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The Republic-Preparing for AI Counterrevolution

mariel — Mon, 18 May 2026 23:39:52 +0000

Michael Solon is a Senior Fellow at the Hudson Institute.

The backlash against artificial intelligence is not the first time Americans have tried to strangle their own prosperity.

Since the fall of the Roman Empire mankind had known only stagnation – living no better than his ancestors. With the genesis of a proto-capitalism, tremendous efficiencies began to arise through investments and machinery making specialization of labor possible. As virtually every necessity and luxury of life plummeted in cost, this awakening of remarkable productive forces delivering broad abundance should have produced cheering in the streets.

Instead, gnashing of the teeth resulted as new methods of production pushed the old producers into the dustbins of history. Instead of rational analysis that would have endorsed these changes where efficiency of scales and lower costs required ever larger production models, a backlash developed not to the new incomes but to the dramatic changes in every corner of the society and specifically against “big” corporations and the “gilded” rich. Instead of celebrating this newfound income and wealth, politicians, pushed by the losers of the creative destruction, sought to constrain the beast, a progressive concept memorialized by the “Man Controlling Trade” statue in front of the Federal Trade Commission.

As artificial intelligence approaches or crosses the lines of agentic, artificial general intelligence or superintelligence by whatever definition is used, similar political backlashes can be anticipated as those of the late 1800s. Today, AI’s transformation raises similar questions in terms of obsolete producers and job loss. How will that manifest itself into political reaction? How will a much larger and empowered federal government react? And, how will this impair America’s embrace of our next technological revolution?

While this situation mirrors how Progressive movements responded to the Industrial Revolution, new developments offer hope. First, this is not America’s first time at the tech-change rodeo, and we have a history of ultimately embracing change. Secondly, creation in America’s past technological revolutions far surpassed their destruction. Workers had to change jobs, but their income and consumption always rose. Third, comes experience. Today’s Wall Street is not our grandfather’s. In 1900, broad stock ownership was virtually nonexistent, with the vast proportion held by banks and corporate families.¹ But by 1990, half of all households held equities directly and indirectly and today roughly 58 percent do.² Awakening these millions of quiet investors and retirees could provide the key leverage to blocking a repeat of the worst excesses of the next Progressive Movement.

In considering AI’s possibilities, it is hard to imagine any previous inventions matching its potential benefits, but Andrew Carnegie’s steel may offer some parallels. With Carnegie’s embrace of creative destruction captured in his “what can we throw away this year”, he slashed the price of steel from $160 a ton in 1875 to $17 a ton by 1898 — efficiency gains paralleling Moore’s Law.³ His savings wrought the steel rail across the West and traversed gorges and gullies with steel bridges, where railroad miles totaling 30,000 before the Civil War surged to 164,000 by 1890 and 254,000 by 1916. His affordable steel transformed vast villages of five story tenement houses into ten and even 55 storied skyscrapers, such as the Woolworth Building of 1911.⁴ His metals also forged the “New Navy” that rose from roughly the 12^th largest in 1870 to 5^th largest by 1900 and won major naval engagements in the Spanish-American War.⁵

From Carnegie’s creation along with the contributions of Cornelius Vanderbilt, J.P. Morgan and other titans of the so-called Gilded Age, America enjoyed an unprecedented real GDP growth of 297 percent from 1865 to 1900. America’s population surged from 1870 to 1890 by 24 million — the equivalent of an extra Florida today — with 14 million new immigrants, yet real per capita income still surged 83 percent.⁶ By the 1890’s, the US economy was the largest, its per capita income the greatest and its manufacturing economy second to none.

None can claim these unsurpassed gains flowed only to the rich. Real wages grew by 62 percent from 1865 to 1900 with another 12.6 percent in the next fifteen years. Real wages of manufacturing workers almost tripled in real terms, growing by 189 percent from 1860 to 1915. Even as the number of farmers grew by 69 percent and the number of farms quintupled from 1850 to 1900, the real per capita income of farmers rose 65 percent.

As quantity of incomes rose, the quality of life dramatically improved. With life’s staples increasing in supply, improving in quality and dropping in price, life expectancy surged, infant mortality plummeted, and literacy rose even as the number of hours worked plummeted from 65 hours to 55 hours per week. Over four thousand millionaires arose with more than 80 percent self-made.⁷ Who could deem this economic expansion of unparalleled prosperity a failure?

Americans could and did.

With our world awakening from millenniums-old economic stagnation, the rapidity of industrialization, transportation, and urbanization compelled workers to shoot the rapids of a bewildering array of “here today, gone tomorrow” jobs that nonetheless increased consumption and national incomes. As agricultural employment fell by almost a third from 1800 to the Civil War and then by roughly another fourth by 1900, generations who had had their fathers and grandfathers’ jobs were compelled to learn skills unrelated to any of their ancestors.⁸ This combination of breath-taking creation plus unprecedented destruction of familiar institutions gave birth to the Progressive Movement that sought to undo the very factors generating this economic cornucopia.

One man embodied the Progressive Movement: William Jennings Bryan. As the Democrats presidential nominee in 1896, 1900, and 1908, he was a powerful orator known for coining the phrase “you shall not crucify mankind upon a cross of gold”. With the help of progressive Republicans, virtually every one of Bryan’s once radical views became law by 1913-14: a constitutional amendment creating the federal income tax; a constitutional amendment requiring popular vote for US senators; the creation of the Federal Reserve as an alternative to the gold standard; the Clayton Act strengthening the Sherman Antitrust Act of 1890; and the Federal Trade Commission added to regulate industry as the Interstate Commerce Commission (1897) ruled railroads.

As with the Industrial Revolution, when the AI revolution comes, the public focus will be on the losers rather than the gainers. Whole sectors will undergo major restructurings. A young Sam Walton fresh out of law school could decide he hates law partnerships as much as billable hours and dramatically replace law firms using AI for research and more shoe leather lawyers at a fraction of the current cost. Long established law firms will disappear. College graduates who never chose paths safe from AI will find themselves without jobs in their restructured professions and sizable college debt. Together they will form a potentially powerful coalition of the harmed, turning to government for salvation.

Undoubtedly a progressive will arise as the next William Jennings Bryan, but who will play the role of populist Republicans joining the Progressive effort to rein in the free market? Recall that unlike when the Progressive efforts began, a federal government that was 2.8 percent of the economy in 1901 is nine times larger today, with far more tax, regulatory and investigatory power.⁹

In a recent book, Robert Bork Jr., the son of the great former federal judge Robert Bork Sr., identifies this generation’s populist Republicans who will determine our government’s reaction to the coming AI revolution. Claiming to protect a way of life, our workers, our children and freedom of speech from social media and AI, the Republican “conservative socialist” will involve legislators and regulators.

Of all the risk to AI, Mr. Bork rightly ranks antitrust legislation near the top. Historically, antitrust can be defined to prosecute virtually any economic activity and therefore can serve any goal. Antitrust could convert the US’s dynamic economy into one like stagnant Europe. A populist Administration could work with the EU to import their aggressive antitrust laws and regulations here. It could leave our tech community in a chase mode in the AI race against China.

Whether it is populist antitrust, taxes, or regulations, how can the AI sector manage policy makers who will react to destruction rather than the creation that comes from the AI revolution?

