US Policy Strategies

WSJ-How Reagan Saved Social Security

mariel — Wed, 02 Sep 2026 13:43:01 +0000

The bipartisan 1983 effort made the system solvent for half a century, largely thanks to a strong economy.

By Phil Gramm and Michael Solon

Sept. 1, 2026 1:50 pm ET

Any proposal to deal with Social Security’s pending insolvency should be based on an understanding of history—why the 1977 Social Security reform failed in only five years while the 1983 reform bought 50 years of solvency. The 1977 reform failed as real wages declined, prices spiraled and the economy stagnated. The 1983 reform succeeded largely because of a strong economy: The inflation rate plummeted, ushering in decades of price stability, and real wages rose, producing about a quarter-century of strong economic growth.

Any Social Security reform based on raising the Social Security tax rate and expanding income subject to the tax would push millions of taxpayers to a cumulative marginal rate of more than 50%. That would cripple an economy in which real wages are already stagnant and gross domestic product is growing at less than 2% a year—ultimately failing to provide Social Security solvency.

President Franklin D. Roosevelt said in 1935 that Social Security would be “compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations.” Senate Finance Committee Chairman Pat Harrison (D., Miss.) promised Social Security’s “annuity system will give to the worker the satisfaction of knowing that he himself is providing for his old age.”

Two years later, Roosevelt’s Justice Department argued before the Supreme Court that Social Security taxes “are true taxes, their purpose being simply to raise revenue. . . . The proceeds are paid unrestricted into the Treasury as internal revenue collections, available for general support of the Government. . . . A taxpayer has no standing to question the propriety of any expenditures from the Federal Treasury.”

With Social Security tax collections initially dwarfing benefit payments, government pillaged the notional trust fund, adding benefits and beneficiaries. Congress increased benefit payments for retirees and expanded coverage to spouses and dependents. Inflation adjustments triggered election-year bidding wars. After World War II, repeated legislative increases expanded inflation-adjusted Social Security benefits for a worker with average lifetime earnings by 442%, 28% faster than per capita GDP growth.

In 1972 the Nixon administration proposed automatically indexing the buildup of Social Security benefits by nominal wages prior to retirement and by inflation after retirement, significantly expanding benefits. But a legislative drafting error indexed benefits for both nominal wages and inflation, in the process double-counting the effect of inflation. Social Security benefits spending spiked by an extra 21%, the nominal trust fund balance plummeted by a third, and the trust fund faced insolvency in five years.

The 1977 Social Security reform made two major changes: It eliminated the double-counting of inflation in indexing Social Security benefits (although it continued to index the buildup of benefits before retirement by wage growth rather than prices). It also raised the payroll tax rate (including both Social Security and Medicare) by 14% and the income level subject to the Social Security tax by 96% from 1977-82.

When signing the 1977 reforms, President Jimmy Carter said that the rescue would “solve both the short-term and long-term problems in the Social Security system through the end of the 20th century.” Instead, by 1981, Social Security trustees warned that the Old-Age and Survivors Insurance Trust Fund would “be unable to make benefit payments on time beginning in the latter half of 1982.”

The 1983 Ronald Reagan-Tip O’Neill Social Security rescue succeeded in large part because by 1983 a committed Federal Reserve had broken the back of inflation and the Reagan program had spawned a recovery that lasted for a quarter of a century. Inflation was checked for nearly 40 years, and from 1983 until the beginning of the subprime crisis, real GDP grew on average by 3.4% a year.

The Reagan-O’Neill reform still stands as a testament to bipartisanship at its best. The Reagan budget and the Social Security rescue package terminated or significantly reformed a series of unearned benefits such as the minimum benefit, the death benefit and the adult-student benefit, and, through an amendment offered by Rep. Jake Pickle (D., Texas) and supported by the vast majority of Republicans, it raised the full retirement age from 65 to 67. It also accelerated scheduled Social Security tax-rate increases, incorporating ideas previously recommended by the Jimmy Carter-Joseph Califano Advisory Council on Social Security. This bipartisan effort averted an immediate crisis and stabilized Social Security’s finances for a half-century.

