Conversable Economist

Big firms are playing a larger role in the US economy–but also in the economies of high-income countries around the world. Yueran Ma, Mengdi Zhang, and Kaspar Zimmermann compile the evidence in “Business Concentration Around the World: 1900-2020” (University of Chicago Becker-Friedman Institute for Economics, February 27, 2026, the link offers a readable overview and a followup link to the full working paper). The authors write:

In this paper, we document two sets of facts about the evolution of the organization of production over the past century. These facts hold broadly, across a variety of market-based economies where we can find comprehensive long-run data on the firm size distribution. First, sales, net income, and equity capital have become increasingly concentrated in the largest firms. In many countries, the largest 1% firms by sales now account for around 80% of economy-wide sales, up from around 50% in the early 20th century. The long-run increases of concentration also hold at the industry level. Second, employment concentration has been relatively stable. The largest 1% firms by employees account for roughly 50% of economy wide employment throughout the 20th century. One exception is retail/wholesale trade, where employment concentration has risen almost as much as sales concentration. These pervasive patterns … show that the rising dominance of large firms is a widespread phenomenon, not limited to the recent decades or the United States. Moreover, large firms scale not so much with labor, and possibly more with capital (except in industries like retail where expanding automation has been more challenging thus far).

So the top 1% of firms represent a rising share of total sales over time (now up around 80%), but a fairly stable share of total employment (around 50% in the last century). This is not a US pattern, but a common pattern across high-income countries, which in turn suggests that it does not have a US-based cause. The authors suggest that the most likely explanation for this pattern is that large firms tend to be those who are able to scale up by using capital investment, rather than additional hiring.

An obvious follow-up question is whether this overall pattern is good for the economy, or for consumers, or for workers. This paper doesn’t seek to tackle these big-picture questions, but it does pointedly note that greater firm size alone is insufficient to prove that consumers or workers are worse off (or better off, for that matter).

Here is a standard conundrum about the extent of actual competition. Say that in a certain market there are 3,143 firms across the country, but they are geographically distributed so that there is one per county across the United States. In another market there are only five firms, but all five firms compete in every county in the United States. If this market is one where buyers typically buy within their own county, then consumers in the market with fewer total firms for the United States as a whole might be experiencing a higher level of actual competition. The extent of competition will depend on the size of the relevant market. It may be that as transportation and communications links have improved, along with the logistics chains that allow near-immediate shipping to both consumers and businesses, competition can be tougher even with fewer and larger firms.

It’s also possible to consider two broad paths for an economy. In one path, larger firms have the opportunity to grow and expand when they produce more efficiently, and if these firms face a sufficient degree of competition, the cost savings will be passed along to conumers over time. In an alternative path, the economy consists of many small and local firms that on average produce less efficiently. These small and local firms also need to be sheltered from competition, both from bigger firms and also from growth by other small and local firms that are more popular or efficient firms, so consumers will pay higher prices over time. The first scenario also involves rising productivity for workers in the big firms, while the second involves flat productivity for the workers in the small and local firms. The first scenario involves disruptive economic change, with some firms expanding and others being bought out or driven into bankruptcy. The second scenario has less disruptive change, but is also a scenario of stasis and low growth.

Personally, I prefer the first scenario, with its accompanying tradeoffs. I can understand and to an extent sympathize with those who prefer the second scenario–as long as they are also willing to acknowledge the tradeoffs of their choice.

For a US illustration of some of these forces at work, consider this table of the top 10 US companies by sales in 2025, 35 years earlier in 1990, and 35 years before that in 1955. Notice that from 1955 to 1990, five of the top ten companies appear in both years. However, from 1990 to 2025, only two of the same companies appear–because Exxon and Mobil from the 1990 list had merged by 2025. I tend to worry more about anticompetitive effects of big business when more of the same firms are staying at the top for decades, rather than when there is at least some slow-motion reshuffling.