First, messaging must be more positive. All we know about the future is based on the past, and our past has shown America’s fortune with technology. Referencing former technologies and technocrats can help people become more comfortable with technological change. Will AI change our world more than Edison did with the light bulb, than the Wright brothers did with the airplane, or than Henry Ford did with the automobile? Turn their questions into questions they must ponder. Reminding Americans of our history of technology with similar topline messages will get significant segments more comfortable. This is not America’s first experience in dramatic technological change.

In this regard, trust must be established by an undeniable fact: in 1980, the UPI headline declared “More Workers Likely To Lose Jobs to Computers Shortly” yet 41 million new jobs were added, unemployment hit a low of 4 percent and real GDP averaged 3.2 percent annual growth from 1981 to 2000.¹⁰^,¹¹ AI technocrats must realize that history says the losses will be temporary while the gains will be broad and permanent. Therefore, avoid talk about welfare and income support payments to compensate the losers. Instead, turn every potential talk about a negative future into a discussion about a positive past. Talk positively or don’t talk at all. When it comes to technological change, we did it before, we’ll do it again.

Next, the facts. Dramatic change is hardly a new notion nowadays but until the 1800’s, very little changed and only very slowly. When the share of US workers in agriculture dropped to 1.5 percent today from 75 percent in 1800, it ended a pattern going back roughly twelve thousand years.¹² Today jobs are evolving and the rate is growing even faster. Compared to 1940, not only did 60 percent of our jobs not exist then, no occupational titles were even imagined for them. Yet workers are winning more in the job creation than losing from the job destruction. Job Openings and Labor Turnover data since 2000 shows 5.1 million workers being “separated” from jobs every month but 5.2 million getting new jobs at the same time. Further, while 1.9 million of those separations are layoffs, 2.8 million or 55 percent are quits where the vast majority are choosing to leave for a a new job or a better life.¹³ The Internet is breaking the relationship between jobs and income generation. Globally, bloggers, influencers and online creators generate more income for themselves than the Hollywood film industry and three times as much as the music industry. Young people are not losing jobs to AI. A recent Apollo Global Management report reviewed BLS data and concluded since the advent of ChatGPT, “there is no sign that AI is increasing unemployment among younger workers, and there is also no sign that young people or recent college graduates are having a harder time finding jobs at the moment than other demographics.”

Finally, experience. A large portion of the population will not be moved by AI benefits until it personally affects them. To create a winning share of the population that accepts and protects AI from a progressive backlash, the massive number of Americans who own stocks directly and indirectly must be awakened.

Internet searches indicate Bill Gates owns perhaps $33 billion of Microsoft’s $3.3 trillion valuation. Warren Buffett owes about $140 billion of Berkshire’s $1 trillion valuation. Elon Musk owes roughly $175 billion of Tesla’s $1.3 trillion valuation. The fact that creators own billions while American investors hold trillions represents the greatest, most productive transfer of wealth the world has ever seen. This is not the Wall Street of Scrooge and J.P. Morgan, but far wealthier and far more dispersed in ownership. 72 percent of US domestically held stocks are held by pension plans, 401(k)s, individual retirement accounts and charitable organizations, or held by life insurance companies to fund annuities and death benefits.¹⁴ The mass democratization of corporate ownership has their own interest in protecting their share of their wealth.

Wakening them is hard, but two options exist. The first is to employ the same logic behind Google and other social media search engines. If searching for information on retirement savings, investment assets, or similar searches, these individuals would receive promotions to join an “investors protection coalition” or a similar pro-investors group, that could quickly build an organization which speaks on behalf of present and future retirees in protection of their assets. Not only could such a group defend against the coming legislative and regulatory onslaught of the next technology revolution, but it could also help defend against efforts to use private wealth for public purposes such as the ESG efforts. Such an effort could start small and concentrated, such as in states of progressive Republicans and build back pressure against the weakest part of the free market coalition.

Next, a major public policy debate is needed over the power of the market versus the power of government to take care of our people. It is coming. In 2034, Social Security will have its trust fund run out and benefits will be cut by roughly one-fifth unless a rescue occurs. Democrats like President Clinton and the late Senator Moynihan and Republicans like President Bush and Senator Gramm have called for an investment solution to save Social Security for one very good reason: 2 percent of a worker’s paycheck fully invested in the marketplace could exceed what the 12.4 percent payroll tax can no longer cover.¹⁵

One reason earlier rescue efforts failed was because of progressives concerns that an investment solution would make the marketplace the hero and people would not need government as they historically had. This is true. As Senator Gramm stated in a 2005 debate at the New York Economic Club, “if seniors have an entitlement, they need politicians. If they have wealth, they need investment advisors… It moves the plates under the political earth.” Like it or not, an investment solution to Social Security would put both Democrats and Republicans in the same boat as the investors – hoping for higher, secure returns to keep retirees safe. With virtually every American involved in Social Security benefits, an investment solution could compel individuals’ experience to generate new alliance of common interest in rates of returns — returns that AI will largely be generating for the foreseeable future.

Technocrats need to understand the fear that drives Americans where the destruction will be viewed for more than the creation. Yet the choice is not theirs but handed down from the Enlightenment itself. When through blood, sweat, and tears, man earned the power to control his prayers, his vote, and his wages, the result was peace, freedom, and prosperity. In the chase for prosperity, the right of workers to control their wages was focused on consumption, not work, for if we worked the same as our grandfathers worked, we would consume no more than our grandfathers. Many nations have become lost in varying forms in putting the workers’ demands over the consumers choice, losing both freedom and prosperity. As in the original progressive movement, the worker, not the consumer, will be the battle cry in the coming AI counterrevolution. Both the consumer and the investor must prepare to defend themselves.

References

Carola Frydman, Eric Hilt, and Lauren Mostrom, “Ownership and Control of American Public Corporations, 1880-1920”, Working Paper P. 3. Their study notes “Immediately after 1900—and in a few cases before—the diffusion of shareholding and the shift of power to salaried managers begin,” ↩︎
Federal Reserve System, “Changes in U.S. Family Finances from 2019 to 2022 Evidence from the Survey of Consumer Finances, October 2022”, 19. ↩︎
Paul Johnson, A History of the American People, (Norwalk Connecticut, Easton Press, 1997), 552. ↩︎
Paul Johnson, A History, 535, 577. ↩︎
Eugene Kolesnik, Conway’s All the World’s Fighting Ships, 1860–1905, London: Conway Maritime Press, 1979. ↩︎
Phil Gramm and Donald Boudreaux, The Triumph of Economic Freedom, (New York, Rowman and Littlefield Publishing, 2025) 20. ↩︎
Phil Gramm and Donald Boudreaux, The Triumph, 22. ↩︎
Stanley Lebergott “Labor Force and Employment, 1800–1960” (NBER, 1966) Table 2, 119. ↩︎
White House, OMB Historical Tables, 2025 Table 1.1; Census Bureau,Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970 (Washington, Government Printing Office,1975) Series F 1-5. ↩︎
United Press International, More workers likely to lose jobs to computers shortly. ↩︎
White House, Council of Economic Advisers Report to the President. Tables B-1, B-27 and B-29. ↩︎
Stanley, Lebergott, “Labor Force” Table 2, 119; US Department of Agriculture. ↩︎
US Department of Labor, “Job Openings and Labor Turnover Survey” Job Openings, Separations, Layoffs and Hires, 2000 to present. ↩︎
Phil Gramm and Michael Solon, “Who Pays Corporate Taxes? Look in the Mirror”. Wall Street Journal (New York, Dow Jones and Company, April 23 2024). ↩︎
Social Security Administration, “Memorandum from the Deputy Chief Actuary to the Chief Actuary, Long-Range OASDI Financial Effects of Clawback Proposal for Privatized Individual Accounts-Information”, December 3, 1998. ↩︎

WSJ-The Trump Tax Increase of 2026

mariel — Tue, 28 Apr 2026 18:45:12 +0000

The burden of new tariffs more than offsets the benefit of last year’s One Big Beautiful Bill Act.

