporated in prices by the end of 2018, the trend resumed.  Then, of course, 2020 hit and, with inflation, the trend was reversed.  It’s quite easy to see with this chart that tariffs didn’t reverse the overall trend, but it did shift the trend upward.  Consumers still saw washing machine prices fall, but prices were still higher than they otherwise would have been without the tariff.   Fast forward to 2025.  We should expect to see these new broad-based tariffs cause a near-term increase in prices.  Given the broad nature of these tariffs, the increase in costs to both consumers and producers will likely even show up in inflation figures temporarily.  But it would be a mistake to call these tariffs inflationary.  The tariffs will be incidental to any inflationary pressures, not causative.  The Federal Reserve’s bloated balance sheet will be a primary cause of inflation.   (0 COMMENTS)

There is something that, I think, libertarians have learned, or should be learning, from the current American administration about the rule of law. One illustration among many was provided on March 13 when Ursula von der Leyen announced the European Union’s response to Trump’s 25% tariffs on steel and aluminum imports. (See “EU and Canada Retaliate after Donald Trump’s Metals Tariffs Take Effect,” Financial Times, March 12, 2025, which includes a short video of von der Leyen’s announcement.) As the president of the European Commission, the deep-state arm of the EU government, she spoke in a calm voice, emphasized that the European retaliatory tariffs were proportionate to Trump’s, and that the trade war started by the latter was “bad for business, and even worse for consumers.” The European tariffs needed to be approved within the EU and would come into force on April 13. Although the real solution for consumers would be unilateral free trade, contrast this reaction with the excited, erratic, one-man, pouting announcement on the American side. But there is more to that than one small example. I take the rule of law to be the ideal defended by the classical liberal tradition and notably by Friedrich Hayek. It is made of “rules regulating the conduct of persons towards others, applicable to an unknown number of future instances and containing prohibitions delimiting (but of course not specifying) the boundaries of the protected domain of all persons and organized groups,” including equally government agents (see his Law, Legislation, and Liberty, p. 457 and passim). It is the ideal of a government of laws, not men. We are re-learning that the rule of law provides an essential protection to individual liberty and thus prosperity—at least until a liberal or capitalist anarchy is attained, if this moment ever comes. The demise of the rule of law is much more likely to lead to arbitrary power, which has been the definition of tyranny in the classical liberal tradition. This lesson is probably more important for Americans than for Europeans because the American Revolution was unusually successful and may suggest that the rule of law can easily be re-engineered if it breaks down. With few exceptions in Europe, it repeatedly broke down in recent times: in the last three-quarters of a century, many countries have been ruled by autocracies, not counting the 1789 cataclysm of the French Revolution. Each time, the rule of law was reestablished with great difficulty and arguably only in part. The establishment of the European Union was partly meant to solidify the rule of law, notwithstanding that it is often over-restrictive and over-bureaucratized. Yet, it can be argued that the EU has protected the residents of its member countries from overt forms of tyranny for several decades. It was generally believed that the rule of law was much stronger in America than in most other countries. Today, it is arguably in America that the rule of law is most threatened. Many Americans don’t see this or falsely imagine that the path to tyranny closes when a strongman of their own flavor is in power. Despotism can happen here. Even imperfect (but not a mere smokescreen of law), the rule of law is still preferable to open arbitrariness, with two qualifications. First, the rule of law should tolerate a certain measure of principled civil disobedience, but from the ruled, not from the rulers. Secondly, a revolution is justified to the extent that it is necessary to abolish a tyrannical government and replace it with the rule of law, not to replace an arbitrary regime with another. How can the rule of law be preserved? One necessary condition has been universally recognized by the classical liberal tradition and the economic analysis of institutions: the independence and irremovability of judges. Up to some supreme court, a judicial ruling or order can be appealed, but until then, one judge can stop the wheels of the armed and powerful state. (See Bertrand de Jouvenel’s On Power.) This is a crucial requirement, notwithstanding a White House deputy press secretary proclaiming that “rogue judges are subverting the will of the American people.” It’s a reasonable bet that she has never read Jean-Jacques Rosseau and does not know what she is talking about, but she gives us an idea of the atmosphere she breathes. If or when the “will of the people,” which a few of the higher-ups in the administration have also invoked against independent courts, turns against any of them, one judge could stand between him and “the people.” Historical examples are legion. If there had been independent courts, Maximilien Robespierre, a previously popular revolutionary leader against whom the mob was now clamoring, could have appealed to a judge before he was guillotined in Paris on July 28, 1794. ****************************** “Robespierre guillotined,” by DALL-E (with many historical and technical incongruities) (0 COMMENTS)