(For the 2025 list, I’ll add that I had no idea what line of business Cencora was in, although it is apparently the 10th-biggest US company by sales. I was mildly relieved to learn that company name didn’t exist until 2023, when it was renamed from AmerisourceBergen, a name that was in turn the result of 2001 merger of AmeriSource Health and Bergen Brunswig. Cencora does distribution and wholesale for pharmaceuticals, along with some contract research.)

Erika McEntarfer was Commissioner of the U.S. Bureau of Labor Statistics until August 1, 2025, when she was abruptly fired by President Trump. Neale Mahoney of the Stanford Institute for Economic Policy Research discusses the experience with her and what comes next for federal statistics in “The hidden backbone: The data behind the economy” (SIEPR, “Econ to Go,” March 26, 2026). Here are a few of the comments that caught my eyes:

On her earlier interaction with the Department of Government Efficiency, widely known as DOGE:

I actually had a whole basket of AI related projects when DOGE arrived early in the administration. The early word was they were gonna help us with AI. And I was like, “Great, we could use some more resources here.” So, you know, I had this whole list of projects for them and instead I wound up sitting across the table from a member of DOGE and they were like, “So we want to fire all of these statisticians and replace them with the AI.” And I was like, “I don’t think that’s actually possible, but if you can explain to me how it is possible, I am all ears.” And then they would just stare at me blankly and tell me that I was not cooperating with their vision. I was like, “No, I don’t actually understand how you replace a time series statistician with an AI model, but if you can explain it to me, I’m all ears.”

How the actual firing happened:

So it was jobs day for the July release. We had been you know, we’d spent the morning at the Labor Department briefing the Labor Secretary the day before. We had briefed the White House on the data and, you know, by afternoon on a jobs release, things are starting to wind down a bit. And we were having a social gathering in our office for the staff. And I looked down at my phone and I saw that I had missed an email from a reporter, who wanted to ask me about something Trump was tweeting, and I was like, “Oh, let me go check this in my office.” And so I walked down the hall and I opened up this email, and by then I had a few from, I think it was an NBC reporter, and he was like, “Do you wanna comment on this tweet that the president, that he is going to fire you for the jobs numbers?” And I have to say, my first thought was, I thought he was just threatening. I assumed I hadn’t actually been fired, so I started thinking together a calm strategy. I’m like, “Oh, it’s Friday afternoon.” I gotta assemble a team here to, like, deal with this, and I’m already, like, 10 minutes into this thought process. When I look and I realize, oh, I have missed some other emails during this gathering, and one of them was from the presidential personnel office, and it was a termination letter. And I was like, “Oh, I am actually fired.” Okay, that’s a whole different crisis than the one I thought we were entering. It was an unbelievably crazy moment because all, like, while what I just described to you was happening, my phone is completely blowing up, because this has hit the media, it’s on television, people are texting me, people are emailing me, my family is calling me, like everyone is just reaching out all at once and my phone is just, all my phones are just buzzing and buzzing and buzzing and buzzing. And it was just wild.

What’s next for federal statistics?

So the interesting thing about the US statistical system and particularly economic data is you have to keep two thoughts in your head simultaneously. And one is that US economic data is actually very, very good. … It is the envy of the world. The richness of the data, the timeliness of the data, it’s really hard to match. If you do international comparisons, you’ll discover very quickly how advantaged we are. The other thing that you have to keep in your head is that the system is in a certain amount of danger in terms of its sustainability. And those dangers are fiscal. So the costs of fielding surveys are increasing, but the budgets are not keeping up with those costs. The others declining response rates. It’s harder to reach respondents, that’s true for households and businesses. …

I worked in [data] modernization for at least 15 years, and there’s a lot of things that we can do to shore up the survey-based collection system that we have from the 20th century. The most promising avenue for modernizing statistics is, like, what we often refer to as a blended data approach, where you ask the respondents the things that are otherwise really hard to collect. So unemployment is probably a key one here. So unemployment, you really have to go to a household and find out what they were do, like were they working? If they weren’t working, were they seeking work? There’s no administrative solution to this problem because lots of people who are sitting at home not working are doing other things. They’re taking care of small children. They’re taking care of elderly relatives there in school. And so you don’t really know why people are out of the labor market unless you ask them, and if they’re trying to get in. On the other hand, there are domains where, like wage and salary income, where we have a lot of rich administrative data, and we know that this is something respondents really don’t like providing themselves. And so you can use, like, IRS data, unemployment insurance, wage record data to help fill in and take response burden away from individuals. So you just, you have to go sort of item by item in terms of the potential for this other, like, alternative data where it can fill in.