By Phil Gramm and Michael Solon

April 28, 2026 1:07 pm ET

Republicans are counting on voters being pleasantly surprised by larger-than-expected tax refunds this spring thanks to new tax cuts from the One Big Beautiful Bill Act. Republican lawmakers hope this will ameliorate what Democrats call the “affordability crisis” and make it possible for the GOP to maintain control of Congress. The problem is that although the government is putting money back into taxpayers’ pockets on the one hand via tax refunds, it is taking more money out via tariff-driven price increases, leaving Americans worse off financially.

The Trump administration insists that other countries are eating the cost of tariffs. That is a myth. If foreigners were absorbing the costs, import prices would drop: To keep their products at the same prices in U.S. stores, foreigners would have to lower their products’ prices to make room for the tariff. Instead, a Bureau of Labor Statistics analysis found that “U.S. import prices were unchanged (0.0 percent) in 2025.” It’s hardly surprising, therefore, that a Federal Reserve Bank of New York analysis finds that “there is 100 percent pass-through from tariffs to import prices, and therefore on U.S. consumers and firms.”

The Joint Committee on Taxation estimates that taxpayers will receive about a $188 billion reduction in federal tax liability for 2025 that they wouldn’t have received if the president’s tax cuts hadn’t become law. Those refunds and tax benefits, however, have been more than offset by the $195 billion in new tariffs collected in 2025.

Things will get worse in 2026. The Congressional Budget Office projects that Mr. Trump’s tariffs will generate $331 billion this year, while the CBO estimates the new tax cuts will save taxpayers $230 billion. Families and businesses will be worse off on net. This will matter in the election. By October, Mr. Trump’s new tariffs from his second term will have cost American consumers and businesses $443 billion, while the tax cuts will have provided them with $379 billion. If the president successfully restores his tariffs to the levels where they were before the Supreme Court’s decision in February, the tariff tax in 2026 will be 44% larger than the new tax cuts contained in the Big Beautiful Bill.

The Trump administration’s economic policies feel like a bad deal to the average American because consumers bear most of the direct costs of the tariff bill while most of the tax refunds go through businesses. The CBO estimates that businesses are absorbing 30% of the tariffs’ cost while consumers are paying 70%. But individuals received only $60.5 billion, or 32%, of new tax cuts for calendar year 2025, while businesses received about twice that amount, $127.7 billion.

Those ratios will reverse for 2026, with individuals getting $140 billion and businesses getting $90 billion from the new tax cuts. But the gap between the tax relief and the tariff bill is growing. The business tax cuts in 2025 and 2026 are principally in business investment expensing. Eighty percent of those benefits go to corporations and will accrue to investors, who won’t identify the increased value of their retirement funds with Trump tax policies.

Defenders of the president’s tariff policies might argue that the tax cuts not only provide new benefits but also extend provisions that would have expired without changes in the law. This argument isn’t likely to make voters view the GOP more favorably. If Democrats had won the 2024 election, they likely would have extended many of the 2017 tax-cut provisions that were set to expire. President Obama extended some 90% of expiring provisions from the Bush tax cut, but he didn’t get credit for doing so in the ensuing political debate. Instead, critics attacked Mr. Obama for his proposed tax changes. Few taxpayers even knew parts of the 2017 tax cuts were expiring, and no one had his taxes increased. Voters don’t give politicians credit for getting back things they never lost.

Mr. Trump clearly believes that using tariffs to replace income taxes would be popular. If he studied the history of tariffs, however, he would know that Americans have always hated them. From Britain’s Townshend Acts of 1767, which helped fuel the American Revolution, to the Smoot-Hawley Tariff of 1930, which deepened the Great Depression, tariffs have proved politically toxic.

Voters don’t reward politicians for enacting tariffs. In the election that followed the 1890 McKinley tariffs—tariffs that Mr. Trump has cited as a prototype for his own—Republicans lost 93 representatives (including Rep. William McKinley, the tariff’s namesake) and four senators. So bitter was the subsequent Republican experience with tariffs that a Republican President, William Howard Taft, pushed for the 16th Amendment, giving Congress the power to impose income taxes as an alternative funding source to tariffs. A Republican Congress overwhelmingly proposed it, and state legislatures ratified it with bipartisan support. Republicans feared the income tax, but they had grown to hate tariffs.

If Mr. Trump had implemented his tax cuts, deregulation and welfare reforms and left tariffs alone, the economy would be booming. His obsession with tariffs has denied us the “golden age” he promised.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is a senior fellow at the Hudson Institute.

WSJ-‘Liberation Day,’ One Year Later

mariel — Thu, 02 Apr 2026 13:50:30 +0000

Trump’s tariffs didn’t spur economic growth but did encourage trade between spurned U.S. partners.

By Phil Gramm and Donald J. Boudreaux

April 1, 2026 4:24 pm ET

A year ago Thursday, President Trump raised the average effective tariff rate to 22.5%, and proclaimed April 2 “Liberation Day,” which would “forever be remembered as the day American industry was reborn.” Financial markets convulsed. Within a week, the president began suspending and modifying his tariffs. By the time the Supreme Court ruled that tariffs issued under the International Emergency Economic Powers Act were unlawful, the average effective rate had fallen to 11.6%, still higher than at any point between World War II and Liberation Day. Convinced that his tariffs were “quickly building the greatest economy in the history of the world,” Mr. Trump responded by invoking Section 122 of the Trade Act of 1974 to impose a 10% across-the-board tariff, that he promises to raise to 15%. A year into this experiment, how is Mr. Trump’s tariff policy working out?

Although the average U.S. tariff rate in 2025 approached the level of the infamous Smoot-Hawley tariff of 19.8% for all imports, our trading partners haven’t retaliated against the U.S. so much as pivoted toward other trading partners, initiating the greatest peacetime trade diversion of the modern era. To compensate for lost U.S. markets, they have mutually lowered barriers and increased trade with each other. As economist David Hebert of the American Institute for Economic Research observed in these pages, “the world isn’t deglobalizing. It’s reglobalizing around partners who commit to rules rather than those who wield tariffs like a club.”

While the economic damage to America and the world would have been far greater had a full-blown trade war erupted, our economy will nevertheless suffer from this diversion of trade from the U.S. Most obviously, U.S. households, denied access to the lowest-priced goods on global markets, will have less purchasing power.