Economists are often criticized for assuming people behave like homo economicus – some kind of perfectly rational machine making emotionless decisions based entirely on money. Of course, no competent economist actually thinks this way, just as no competent physicist believes that billiard balls are perfectly round spheres operating in a vacuum on a perfectly flat, frictionless surface. But just as a physicist, while playing a game of pool, might find it useful to model the pool balls and table as if that was the case, there are also cases where economic models might usefully employ simplified understandings of human behavior. But nobody actually thinks these simplifying assumptions are literally true, or even useful in every analysis. One area where the homo economicus model assumption can be counterproductive is in homebuying. I recently learned about a clause that’s sometimes used when people submit an offer to buy a house, called an escalation clause. It works in a way that’s similar to a feature you can use on eBay. When bidding for an item on eBay, you can set your bid to, say, $50, but also program it to nudge your bid all the way up to a set amount, say $100, whenever anyone else makes a bid between your starting point and your upper bound. This saves you the time and effort of having to continually monitor an item during the bidding period. An escalation clause works something like that. Suppose there’s a house for sale for $500k. (If the bidding is taking place in San Francisco, assume it’s a listing for a hammock set up inside a garden shed.) An escalation clause in an offer might say “I’ll offer you $500k, but I’ll increase my offer in $5k increments above any other offers you receive, up to $560k.” I recently had a discussion with a real estate agent and asked about these clauses, and how often they come up. She told me that she and other realtors strongly advise against including an escalation clause. Offers containing these clauses, she explained, are actually more likely to be passed over in favor of offers that still fall below the set upper bound. So why does this eBay style approach backfire when bidding for a house? Well, in eBay, the knowledge about the difference between your current bid and your maximum willingness to pay is asymmetric. You know that you’ll bid as much as $100 for the item. But the seller of the item doesn’t know that. If the eBay system sends your bid up to $75, for all the seller knows, that number was also the best you were willing to offer. Obviously they know that buyers prefer to spend less and sellers prefer to sell for more, but it’s at least plausible for them to feel like they got the best offer they could have gotten. But an escalation clause takes that away. In putting down an escalation clause, you are explicitly telling the homeowner “I like your house enough to be willing to pay $560k, and I can in fact afford to pay $560k for it. However, I’m only going to offer you $500k right now, unless someone else gives me a reason to offer you something better.” Suppose in that case, a second offer comes in that’s just a straight offer of $530k. Homo economicus would then accept the bid from the offer with the escalation clause for $535k. But most people will choose the $530 bid, even though it wasn’t actually the highest bid they could have gotten. This is because people want to feel like they’re getting your best offer when you make a bid on their home. And even if the person making the $530k bid might have been willing and able to pay more than that, the seller doesn’t actually know that. Because the offer didn’t make it explicit through an escalation clause, the seller can still plausibly retain the feeling that this buyer was making their best offer, just as an eBay seller can think. And it turns out that the majority of people will pass up on an extra $5k to avoid doing business with someone they feel was trying to lowball them. It may cost them an extra $5k, but it makes them feel more respected. To be clear, none of what I’m writing about right now is showing some flaw in how economists understand the world. Any halfway competent economist understands that nonmonetary factors matter in decision making. Nonmonetary factors help explain why astronauts, despite doing some of the most physically and mentally challenging and dangerous work on the planet make a much lower wage than one might think – because being an astronaut is itself a huge nonmonetary benefit! A question for the readers – what are some nonmonetary benefits (or costs) that have influenced your choices regarding jobs, transactions, or other similar decisions? (0 COMMENTS)