So long as the Social Security system runs on a pay-as-you-go basis with no real investments to support benefits, it will never be solvent on a long-term basis. The Roosevelt administration could have invested the portion of annual Social Security taxes not required to fund the small early-year benefits in a trust fund that was owned by the people who paid Social Security taxes. Had the government adopted such a system from the beginning, investing 70% in a broad-based stock portfolio like the modern S&P 500 and 30% in investment-grade private bonds, the trust fund in 1977 would have held $209 billion in real assets rather than $36 billion of government IOUs. Had the surpluses generated by the bipartisan reforms of 1983 been invested in a similar investment mix, the Social Security trust fund would have $14.1 trillion in real assets today rather than a government IOU for $2.6 trillion.

Except in the immediate recovery from the pandemic, annual real GDP growth has cleared 3% only once since 2008. With economic growth during that period one-third less than the previous postwar average, the Social Security Trustees’ estimated insolvency date has moved up from 2042 to 2032. Our historical experience suggests that a Social Security reform relying on raising tax rates and eliminating the income cap would hobble the economy and fail to achieve long-term solvency.

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. Alex Yu contributed to this article.

WSJ-Alan Greenspan and the 2008-09 Financial Crisis

mariel — Tue, 21 Jul 2026 14:42:40 +0000

The left uses his death to peddle a false narrative about what caused the convulsions of that period.

By Phil Gramm and Jeb Hensarling

July 20, 2026 5:29 pm ET

As eulogies and critiques pour in for Alan Greenspan, one thing has become clear: The left is using the former Federal Reserve chairman’s death to peddle a false narrative yet again regarding the underlying causes of the 2008-09 financial crisis. Since so much bad economic policy rests on bad economic history, we need to set the record straight.

Greenspan’s critics argue he carries much of the blame for the crisis and the housing bubble that triggered it, due to the low mortgage rates on his watch from 2000 to 2006, as well as his support for deregulation. Missing from this evaluation of Greenspan’s career is any recognition that for extended periods during the postwar era, mortgage rates were significantly lower than they were in 2000-06, yet they created no housing bubbles. Also missing is that for two decades leading up to the crisis, financial regulation grew stricter.

From 2000 to 2007 inflation-adjusted mortgage rates averaged 3.4%, almost triple the 1.2% between 1971 and 1980 and roughly double the rate from 2010 to 2025, yet there was no housing bubble or resulting financial crisis during either period. There is no evidence in postwar America that low interest rates precipitated a housing bubble except during the 2008-09 financial crisis.

Those who argue that Greenspan helped deregulate the financial system have yet to explain when this deregulation occurred. Through the passage of major laws like the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991, not to mention the Sarbanes-Oxley Act of 2002, federal regulators gained expansive powers to impose new risk-based capital standards, increased reporting and compliance requirements, prompt corrective action rules and corporate governance rules. The only law that could remotely be called deregulatory in any sense was the Gramm-Leach-Bliley Act of 1999.

Gramm-Leach-Bliley, of which one of us was the principal Senate sponsor, amended the Depression-era Glass-Steagall Act to allow banks, securities companies and insurance companies to affiliate under well-capitalized financial-services holding companies. But it didn’t deregulate anything. It established the Federal Reserve as a new superregulator overseeing all financial services holding companies. All activities of banks, security companies and insurance companies continued to be regulated under the same laws and by the same regulators as before, and by any measure Gramm-Leach-Bliley holding companies held up better during the financial crisis.

Contrary to the popular narrative, for at least three decades preceding the housing crisis, financial regulators gained more power and larger budgets and hired more personnel than ever. The Mercatus Center has found that from 1970 until the housing bubble burst, regulatory restrictions increased 250% and the number of regulatory personnel grew about 77%. There is no evidence that things would have been different if financial regulators had more authority or resources.