The tariffs will also make American goods less competitive globally and more expensive at home. Tariffs raise the prices of inputs used by U.S.-based producers, which is no small matter. Dartmouth economist Douglas Irwin finds that more than half of U.S. imports are inputs used in producing goods and services in America. Tariffs steer resources toward expensive domestic products that we would otherwise import at a cheaper price. Tariffs thus divert capital and labor away from uses that would have yielded higher returns to capital and higher wages for workers. This combination of higher consumer prices and higher producer costs will slow economic growth as long as the tariffs are in place. The Yale Budget Lab estimates that if pre-court-ruling tariff levels are reimposed, consumer prices will rise by an additional 1% annually and economic growth will fall by 0.25 percentage point.

Investors share this negative assessment of the tariffs. While U.S. equities outperformed those of other developed countries in the decade prior, in 2025 the three major U.S. stock indexes underperformed indexes in most other developed countries. Last year the Dow Jones Industrial Average rose by 13%, the S&P 500 by 16%, and Nasdaq by 20%. But Germany’s DAX was up by 23%, Japan’s Nikkei by 26%, Canada’s S&P/TSX by 29%, and South Korea’s Kospi by 76%. Given financial markets’ forward-looking nature, these numbers testify that the global economy is finding ways to prosper despite Mr. Trump’s tariffs’ denial of access to the American market.

Additional evidence of the destructiveness of Mr. Trump’s tariffs comes from comparing America’s economic performance in 2025 to its performance in 2024, when, according to the president, the economy was “dead.” While Liberation Day didn’t occur until April 2, imports surged in the first quarter in anticipation of the tariffs, so the impact of Mr. Trump’s second-term tariffs can’t be assessed without including the first quarter of 2025.

Despite the administration’s boast of extracting foreign pledges to invest in the U.S. in return for lowering crippling tariff rates, 2025’s 1.2% increase in inbound foreign direct investment was considerably less than the 2.7% increase in 2024 and the 7.6% increase in 2017, the first year of Mr. Trump’s first presidency, when taxes were cut, regulatory burden was reduced, and tariffs were unchanged. Domestic investment also grew more slowly in 2025. Real gross private domestic investment last year grew by only 2% after growing in 2024 by 3% and 4.4% in 2017. As the global trade diversion makes our trading partners less reliant on U.S. markets and reduces our trade leverage, many of the verbal promises to invest in America are unlikely to materialize. Promised foreign investments that do materialize, being the result of political pressure and not of market forces, will further divert American resources into less-productive uses.

Real U.S. gross domestic product grew by only 2.1% in 2025, compared with 2.8% in 2024 and 2.5% in 2017. It is therefore unsurprising that job growth in 2025, at 0.5%, was slower than job growth of 1.2% in 2024 and 1.6% in 2017. Importantly, given Mr. Trump’s fixation on manufacturing, in 2025 the pace of losing manufacturing jobs accelerated to 1.2%, faster than the decline in 2024 of 0.7%. In 2017 manufacturing jobs actually increased by 0.7%.

If the economy was “dead” in 2024, there’s no evidence Mr. Trump’s tariffs have brought it back to life. The only major economic-policy difference between the first year of Mr. Trump’s first term and the first year of his second term was the imposition of the highest tariffs since the Great Depression. Most economists predicted that the economy’s performance would be negatively affected. Thus far data overwhelmingly indicate that is what has happened.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a nonresident senior fellow at the American Enterprise Institute. Mr. Boudreaux is a professor of economics at George Mason University and the Mercatus Center.

WSJ-ESG May Be Eating Away at Your Investments

mariel — Tue, 17 Mar 2026 14:53:50 +0000

Trump and the SEC affirm fiduciary duty, benefiting even shareholders with nonfinancial objectives.

By Phil Gramm and Jeb Hensarling

March 16, 2026 5:26 pm ET

President Trump recently signed an executive order that aims to end a 20-year experiment in backdoor socialism usurping private wealth to serve special interests. It affirms fiduciary responsibility and extends it to proxy advisers “that prioritize radical political agendas over investor returns.” Fiduciary responsibility requires investment managers and advisers to act in “the best interest of the investor,” and it applies even when the investor is seeking nonfinancial outcomes such as environmental, social, faith-based or humanitarian gains.

Securities and Exchange Commission Chairman Paul Atkins’s recent announcement that the commission is reviewing Biden-era rules governing so-called environmental, social and governance funds affirms this point. Fiduciary duty requires investment managers and advisers to exercise loyalty and care to ensure that investment objectives, whether financial or nonfinancial, are fulfilled.

Pursuing ESG objectives without the investor’s expressed consent has been part of a thinly veiled attempt by progressives to coerce investment managers and private corporations to advance their political goals and not the investors’ interest. This process began in 2006 when United Nations Secretary-General Kofi Annan announced the Principles for Responsible Investment initiative. Loud activists with anticarbon and pro-DEI agendas have colluded with asset managers to push through hundreds of corporate stockholder resolutions contrary to the financial interests of general investors.

As investors have noticed that ESG constraints produce lower returns while delivering few environmental or social benefits, opposition to ESG has grown. While the Biden administration used the same government agencies charged with protecting fiduciary responsibility to promote ESG, investor support for ESG stockholder resolutions fell from 33% in 2021 to 13% in 2025. The number of ESG proposals voted on in the last proxy year dropped 33% from the previous year. Support for ESG resolutions by asset managers, voting the shares of their investors, has dropped from 46% in 2021 to 18% in 2025.

Investment firms are backing away from imposing ESG constraints on general investments and are tailoring offerings to target investors who actually want to promote nonfinancial objectives. U.S. investors have poured $6.6 trillion into achieving partially nonpecuniary results, according to the US Sustainable Investment Forum. And 48% of U.S. investors remain “very interested” in sustainable investing, with support even higher among younger investors, according to a 2025 survey conducted by Morgan Stanley. If idealism outlives youth, ESG investing will grow significantly.

ESG investment funds have often fostered the illusion that investors are supporting more “sustainable” environmental outcomes while earning similar risk-adjusted returns. Rarely is that the case over extended periods. ESG investment funds routinely rely on unproven and inconsistent analytics. Weighting investments in companies based on carbon or DEI metrics means, logically, that more important factors of financial performance are underweighted. The predictable financial underperformance of ESG funds is made worse by higher management fees.

In most ESG investing, no systematic effort is made to verify the claimed nonpecuniary impact of the investment, and government regulators have, as far as we can tell, assumed impact investors have opted out of fiduciary protections. Conflicts of interest among advisers are rampant. Proxy adviser Institutional Shareholder Services, for example, advises companies on shareholder ESG proposals and then turns around and sells the same companies ESG ratings. Mr. Trump’s executive order correctly raises “significant concerns about conflicts of interest and the quality of their recommendations.” In a survey article in the Harvard Business Review, Sanjai Bhagat finds that ESG investments are “not making much difference to companies’ actual ESG performance” and that they “perform poorly in financial terms.”

Investors, investment advisers and government agencies charged with enforcing fiduciary responsibility need reliable independent data to ascertain whether investments achieve their noneconomic goals and promised rates of return. The University of Utah has spearheaded an effort to provide investors with financial and nonfinancial measures to determine whether their investments are delivering on their goals. These analytics measure the authenticity of investments, whether they achieve investors’ nonfinancial objectives, and whether they yield promised rates of return. A high score would provide evidence that an ESG-minded firm is fulfilling its fiduciary responsibility and possibly even meeting the requirements of the 2019 SEC Regulation Best Interest rule.