Bloomberg has an article with the following title and subhead: How Torsten Slok Solved the ‘Sherlock Holmes Mystery’ of the Economy When others thought a recession was inevitable, Apollo’s chief economist correctly predicted more growth. He did it by looking at the data.  Sløk seems to be one of the few economic pundits that is able to avoid the temptation to reason from a price change: Adding to the difficulty, the 54-year-old has lately concluded that much of the economics he learned at school is broken. After the punishing series of rate hikes that began in 2022, the field’s models concluded with near certainty that higher interest rates would tip the US into recession. Instead, the economy powered ahead with barely any sign of a slowdown. Bad forecasts aren’t just an occupational hazard of Slok’s chosen discipline—they seem to be the default state. “The economics profession was totally wrong. And why were they wrong?” he asks rhetorically. “They were too wedded to the textbook. They basically said, ‘Oh, when the Fed raises rates, it always goes bad.’” You might quibble that good textbooks don’t say that higher rates always lead to recessions, but in a broader sense Sløk is correct that most economists put far too much weight on changes in market interest rates.  Long-time readers may recall that I was also skeptical of the claim that higher interest rates in 2022 constituted “tight money”. The past year showed that high interest rates alone can’t trigger a downturn. That left Slok with a “little Sherlock Holmes mystery” to solve, he says. Why exactly did rates stop being that one metric a forecaster could depend on? Slok has a guess. On the one hand, the economy in the US is now much less sensitive to rates than it used to be, with homeowners and companies alike locking in low-rate debt during the pandemic. On the other hand, the country has economic “tailwinds” the rest of the world doesn’t, namely an artificial intelligence boom as well as fiscal stimulus from the Inflation Reduction Act and other federal legislation signed by President Joe Biden.  Higher rates are only a problem for the economy when the Fed pushes its policy rate above the natural rate of interest.  As Sløk implies, both the AI boom and fiscal stimulus somewhat raised the natural interest rate in real terms, and of course higher inflation expectations in 2022 were a factor pushing up equilibrium nominal interest rates. It’s also worth revisiting the issue of inverted yield curves.  In the past, I’ve argued that while inverted yield curves are often correlated with subsequent recessions, the correlation is far from perfect.  The fact that a recession did not occur in 2023 or 2024 is a black mark for the supposedly “infallible” yield curve prediction model.  I suspect that if not for Covid the model would have also failed in 2020. (0 COMMENTS)

I gave an OLLI (Osher Lifelong Learning Institute) talk on Tuesday on President Trump’s economic policies and actions. As you might imagine, it was pretty negative–on failure to cut major spending programs, on cracking down on both illegal and legal immigration, and on tariffs. The one potentially bright spot was on DOGE. I led by telling them that I don’t have a DOG in the hunt. But I pointed out something about DOGE’s limits that I learned from my research and also from a discussion with a fellow economist. From my research Alex Nowrasteh and Ryan Bourne noted, in “Six Ways to Understand DOGE and Predict Its Future Behavior,” the following: According to Chris Edwards, total compensation for the 3.8 million federal defense and nondefense workers accounts for only 8 percent of spending(excluding postal employees). Why does this matter? Because government isn’t like most of the private sector. The private sector produces things. A huge amount of the federal government involves government handing people massive amounts of money. So if the number of employees falls, even by, say 10 percent, you probably won’t cut government spending by even 1 percent. From a discussion with an economist friend It matters which employees you cut. Of course, many people have noted that. You probably aren’t going to cut the right employees by cutting probationary workers, for example. But I’m getting at something different. An employee at certain government agencies–I’m looking at you, SEC and EPA–might have the ability and the power to impose $10 million in costs for little benefit. Cut that employee and make sure the other employees are too busy to pick up his portfolio, and you would save $10 million. The saving on his salary would be rounding error. But cut the number of Park Service employees by 5% and you’ll save a little by possibly giving up valuable things they were doing.   Added note: When I was prepping my talk last Friday, I remembered a funny line that Alan Simpson, the former Republican senator from Wyoming, had had about politics. I googled his name to find it and, lo and behold, learned that he had died that day. I did find a funny line I remembered but not the one I was looking for. Here’s the funny line I found (here at the 8:37 point): Politics is derived from Latin. Poli means many and tics means blood-sucking insects. There’s another one I’m going from memory on, and I used it to criticize a recent bipartisan measure to increase Social Security benefits for retirees who have state and/or local government pensions. Apparently, Simpson was giving a tour of the Capitol building to a bunch of Japanese dignitaries and was trying to explain the U.S political system in a few lines. Here’s what he said: There are two parties in America, the evil party and the stupid party. I’m a member of the stupid party. Occasionally, we do something both evil and stupid. That’s called bipartisanship.         (0 COMMENTS)