The true cause of the financial crisis wasn’t low interest rates or deregulation, but instead bad regulation and plenty of it. For almost two decades leading up to the housing bubble, government regulation encouraged, cajoled and mandated financial institutions to loan money to high-risk borrowers who bought homes they couldn’t afford. Greenspan consistently warned against the worst of it.

The Community Reinvestment Act of 1977 was originally a modest bill requiring banks to meet local credit needs. But during the Clinton administration bank regulators began using CRA to pressure banks to make subprime loans to low-income and underserved communities. Guidelines were turned into mandates and banks couldn’t even open an ATM, much less acquire another bank, if they didn’t receive a passing grade. According to the National Community Reinvestment Coalition, total CRA lending increased from $8.8 billion between the law’s enactment and 1991, to $4.5 trillion from 1992 through 2007 when the housing bubble burst. Greenspan testified before Congress that “the early stages of the subprime [mortgage] market . . . essentially emerged out of CRA.”

At the precipice of the financial crisis, the government-sponsored enterprises Fannie Mae and Freddie Mac, with their implicit government guarantee and imprimatur, either securitized or guaranteed roughly half of all mortgages in the U.S. Effective 1993, they were required to make 30% of their mortgage purchases so-called low- and moderate-income housing loans. That quota was gradually ratcheted up to 56% by 2008, when Fannie and Freddie collapsed, leading to perhaps the largest institutional bailout in U.S. history. A 2003 Fannie memo stated that because of the affordable-housing goals Congress imposed, Fannie “did deals at risks and prices we would not have otherwise done.”

Conflicted legislation created conflicted regulations and regulators. Safety and soundness considerations required regulators to hit the brakes, while affordable-housing goals required them to step on the accelerator.

A review of Greenspan’s statements before the financial crisis shows that he was the earliest and most consistent government official to sound the alarm about the building threat from the securitization of subprime mortgages. In congressional testimony after the crisis, he said: “The evidence strongly suggests that without the excess demand from securitizers”—meaning Freddie and Fannie—“subprime mortgage originations, undeniably the original source of the crisis, would have been far smaller and defaults, accordingly, far fewer.”

Unfortunately, Greenspan’s inarticulate answer to a question about his regulatory philosophy was widely reported, and his definitive statement on the cause of the crisis wasn’t. This helped feed the false narrative that financial deregulation caused the financial crisis, which was then used as a pretext to pass a massive expansion of government regulation of the financial system instead of a badly needed reform of government housing policy. Using Greenspan’s death to restate this same false narrative in no way changes the fact that he was arguably the greatest central banker in the history of our country.

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.

WSJ-Hamilton Was No Protectionist

mariel — Wed, 08 Jul 2026 17:27:59 +0000

The first Treasury secretary backed tariffs mostly to raise revenue and promote free trade.

By Phil Gramm And Donald J. Boudreaux

July 8, 2026 12:23 pm ET

Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer have invoked the policies of the first Treasury secretary, Alexander Hamilton, as precedents for President Trump’s trade agenda. Hamilton, the finance wizard of George Washington’s administration, “touched the dead corpse of the public credit, and it sprung upon its feet,” in the words of Daniel Webster. He is the most respected financial officer in U.S. history. Enlisting him in support of the president’s trade policy would certainly lend credibility to a policy that so far, by most economic measures—including economic growth and real disposable personal income—has failed.

Since Hamilton can’t defend himself, we’d like to defend him against the claim that he would support Mr. Trump’s protectionism. In Hamilton’s 1791 Report on the Subject of Manufactures, he made the case for government encouragement of American manufacturing in a world dominated by European powers that, he worried, could easily refuse to export their manufactured goods to America in exchange for American agricultural products. As Hamilton explained, “if Europe will not take from us the products of our soil, upon terms consistent with our interest, . . . there is no other expedient, than to promote manufacturing establishments” at home. Promotion of U.S. manufacturers could be provided by protective tariffs or, even better in Hamilton’s view, by subsidies.