The Trump administration’s executive order on fiduciary duties is one of its most important pro-market actions. It should end ESG piracy by extending the standards of fiduciary duty to investors who want their money to achieve nonpecuniary as well as pecuniary goals. Greater transparency and clarity are urgently needed to disinfect the greenwashing fraud of many ESG initiatives. Instead of helping investors to do good while doing well, ESG investing too often delivers on neither promise. Government enforcement of our fiduciary laws can bring an end to such abuse.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Hensarling, a former chairman of the House Financial Services Committee, is an economics fellow at the Cato Institute. Mike Solon contributed to this article.

The Washington Post-The best evidence against Trump’s tariffs? His own first term.

mariel — Mon, 09 Feb 2026 15:36:25 +0000

Without tariffs, the first year of the president’s first term saw a healthier economy than 2025.

February 9, 2026 at 7:00 a.m. EST

By Phil Gramm and Donald J. Boudreaux

Phil Gramm, a former U.S. Senator from Texas and chairman of the Senate Banking Committee, is a nonresident senior fellow at the American Enterprise Institute. Donald J. Boudreaux is an economics professor at George Mason University.

President Donald Trump regularly claims to have achieved unprecedented prosperity in his second term, which he attributes to his implementation of the highest tariffs since the Great Depression. But no matter what data points the president points to, his tariff policies appear to be holding back the very prosperity he claims to have achieved.

How can one know this? Test the president’s claim with a comparison that’s as close as you get in the real world to a controlled experiment: Evaluate economic growth in the first year of his first term — which did not see the implementation of tariffs — against the same data in the first year of his second term, which did. This comparison works because all other economic policies in the two terms are virtually identical.

In both 2017 and 2025, Trump dramatically improved the economy’s growth potential by lifting crippling regulatory burdens imposed by his predecessors and by enacting pro-growth tax cuts. The only significant economic policy difference is the imposition of the largest tariffs since the 1930s. So, by comparing 2025 to 2017, we can largely isolate the impact of the tariffs. Using such a comparison, Trump’s boast about all the good that his tariffs are supposedly bestowing on America falls apart.

In 2025, nonfarm employment grew by 0.9 percent, which was notably less than the 1.6 percent increase in 2017. The growth of manufacturing jobs, which the administration targets as a primary objective, saw an even worse decline. In 2017, the nation saw an increase in manufacturing employment of 0.7 percent, but in 2025 the number of manufacturing jobs actually fell by 0.7 percent.

Meanwhile, inflation-adjusted median household income grew by 1.4 percent last year, less than the 1.9 percent increase in 2017. Real weekly earnings for full-time wage and salary workers rose by 0.53 percent, slower than the 0.86 percent in 2017. Only in the narrower measure of average real hourly earnings of production and nonsupervisory workers was wage growth faster in 2025 than 2017, 0.85 percent as compared with 0.37 percent.

Industrial production also performed better in Trump’s first term than in his second. In 2017 it rose 2.5 percent, but in 2025, it rose by only 2 percent.

All told, gross domestic product in the first three quarters of 2017 grew by 2.5 percent, the same as the growth rate for the first three quarters of 2025 (the latest available data).

The Dow Jones Industrial Average finished last year 15 percent higher than its close on election day 2024, but its close at the end of 2017 was a whopping 35 percent above its close on Election Day 2016. The same can be said for the S&P 500 (15 percent compared with 25 percent) and the NASDAQ (26 percent compared with 33 percent).

Real gross private domestic investment tells a similar story. Over the first three quarters of 2025 (the latest data available), domestic investment increased by 1.6 percent. But over the first three quarters of 2017, it rose by 3.0 percent. It’s worth noting that domestic investment in 2025 was likely due in part to the massive federal subsidies carried over from the Biden-era green-energy and chips boondoggles.

The poor economic performance at all levels of the economy over the past year is a direct result of the tariffs. Most American imports are raw materials used in U.S. production. Obstructing American producers’ access to these supplies caused production costs to increase – uncertainty generated by the tariffs’ volatility only compounds this effect. Tariffs raise consumer costs and lower living standards. Trump misses these facts because he and his trade advisers mistakenly think that most of the tariffs’ costs fall on foreigners. Yet according to recent research from the Kiel Institute, “importers and consumers in the US bear 96 percent of the tariff burden.”

Comparing the 2025 economy to that of 2017 strongly suggests that if Trump’s policies had been more like his first term, our economy would be significantly stronger today. Lifting regulatory burdens, cutting taxes and controlling spending is what would make America great again. The tariffs — the highest since the Depression — only weigh us down.

WSJ-Government Won’t Help the AI Job Transition

mariel — Thu, 05 Feb 2026 21:18:50 +0000

By Phil Gramm and Michael Solon

Feb. 5, 2026 1:07 pm ET

A consensus has formed that while artificial intelligence may create new and better jobs, its threat to current job holders requires massive new government training programs, unemployment assistance, income supplement programs and even a guaranteed minimum income. Missing from this rush to expand the government’s social safety net is any recognition that previous efforts to cushion the transition from jobs of the past to jobs of the future have done little to benefit those making the transition—and have raised the cost for society as a whole.

Societal gains from technological change come from what the economist Joseph Schumpeter called “the wave of creative destruction.” The lost jobs and investments rendered unprofitable by new technology free up labor and capital that can be redeployed to produce new and higher-valued goods and services. The more seamlessly the transition from the old to the new, the greater the gain from the new technology. “American exceptionalism,” our ability to generate and sustain higher living standards, has come in part from developing new technology and benefiting from being the first to implement it, and in part from our ability to move labor and capital dislocated by the wave of creative destruction efficiently into higher and better uses.

On average, every month since 2000 some 5.1 million American workers were separated from their jobs or were laid off and more than 5.2 million new jobs were created. In 2025, three times as many Americans changed jobs as did workers in the European Union. So inefficient is the Chinese economy in dealing with creative destruction that most industrial subsidies in China are used to sustain noncompetitive businesses. In short, the U.S. channels the wave of creative destruction through the economic system more efficiently than any other country in the world, and we are constantly enriched by it.

Government programs have provided a cushion to displaced workers, but they have also impeded the transitions. The 1962 Trade Adjustment Assistance program, which provided training, job-search and income support to workers harmed by foreign trade, has provided benefits to more than five million people. Numerous public and private studies have highlighted TAA’s failure by comparing the transition of TAA beneficiaries with workers who lost their jobs during the same period but didn’t receive TAA. Studies by the Government Accountability Office, the Labor Department and the U.S. International Trade Commission agree that TAA is insufficient in supporting dislocated workers to re-enter the labor market. It didn’t improve earnings. Benefits were used mostly as income support, and nonparticipants were re-employed faster than those who participated in TAA.

Another example is federal unemployment insurance, which was adopted in the 1935 Social Security Act and significantly expanded over the ensuing decades. A classic 1988 study by the economists Lawrence Katz and Bruce Meyer found that for every week of extra benefits, the covered worker was unemployed for as much as an extra day. The Congressional Budget Office found that “many workers find jobs in the weeks immediately before and after their benefits run out.” While unemployment benefits clearly are valued by people who lose their jobs, public and private studies generally conclude that on average the longer unemployment insurance is provided, the longer the worker will remain unemployed.