DEI is often criticized as a modern religion. Without getting into the weeds of that discussion, I would say that my attitude toward DEI, broadly understood, actually does fit neatly into the First Amendment’s view of religion – that the state should pass no law establishing it, nor prohibit the free exercise thereof. Many companies have recently scaled back their DEI programs. Others have chosen to keep them. I’m content to let companies make their own decisions about who they want to hire and on what basis. My concern as a consumer is if the company is serving my wants or needs at the end of the day. If it is, I’ll exchange with them. And if not, then I won’t. I didn’t make any effort to avoid shopping at Target when they were big into DEI, and I’m not even slightly tempted to boycott them now that they are scaling back their DEI programs. I shop at Target because they sell lots of things that fit my lifestyle, wants, and budget. I think there’s something deeply psychologically unhealthy about the desire to make the place I shop for oatmeal and paper towels into a fundamental part of my personal identity. Recently, the shareholders of Apple overwhelmingly voted to maintain the company’s DEI program. The news story linked above adds the following observation: The proposal targeting Apple’s DEI policies was backed by the National Center for Public Policy Research, a conservative think tank, which had also put forward the proposal at Costco. It argued that the existence of Apple’s diversity and inclusion programs exposed the firm to “litigation, reputational and financial risks”, pointing to the wider corporate retreat and noting that recent lawsuits have made it easier for workers to sue over discrimination. To loosely quote President James Dale from the movie Mars Attacks!, two out of three ain’t bad. That is, it’s fine if maintaining the DEI program exposes Apple to financial or reputational risks. As a private company, taking on those risks is Apple’s choice to make – or more precisely, a choice to be m made by Apple executives and shareholders. If you’re an Apple shareholder and those risks worry you, you can sell your shares. If you’re not a shareholder but just fundamentally object to any company that chooses to use these practices, then you can simply not buy anything Apple sells. If you’re neither an Apple customer nor a shareholder, then it’s just none of your business how Apple manages these decisions. The risk of litigation should not be a factor here. The test of how Apple manages its internal affairs should be how well they are satisfying the needs of consumers on the marketplace. If Apple’s hiring practices or internal governance makes them less effective at producing things consumers want, then Apple and their shareholders will pay the price for that in the marketplace. And that’s great! Or maybe Apple’s practices will work out for them, and they’ll continue to produce lots of stuff consumers want to buy, and reap huge success. Also great! But the answer to that question should emerge from a process of capitalist acts among consenting adults, rather than because someone in Washington decided they should be able to make these decisions on Apple’s behalf. (0 COMMENTS)

On March 4, I had the great pleasure of giving a talk at UW – Superior on my research on cascading expert failure (ungated version here).  You can find a video of the talk on my YouTube channel .  Thanks to Dr Joshua K. Bedi for hosting and for the Wisconsin Institute for Citizenship and Civil Dialogue for sponsoring the event. In the talk, I discuss how the decision early in the pandemic to reserve COVID-19 tests to just hospital cases led to cascading expert failure.  I failed, however, to bring that story to its conclusion, so I rectify that here. By restricting tests to hospitals, there was an upward bias in the results making COVID-19 appear far more deadly than it actually was.  Those results were fed into models like the now-infamous Imperial College London model, leading to forecasts in the millions over a period of months.  This, in turn, fed into the narrative of lockdowns.  Even as more and more evidence emerged that the virus was not as deadly as once thought and that the lockdowns actually contributed to the spread, those bad policies persisted. (0 COMMENTS)

A recent essay by Eugene Ludwig published by Politico argues that despite most economic data showing a healthy US economy in 2024, things are actually really bad. He tries to convince us by providing alternative data. However, a close examination of his alternative data is unconvincing. These alternative measures are not better measures of labor markets and personal income are faring in the US. And even by many of the alternative measures, Americans are still doing well economically. The Labor Market Ludwig presents a measure of “true” unemployment, developed by his own organization, which suggests that about one-fourth of the potential workforce is unemployed, underemployed, or poor. While this figure may seem alarming, it is primarily an expanded measure of poverty rather than a traditional unemployment metric. This measure sets a threshold of $25,000 per worker, rather than per household, which distorts its comparability to standard poverty measures. Measuring poverty is useful, but there