Messrs. Bessent and Greer claim that the Trump administration is simply reviving the Hamiltonian trade policy that created the American economic colossus. But in the 21st century, when the average trade-weighted tariff rate of Organization for Economic Cooperation and Development member countries was below 3% and almost identical to that of the U.S., and the OECD found that the nontariff barriers of U.S. trading partners aren’t significantly higher than America’s nontariff barriers, it’s highly doubtful that Hamilton would support Trump policies. Hamilton in essence rejected Mr. Trump’s tariffs when he argued in his report that “if the system of perfect liberty to industry and commerce were the prevailing system of nations, the arguments which dissuade a country in the predicament of the United States, from the zealous pursuits of manufactures would doubtless have great force.”

It’s true that Hamilton endorsed some elements of the infant-industry argument for tariffs, but he did so because American industry then was indeed in its infancy. America today occupies a completely different position, with productivity per manufacturing worker in the U.S. about 10 times as great as in China, U.S. capital markets as large as the rest of the world combined, and America now in its second century of dominating innovation and technological development. The conditions that led Hamilton to support tariffs have long since disappeared. He never saw protection of domestic manufacturing as a long-term policy but rather insisted that “continuance of bounties on manufactures long established must almost always be of questionable policy.”

Especially noteworthy is Hamilton’s conviction that among the greatest forces fostering U.S. industrialization was its trade deficit and resulting capital surplus, while Mr. Trump sees the U.S. trade deficit as a crisis and net foreign lending and investment in the U.S. as a “hemorrhaging of America’s lifeblood.” Hamilton described net inbound foreign capital as “a precious acquisition . . . a most valuable auxiliary, conducing to put in Motion a greater Quantity of productive labour, and a greater portion of useful enterprise than could exist without it.” During the country’s first century, we routinely ran trade deficits as the British and Dutch invested heavily in America. They grew wealthy on those investments, and so did America.

The protectionist paternity claim against Hamilton fails, as does the claim that tariffs industrialized America. Missing from this protectionist story: Unlike today, in the 18th and 19th century Congress had no power to tax incomes, so most revenue came from customs collections. Hamilton knew that high protective tariffs, by discouraging importing and encouraging smuggling, suppressed those collections. As Dartmouth’s Douglas Irwin notes, the tariffs Hamilton proposed in his report and Congress adopted were “not highly protectionist duties because Hamilton feared discouraging imports, which were the critical tax base on which he planned to fund the public debt.” During Hamilton’s tenure as Treasury secretary, his focus in setting tariffs was to pay the government’s bills, not to protect domestic manufacturing.

Protectionist forces didn’t triumph in Congress until passage of the Tariff Act of 1816, long after Hamilton died. That movement peaked with the adoption of the Tariff of Abominations in 1828, causing an electoral bloodbath for its proponents. After reaching an all-time high of 57.3% in 1830, the average tariff rate on all imports was slashed by 74% over the next 31 years.

The results for American industrialization are revealing. From 1816 through 1830, industrial production grew at an average annual rate of 4% as tariffs rose. From 1831 through 1860, industrial production exploded by 6.7% a year as tariffs fell. During the Civil War, tariffs were again raised, but between 1866 and 1900 average tariff rates fell from 41.8% to 27.6% and industrial production grew at an average annual rate of 5.6%. In the 19th century industrialization occurred most rapidly when tariffs were falling, not when they were rising. By the turn of the century President William McKinley, whom President Trump often cites as a role model for his tariff policy, was calling for freer trade because “the period of exclusiveness is passed. The expansion of our trade and commerce is the pressing problem.”