With growing calls for permanent new subsidies and a guaranteed minimum income for AI-displaced workers, we should heed the lessons of the 60-year-old War on Poverty, which President Lyndon B. Johnson declared as “not a struggle simply to support people” but “to allow them to develop and use their capacities.” Yet as the annual federal welfare spending surged to more than $70,000 per poverty family, labor-force participation among able-bodied persons in the lowest income quintile collapsed to 36%, from 68% in 1967.

A feel-good expansion of our existing programs to address AI transitions could idle tens of millions of workers, squander much of the economic benefit we hope to derive from AI, and foster a dangerous “bread and circuses” political system in which those who have chosen to remain outside the labor force demand an increasing share of the benefits created by those who have chosen to work.

Fortunately, a great blessing of AI technology is that it holds out the promise of facilitating the transition of workers from the jobs of the past to the jobs of the future. AI has been used in individual job searches and has been employed by the Harvard Business School to facilitate job placement for its graduates, but the technology hasn’t yet been applied by government to assist either the unemployed or current welfare recipients.

A national AI-employment system could provide individual assistance to the unemployed: assessing their aptitudes and interest and matching them with emerging jobs. It could provide individual training and track job openings in real time. If combined with a mandatory work requirement, AI could provide the most effective worker transition in history. It could revolutionize welfare by testing aptitude, providing individual training, and matching able-bodied welfare recipients with available jobs. An AI-assisted transition can assure that fewer people are left behind and that the societal benefits are expanded and broadly shared.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is a senior fellow at the Hudson Institute.

WSJ-Raising the FDIC Limit Risks Repeating the S&L Crisis

mariel — Wed, 07 Jan 2026 17:54:21 +0000

A bipartisan proposal to write checks the government can’t cash.

By Jeb Hensarling and Michael Solon

Jan. 7, 2026 6:12 pm ET

Government insurance programs are often tied to budget-busting bailouts and economic crises. But political pressures are again driving their expansion—and when these programs fail, taxpayers are left with the bill.

Washington’s latest bad idea is the Main Street Depositor Protection Act, offered by Sens. Bill Hagerty (R., Tenn.) and Angela Alsobrooks (D., Md.) and endorsed by Treasury Secretary Scott Bessent. The bill would increase the Federal Deposit Insurance Corp. limit on all non-interest-bearing accounts from $250,000 to $10 million. But the change would apply only to midsize and community banks—not to global, systemically important banks. Smaller banks wouldn’t have to pay the estimated $42 billion for the increased insurance; the premium increases are largely shifted to bigger banks. Banks under $10 billion in assets don’t have to pay any additional premiums.

To hide the price shock from big banks inevitably passing the costs on to their customers, the bill would phase in higher deposit-insurance fees and increased required reserves over the course of a decade. Consequently, the FDIC’s ratio of guaranteed deposits to reserves—a critical indicator of the fund’s ability to protect taxpayers—would be dangerously distorted for 10 years.

We’ve seen this before. A similar lack of reserves prevented the shutdown of troubled savings-and-loan associations in the 1980s. Regulators lacked the resources in their insurance fund to close bankrupt S&Ls, forcing an era of “forbearance” when thrifts stayed open despite insolvency. It dramatically drove up the resolution cost of the S&L crisis from an estimated $25 billion had the problem been addressed in 1983 to an actual cost of $160 billion by the 1990s.

The newly proposed FDIC deposit hike resembles Congress’s 1980 increase of the insured deposit limit from $40,000 to $100,000. In its review of the S&L crisis, the FDIC said the increase “added substantially to the potential costs of resolving failed financial institutions” and worsened the moral hazard problem. The increase Congress is now considering would be more than 160 times the size of the 1980 hike.

The 2008 financial crisis represents another infamous example of expanding liabilities without necessary capital. After Congress authorized the Department of Housing and Urban Development in 1992 to set affordable-housing goals, Fannie Mae and Freddie Mac repeatedly lowered credit standards. The mortgage assets held or guaranteed by Fannie and Freddie then grew from roughly $1.1 trillion in 1992 to $5.2 trillion by 2008. Despite skyrocketing portfolio risk, they never raised guarantee fees. When widespread subprime mortgage defaults began in 2007, Fannie and Freddie only held roughly 1.6% in capital and sustained combined losses of over $100 billion in 2008 alone. They have remained functionally insolvent and under government conservatorship ever since.

Proponents of raising deposit insurance from $250,000 maintain that “too big to fail” banks have a competitive advantage over smaller financial institutions, where government bailouts are unlikely. But smaller banks have their own advantages. Under the Dodd-Frank Act, capital requirements for the largest banks are often 10% or more, compared with roughly 7% for smaller banks. Larger banks also face stress tests and other burdensome regulations that smaller banks don’t.

With this legislation, regional and community banks will have deposit guarantees comparable to large banks but without similar capital and regulatory burdens. Does anyone believe Democrats won’t eventually push similarly crushing regulations onto these smaller institutions? After the 2023 collapse of Silicon Valley Bank, Sen. Elizabeth Warren (D., Mass.) supported higher deposit-guarantee limits but only in return for more regulation.

The government is full of programs guaranteeing assets without imposing fees or premiums commensurate with risk. Flood insurance rebuilds the same house five times, and taxpayers are stuck with 60% of the premiums for federal crop insurance. When flooding happens or the crop fails, insufficient funds exist to pay claims. Government then passes emergency funding legislation to make up the shortfall. Federal regulatory power inevitably expands.

The same principles apply to federal deposit insurance. Increasing the level of insured deposits without imposing the actuarially sound insurance cost on the banks and businesses that benefit encourages reckless behavior. Federal and state laws would never permit any private insurer to operate as federal insurance programs regularly do.

Public insurance has become one of the most sustained sources of systemic risk in our economy. Congress shouldn’t make it worse.

Mr. Hensarling is an economics fellow at the Cato Institute. He served as chairman of the House Financial Services Committee, 2013-19. Mr. Solon is a senior fellow at the Hudson Institute

WSJ-The Biggest Fraud in Welfare

mariel — Thu, 18 Dec 2025 16:10:33 +0000

The government gives tens of thousands of dollars in benefits to the poor, which it doesn’t count as income.

By Phil Gramm and John Early

Dec. 17, 2025 3:37 pm ET

Something is profoundly wrong with the U.S. welfare system—a problem that runs far deeper and is more dangerous than the shocking fraud in Minnesota that has been making headlines.

Across the past half-century, America has seen what in any other country would be considered a golden age, in which lower-income households have made incredible progress. Despite the end of our postwar economic dominance around 1975, the country’s real per-capita gross domestic product grew by 142% from 1974 to 2024. More than two-thirds of U.S. households have inflation-adjusted incomes today that would have put them in the top one-fifth of households in 1967. Sixty-two percent of the children who grew up in the poorest fifth of all households in the ’70s and ’80s worked their way up to a higher income bracket as adults, some all the way to the top quintile.