is no need to merge a measure of poverty and a measure of employment. Doing so only adds confusion. Even by the author’s own measure, however, the data does not support a narrative of economic decline. The January 2025 reading of 23.3 percent was the second-lowest January reading on record, with only January 2024 registering a slightly lower rate at 23.0 percent. Furthermore, this figure is 10 percentage points below its January 1995 level, which was the first year in their data series. If anything, this suggests a long-term improvement in economic conditions rather than the economic distress the author implies, even if the number is much larger than official U-3 rate, which is currently 4 percent. Income and Earnings Ludwig’s second critique of economic data focuses on the BLS’s reporting of median weekly earnings, arguing that the measure excludes part-time workers and thus presents an incomplete picture. However, this complaint ignores the fact that the BLS does produce a measure specifically for part-time workers, which is also included in their monthly report. The full-time measure is valuable because the majority of the workforce—over 80 percent—consists of full-time workers. Furthermore, tracking separate measures for full-time and part-time workers is beneficial, not misleading, as it allows for a clearer understanding of labor market trends. Many part-time workers are students, caregivers, or individuals who voluntarily choose part-time work for lifestyle reasons. While their earnings are important, lumping them together with full-time workers would distort the overall picture of wage trends. More importantly, inflation-adjusted median earnings for part-time workers have reached record highs, except for the anomalous quarters during the pandemic. While part-time wages remain lower than full-time wages, the trend does not support the claim that earnings data systematically understate economic distress. Inflation and the Consumer Price Index The essay also challenges the accuracy of inflation data, though at least this critique does not rely on extreme revisions such as those from ShadowStats. However, the claim that alternative measures provide a substantially different picture of inflation is exaggerated. The BLS itself already produces an experimental CPI broken down by income quintile. The differences between the author’s preferred measure and official CPI figures are relatively modest. Since the end of 2005—when the BLS began providing a specific research series—prices have increased by 64.4 percent for the lowest income quintile, 60.7 percent for the middle quintile, and 56.8 percent for the highest quintile. While the lowest-income households have experienced slightly higher inflation, the variation is not as drastic as the author implies. Furthermore, when using these inflation figures to adjust for real wage growth, data shows that real wage gains have been strongest for low-income workers since 2019. This contradicts the argument that inflation has uniquely harmed the lower-income segment of the workforce. Instead, evidence suggests that wage growth at the bottom of the income distribution has outpaced price increases, resulting in real gains for lower-income workers. GDP and Income Distribution The author’s final critique centers on GDP, arguing that a single measure cannot capture income distribution effectively. While this point is reasonable—GDP does not and cannot account for inequality—the implication that economic gains have not been shared is misleading. He mentions a survey from the Federal Reserve which suggests Americans without college degrees are worse off since 2013, but data from the Federal Reserve’s Survey of Consumer Finances (SCF), which looks at the actual wealth levels of families, paints a different picture. The SCF shows that inflation-adjusted wealth gains have been largest for individuals without college degrees, even though those with degrees still hold significantly more wealth. This suggests that, despite disparities, economic gains have not been confined to the wealthiest segments of society. We can also look at data on the Ludwig Institute’s own website to see weekly earnings across the income distribution. Their data shows that across the income distribution, wages have grown substantially and are essentially at record highs. Their series starts in 1982, and since the largest real income gains have come at the bottom of the distribution, with the 25th percentile worker seeing a 71 percent increase in earnings, compared with a 49 percent increase for the richest workers they track (the 90th percentile). Conclusion The author of the Politico essay says that we want prosperity that is shared. He even put that phrase as the title of his Institute. But using his own data, as well as other data sources, we can see that we already have shared prosperity in America: incomes have been rising across the distribution, poverty is at some of the lowest levels we have ever seen, and unemployment is near record lows. America faces many economic challenges, but many of the solutions to those problems involve continuing the path of economic growth we have already followed, not changing course.   Jeremy Horpedahl is Associate Professor of Economics at the University of Central Arkansas. He blogs at Economist Writing Every Day. For more articles by Jeremy Horpedahl, see the Archive. (0 COMMENTS)