Nineteenth-century industrialization wasn’t fueled by protective tariffs. Instead, as economist Frank Taussig concluded in 1915, it was fueled by “the intelligence and inventiveness of the people; these being promoted again by the breath of freedom and competition in all their affairs.” And as Albert Gallatin, the longest-serving Treasury secretary, earlier observed, “to ascribe that unexampled and uninterrupted prosperity, which even legislative errors cannot arrest, to a tariff is one of the most strange delusions by which intelligent men have ever suffered themselves to be deceived.”

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. Michael Solon contributed to this article.

WSJ-The Surprising Truth About Reagan’s Tax Cut

mariel — Sat, 20 Jun 2026 00:50:17 +0000

It widened the deficit—not by cutting the top rate, but purely by relieving families from automatic increases through bracket creep.

By Phil Gramm and Michael Solon

June 19, 2026 2:11 pm ET

No major economic policy in modern American history is as misunderstood or inaccurately portrayed as President Reagan’s 1981 tax cuts. According to the Encyclopaedia Britannica, “the tax cuts, in fact, produced the largest budget deficit in the country’s history,” all to finance “tax cuts for the wealthy.” That summarizes the consensus contained in virtually every historical account of the era.

The characterization of the tax cuts as “for the wealthy” is easily refuted by comparing relative income tax burdens before and after. Since the top 40% of income earners in America pay some 90% of income taxes, reductions in tax rates would be expected to give a larger dollar-value tax cut to people who pay the most taxes. But data from both the Internal Revenue Service and the Joint Committee on Taxation show that when Reagan took office in 1981, the top fifth of income earners paid 64% of all federal income tax, the next-highest fifth paid 21%, and the bottom three-fifths paid 15%.

By 1985, the 1981 tax cuts, including inflation indexing of the tax brackets, had been fully implemented. The share of the individual income-tax burden had increased to 67% for the top fifth and dropped to 19% for the next fifth and 14% for the bottom 60%. By 1988, Reagan’s last year in office (and after the 1986 tax reforms), the figures were 71%, 17% and 12%.

Incredibly, by 2022, the top fifth paid 88% of income taxes, the next fifth 13% and the middle fifth 4%. That adds up to 105%, but the arithmetic works because the bottom 40% received checks from the Treasury thanks to refundable credits like the earned-income tax credit, on net paying them a total of 5% of all income-tax collections.

To understand the impact of the 1981 Reagan tax cuts on the deficit, you have to understand what happened in America during the 1970s. With inflation averaging 9.3% a year from 1973 through 1980 and with 24 different tax brackets, the Congressional Budget Office found taxpayers were “paying larger fractions of their income to the federal government in income taxes, even though no legislated rise in income taxes has occurred.”

Despite tax cuts in 1975, 1976, 1977 and 1978, inflation-driven bracket creep continued to raise the percentage of household and national income taken in federal taxes. CBO found that with the 13.3% inflation rate in 1980, “a taxpayer with two dependents, for example, earning $15,000 [$64,206 in 2026 dollars] and filing a joint return, would pay $294 [$1,258] more in federal income taxes—a 23.8 percent rise in tax liabilities—if the family’s adjusted gross income and itemized deductions both rose by 13.3 percent.” In 1980 “single taxpayers with adjusted gross incomes of $5,000 [$21,402] and joint return filers with adjusted gross incomes of $10,000 [$42,804] experience the largest relative increases in tax liability—increases of 34 to 57 percent.”

Federal revenue as a share of gross domestic product grew twice as fast from 1973 through 1980 as it had grown to that point in the postwar period—reaching 19.1% in 1980, a peacetime record. Bracket creep had become bracket gallop.

With no legislated changes in the tax code in 1979 and 1980 and a stagnant economy in 1980, which experienced a slightly negative growth rate of minus 0.2%, tax collections still spiked by 0.5% of GDP due to bracket creep from a 13.3% inflation rate. Without that bracket creep, the 1980 recorded deficit of 2.6% of GDP would have been 3.1%.