Yet even as our economy has experienced broad-based growth, real federal welfare spending has soared by 765%, more than twice as fast as total federal spending, and now costs $1.4 trillion annually. Were that money simply doled out evenly to the 19.8 million families the government defines as poor, each household would receive more than $70,000 a year.

The source of this dramatic mismatch is a fraud built into how various programs determine welfare eligibility: The government doesn’t count any refundable tax credits or benefits that aren’t paid in cash as income to the recipients.

Some claim this is appropriate because the beneficiaries aren’t free to spend noncash benefits on whatever they like. But that is a specious argument, because money is fungible. Receiving Medicaid, for example, frees up cash that would otherwise be spent on healthcare, allowing the recipients to spend the newly freed cash on other things. Noncash benefits aren’t in the end that different from income—except that salaries are taxed while government benefits aren’t. And individual welfare programs often don’t even count benefits paid in cash as income for the purpose of gauging eligibility.

The government’s failure to count its largess as recipients’ income allows welfare households to blow past the income level above which a working family no longer qualifies for government help. Take a single parent with two school-age children who earns $11,000 annually from part-time work. The government considers this household in poverty because its income is below $25,273. But this family would qualify for benefits worth $53,128. It would receive Treasury checks of $3,400 in refundable child tax credits and $4,400 in refundable earned-income tax credits. The family would also receive Food Stamp debit cards worth $9,216 a year, $9,476 in housing subsidies, $877 of government payments for utility bills, $16,033 to fund Medicaid, $3,102 in free meals at school and $6,624 in Temporary Assistance for Needy Families. All this puts the family’s income at $64,128, or 254% of the poverty level.

A hardworking family earning anything like $64,128 in salary wouldn’t be eligible for any of these welfare benefits in four-fifths of the states. Meanwhile, the welfare family would be eligible for another 90 small federal benefits and sundry state and local welfare programs.

According to the Congressional Budget Office and other independent researchers, when all means-tested payments are counted as income, most welfare recipients have incomes that put them in the middle class, and the proportion of poor people in the U.S. falls from more than 10% to less than 1%.

This unjust system also penalizes work. Unsurprisingly, the percentage of work-age persons in the bottom 20% of income who in fact work has in the last 50 years fallen from 68% to 36%.

The budgetary effects of these inaccurate income calculations are enormous. Look at what government programs cost minus any dedicated revenue they collect and interest on the debt, which government is obligated to pay. Payroll taxes fund 87% of Social Security spending, requiring an additional $188 billion, or 4% of unobligated spending. Medicare is 45% funded by payroll taxes and uses $478 billion of unobligated spending, or 11%. Defense spending of $851 billion is 20% of unobligated spending. Means-tested welfare programs absorb $1.4 trillion, 34% of unobligated spending, and the rest of the federal government spends $1.3 trillion, or 30% of unobligated spending.

If the government simply gave every poor family in America enough money to raise its income above the official poverty level, it would cost only $240 billion. That would reduce the annual deficit by two-thirds.

In light of the mounting evidence of rampant benefits fraud, Congress should institute a comprehensive audit of all means-tested programs. But it should start with removing the largest fraud in welfare—the government’s gross overstatement of poverty. President Trump should issue an executive order requiring the Census Bureau to count all welfare benefits received from the government as income to the recipients. Then Congress should codify the executive order and require that all means-tested programs use the corrected Census income definition to determine eligibility for welfare payments.

At a minimum, the resulting debate would inform the public about the bias in how the government measures income and how that bias has promoted welfare benefits that give recipients a standard of living that most middle-income families struggle to enjoy. The debate would force spending advocates to defend a wasteful and unjust system. Welfare reform would not only help the nation begin to deal with its budget problems, but could be a powerful issue in American politics headed into the 2026 elections for those willing to champion it.

Mr. Gramm is a former chairman of the Senate Banking Committee and a nonresident senior fellow at the American Enterprise Institute. Mr. Early served twice as assistant commissioner at the Bureau of Labor Statistics and is an adjunct scholar to the Cato Institute. Mike Solon contributed to this article.

WSJ-World Trade Grows Without the U.S.

mariel — Tue, 09 Dec 2025 15:12:06 +0000

Other nations are busy expanding commercial ties, as the U.S. economy is increasingly isolated.

By Phil Gramm and Donald J. Boudreaux

Dec. 8, 2025 3:49 pm ET

The 1930 Smoot-Hawley tariffs helped bring about a global depression. Nothing of the sort has happened in the wake of President Trump’s “Liberation Day” tariffs, even though their rates approach those of Smoot-Hawley. But that’s no reason for complacency. The world has changed since 1930 in ways that ensure the damage of Mr. Trump’s trade war will be borne primarily by the U.S. and its workers.

Here’s the key difference: After President Herbert Hoover signed the Smoot-Hawley Tariff Act in 1930, 25 countries imposed retaliatory tariffs, triggering a worldwide trade war—economic fratricide. There was “a headlong stampede to protectionism and restriction in imports,” in the words of economic historian Charles Kindleberger. According to the League of Nations, the real value of world trade plummeted by more than 65% between 1929 and 1933. Almost no direct retaliation occurred after Mr. Trump announced his tariffs in April.

The 1930 reaction to Smoot-Hawley was driven by nationalism mixed with the fear that under the gold standard, countries hit by U.S. tariffs would have to settle their trade deficits in gold, depleting their gold reserves and money supply, further depressing their wages and prices.

Today the gold standard is gone, and the trade balance affects exchange rates rather than the money supply. Governments no longer have to worry about trade deficits causing deflation. Our trading partners remember the pain of the Depression-era trade war and how postwar trade expansion rebuilt Europe and Asia, enabling one of the longest periods of peace among major powers since the fall of Rome. They also have relatively more to lose than the U.S. does from a trade war: Our 10 largest trading partners on average export and import 55.5% more of their gross domestic product than the U.S. does.

Canadian Prime Minister Mark Carney no doubt expressed the feelings of many of our trading partners when he said the U.S. was “no longer a reliable partner” and that Ottawa must “pivot our trade relations elsewhere.” Canada has responded to U.S. tariffs by launching a trade expansion effort, including a meeting between Mr. Carney and Xi Jinping that Mr. Carney called a “turning point” in Canada-China relations and trade.

Dramatic improvements in transportation and communications have made it much easier for exporters and importers to find alternative markets for their goods and services and to locate new suppliers for inputs needed in their production processes. The rise of small-volume carriers such as FedEx, UPS and DHL along with the significant fall in freight rates have made trade diversion and diversification easier and more profitable. As important, the cost of instant international communication and search has fallen to near zero.

The current trade diversion began when Mr. Trump’s first-term tariffs led China to shift its exports to other countries. Under Mr. Trump’s second-term tariffs, Chinese exports to the U.S. fell by 69% from February through September, but Chinese exports to other regions rose. Over these same months, Chinese exports to Association of Southeast Asian Nations member states were up by 61%, to Japan and Korea by 41%, to Africa by 35%, to the European Union by 28%, and to India and Latin America each by more than 10%. Oxford Economics analysts estimate China will close out 2025 having exported 8.3% more than last year, with its exports then holding steady in 2026. U.S. exports, by contrast, are projected to fall next year by 3.4%.