In the 1970s inflation-adjusted social welfare spending—entitlements and means-tested welfare programs—nearly tripled, but much of the cost never showed up in the federal deficit. As prices exploded, bracket-creep tax increases transferred much of the cost to the taxpayer with stealth tax increases. The budget deficits of the 1970s were, therefore, partially hidden as the surging cost of social welfare spending shifted from the federal budget to the family budget.

In the decade before Reagan took office, defense spending fell from 7.3% of GDP to 4.8%, and bracket creep pushed revenue to a peacetime high—yet surging welfare spending helped turn a budget surplus in 1969 into a 4.1% deficit as a percent of GDP by 1976. Congress, which had modestly reduced tax rates every year since 1974, responded by ending its annual tax cuts in 1978, dramatically increasing the bracket-creep taxes imposed on families in 1979 and 1980.

The most consequential omission in historical accounts of the Reagan tax cut is a failure to note that both political parties supported major tax cuts in 1981. In 1979 and 1980 CBO warned that recessionary “fiscal drag” from bracket creep would require tax cuts “to be enacted in the 1980-1984 period to provide sufficient stimulus to achieve the economic growth targets.” When CBO’s forewarned recession began in January 1980 and double-dipped in July 1981, Democrats conceded that a major tax cut had to be passed. House Ways and Means Chairman Dan Rostenkowski’s proposed alternative to the Reagan tax cut was slightly larger through 1983, the year the deficit peaked, but its 1984 tax cuts were conditioned on levels of inflation, interest rates and deficits nobody believed would be met, and the Democratic alternative didn’t index the tax brackets for inflation.

When inflation plunged to 3.2% in 1983, a year for which CBO had projected a 9% inflation rate, bracket-creep revenues collapsed and the deficit soared to 5.9% of GDP. By 1985 income-tax rates had been cut by a quarter, and the tax brackets had been indexed to eliminate bracket creep. The economy was in its third year of rapid growth. Compared with 1980, defense spending was 1.1% of GDP higher, nondefense spending was 1.2% of GDP lower, and the deficit was 2.4% of GDP higher—all without the 1980 inflation revenue gain of 0.5% of GDP produced by bracket creep.

The day Reagan left office, the American economy was one-third bigger than when he arrived. Tax rates had been cut and tax brackets indexed to eliminate bracket creep. Nondefense spending was 2.5% of GDP less than it had been the day Reagan took office, and defense spending was 0.9% bigger.

The deficit was 3% of GDP—up from 2.6% in 1980. But revenue from bracket creep narrowed the 1980 deficit by half a percentage point. That means the entire increase in the deficit during the Reagan presidency resulted from the abolition of bracket creep—which by definition doesn’t help anyone rich enough to be already paying the top rate.

The untold story of the Reagan era is that the cost of financing the welfare spending explosion of the 1970s was always there but much of it did not show up in the federal budget deficit. Inflation-created bracket creep took the money from taxpayers to cover much of the cost without Congress ever voting to raise taxes. The full cost of making America a welfare state wasn’t fully recorded in the federal budget deficits of the 1970s because inflation and bracket creep tax increases transferred much of the cost to the family budget.

When the Reagan program helped bring 40 years of relative price stability and indexed income-tax brackets, the cost of the explosion in social welfare spending became the driving force in increasing the federal budget deficit and has been ever since. Even though the level of general prosperity has improved dramatically since 1988, sending real per capita income up by 80%, real means-tested welfare spending has more than quadrupled, rising from $283 billion in 1988 to $1.435 trillion in 2024 (the last year data are available).

The legacy of the Reagan program is that by reversing the growth of the welfare state and cutting tax rates, Reagan gave the nation 25 years of prosperity. The Reagan defense buildup brought down the Berlin Wall, won the Cold War and yielded the peace dividend that enabled President Clinton to balance the budget. And the budget deficit grew only because families were protected from automatic tax increases triggered by inflation.

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.

The Republic-Preparing for AI Counterrevolution

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

By Michael Solon

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.

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.

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.