In August, Canadian exports to the U.S. were about 10% below the 2024 average, but our northern neighbor is weaving commercial ties with other nations, including China, India, Indonesia and the United Arab Emirates. Canada has reached a new trade expansion agreement with the EU and joined the EU in a defense production partnership.

Meanwhile in Asia, India’s recent easing of tensions with Beijing is fueling exports to China. According to India’s Economic Times, these exports are “helping New Delhi partly soften the blow of steep US tariffs.” India has also negotiated a free-trade agreement with the U.K. and hopes to complete a similar agreement with the EU by year’s end.

Bloomberg reports that “the new contours of global commerce are starting to emerge as governments redraw trade alliances and companies seek other markets to avoid the highest US tariffs since the 1930s.”

As trade is diverted around the U.S., other countries will continue to specialize in producing goods and services for which they have a comparative advantage. This specialization and the trade that sustains it will enhance efficiency and fuel economic growth in those trading nations. America’s economy will become increasingly isolated, to our detriment. Before tariffs, well over half of U.S. imports were inputs used by American producers. Keeping tariffs high will deny these producers access to many of the world’s lowest-cost inputs. Obliged by Mr. Trump’s protectionism to produce goods we could buy cheaper abroad and shielded from the competition that drives peak performance, U.S. producers will become less efficient and less competitive on the world market.

American firms that relied on export markets to build economies of scale will shrink their operations to match their shrinking customer bases. Growth in worker productivity and real wages will fall, and the prices that American families pay for goods and services will rise. U.S. economic growth will slow.

Higher input costs produced by tariffs—especially the 50% tariff on steel, aluminum and copper—will also increase defense procurement costs. American-made weapons and other defense products will become pricier and less competitive on the world market. This is ironic in light of attempts to justify the tariffs with appeals to national security.

Expanding world trade built the modern world, liberated Eastern Europe, won the Cold War, and expanded America’s prosperity and influence. Building a tariff wall around America won’t stop trade; it will simply divert it. If tariffs remain high, America’s wealth and power will wane while that of other countries will grow.

WSJ-The AI Revolution Will Bring Prosperity

mariel — Mon, 03 Nov 2025 00:58:47 +0000

The growth of industry disrupted old economic patterns but produced undreamed-of wealth.

By Phil Gramm and Michael Solon

Nov. 2, 2025 4:05 pm ET

Most speculation about artificial intelligence has focused on its potential to kill jobs and on the policies that government might implement to control AI and cushion workers against temporary or permanent unemployment. Amid all the pessimism and calls for government protection, it’s important to remember that our only window into the future is the past. From the colossal changes wrought by the Industrial Revolution to the Digital Revolution of the last quarter-century, improvements in technology have created an array of jobs that far exceeded—in quantity and quality—the ones eliminated, elevating standards of living. History offers cautionary tales of how special interests and public fear can spawn government policies that delay progress and raise the cost of the transition.

For a medieval economy that had scarcely grown in 1,500 years, the Industrial Revolution in the U.K. unleashed a greater concentration of material blessings than ordinary people had ever experienced. From 1840 to 1900 real wages doubled, and the average lifespan increased by 22%, from roughly 41 years to 50. The population doubled, and employment rose by 80%.

In America growth during the Industrial Revolution was of biblical proportions. From 1870 to 1900 real gross domestic product tripled, the population and labor force roughly doubled, and output in manufacturing grew sixfold. Real per capita income rose by 110% between 1865 and 1910, while real wages of manufacturing workers increased an estimated 173%. Life expectancy rose by a quarter as inflation-adjusted costs of food, clothing and shelter dropped by roughly 50%.

During the Digital Revolution of the last quarter-century, U.S. real GDP rose by 66%. Bureau of Labor Statistics data show the extraordinary capacity of the American economy to absorb new technology. Since 2000 on average five million Americans have either been laid off or quit their job every month, but the economy has created 5.1 million better-paying jobs a month. This creative destruction isn’t new. In 1810, 81% of Americans worked in agriculture; today only 1.2% do. In 1953, 32% of Americans worked in factories. As real industrial production quadrupled, the share of the labor force in manufacturing declined to 7.8% in 2025.

No one perceived the creative destruction of the Industrial Revolution more clearly than Karl Marx. He saw the Industrial Revolution unleashing “more massive and colossal productive forces than have all preceding generations together” in “scarce one hundred years.” But Marx also saw the destruction of the old “instruments of production” tearing asunder “the motley feudal ties that bound man to his natural superior” and leaving “no bond between man and man other than naked self-interest and callous cash payments.” Unfortunately, Marx saw these changes not as the dawning of economic freedom and the ascent of mankind, but as the beginning of a new age of exploitation, a view that once impoverished and enslaved half the world and still exerts influence across the planet.

While Marx saw both the creative and destructive effects of the Industrial Revolution, the public response focused almost exclusively on the destructive. The British historian Arnold Toynbee saw the Industrial Revolution as “a period as disastrous and terrible as any through which a nation ever passed.” A room at the National Portrait Gallery in Washington has paintings of the titans of American industry as well as economic journalist Henry George. The label with George’s portrait quotes his judgment of the American Industrial Revolution: “The rich grew richer, the poor grow helpless, the middle class is swept away.”

In Britain, displaced textile artisans engaged in industrial terrorism by destroying machinery such as looms in the Luddite Uprisings. The government sent in troops, and Parliament imposed the death penalty to stop the destruction. In America, mechanization, economies of scale and mass marketing gutted local competitors by providing lower prices and higher-quality products. States and then the federal government sought to constrain large, efficient producers with Progressive-era regulations that for 90 years protected producers at the consumer’s expense.

In the 19th century the U.K. and U.S. governments were small and largely noninterventionist. Today both governments are large and filled with political interests eager to expand government’s role in the economy. Sen. Bernie Sanders has embraced the Luddites’ cause, calling for taxes on robots. President Biden issued an executive order imposing government oversight of the use of AI and requiring AI to promote unionism, improve the environment and advance “equity” and civil rights. The AFL-CIO president has said “working people are fighting back against artificial intelligence and other technologies used to eliminate workers or undermine and exploit us.” And this is only the beginning.

Almost every discussion of AI calls for extensive economic assistance for those who are displaced, and a growing chorus calls for a guaranteed income. These proposals show no awareness that while trade adjustment assistance, extended unemployment and our welfare system were no doubt well-intended, they have impeded workers’ transition to new jobs. Impediments are already being raised to AI. Mr. Biden launched a wave of antitrust actions against big tech that the Trump administration largely has continued.

American exceptionalism—in which Americans are more productive and have higher living standards—depends in part on our extraordinary ability to adjust to change. Europe makes it hard to lay people off, which constrains the ability to create jobs. In China, most industrial subsidies go to noncompetitive industries, not to the potential winners of the future.

Despite all the costs entailed in the transition, industrial technology and the market system accomplished what no benevolent king’s redistribution, no loving bishop’s charity, no mercantilist’s protectionism and no powerful guild ever did. It delivered a massive increase in productive capacity that continues to enrich our world. If we base our policies to cushion the AI transition on proven results rather than good intentions and let the market system develop and absorb AI technology, we can achieve a second economic miracle, which will enrich America and the world.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is a senior fellow at the Hudson Institute.