If you were designing a job search for an economist to lead the way in actually nuts-and-bolts job of updating the federal statistical apparatus, it would be hard to do better than McEntarfer. As she points out, firing the statisticians is actually a lasting blow to the credibility of government statistics:

Ishould explain one reason I assumed this was just a threat [to fire me] and not an actual execution of a firing is because firing your chief statisticians is a shock to trust in your economic data that has real economic consequences. So it’s not something you really want to do as a rule. So I assume somebody was gonna, you know, tell him actually you don’t want to do that. … [T]he economic community immediately realized the consequences. Many, many people spoke out in the aftermath of my firing, both defending my work, but also just saying, “You do not want to do this.” Like, this is countries where they have fired their chief statisticians, Argentina, Greece, it’s not, it’s just not a good list.

I heard a story some years back about a court case that involved following a blizzard of cross-border financial payments. Apparently, even the lawyers were having a hard time tracking, and the jury was completely at sea. But the lawyers and the judge all knew that only one thing actually mattered in the trial. Would the prosecution at some point be able to say the words “Cayman Islands” in front of the jury? If so, the jury would very likely draw an inference that “Cayman Islands finance” meant “guilt,” and thus find the defendant guilty of something-or-other. But if the defense could prevent the words “Cayman Islands” from being spoken in the courtroom,, the blizzard of confusion meant that the defendant would be found “not guilty.” Much legal maneuvering resulted.

I was reminded of the story by a few figures in a paper called “International finance through the lens of BIS statistics: offshore activity,” by  Iñaki Aldasoro, Bryan Hardy, Goetz von Peter and Philip Wooldridge (BIS Quarterly Review, March 2026, pp. 81-96). These figures are from Appendix A to that paper, credited to von Peter and Wooldridge.

For some financial instruments, the source of the funding comes from within a country and the destination of the funding is used within the country. For other financial instruments, at least some of the funding from sources external to the country and the destination of the funding used outside the country. This is called “external [financial] intermediation.” In the graph below, KY in the upper right of the figure is a country code for “Cayman Islands.”

The amount of external financial intermediation in the Cayman Islands is, as shown on the horizontal axis, about 1,000 times as large as the country’s economy. The total size of external intermediation for the Cayman Islands–a country with a national GDP roughly equal to the size of the metropolitan area of Flagstaff, Arizona, or Bangor, Maine–is about $10 trillion dollars–similar in size to the size of external financial intermediation for the entire US economy. (The alert reader will notice that the horizontal axis is rising by multiples of ten, while the vertical axis is rising by multiples of 1,000).

Thus, the Cayman Islands, along with the British Virgin Islands (VG on the figure) are prototypical examples of what are bloodlessly labeled “cross-border financial centers.” Others on the figure include Luxembourg (LU), Bermuda (BM), Jersey (JE), Guernsey (GG), the Marshall Islands (MH), and others.

The red dots are known as “cross-border financial centers,” roughly defined as those areas where external financial intermediation is more than 10 times the size of the economy. Some of these countries close to the top of the figure can be viewed as financial gateways to a larger region: for example, Ireland (IE) and Netherlands (NL) are gateways to economies of the European Union, and Hong Kong (HK) and Singapore (SG) are gateways to China. This red-dot group of countries represented less than 20% of global external finance back in 2000, but is now up around 30% of the total.

There is of course, nothing fundamentally wrong with financial capital flowing across national borders. In the upper middle of the figure, you can see the “global financial center” countries labelled with hollow circles, like the US, Germany, UK, Japan, France, Switzerland, Canada, and China. But in a spirit of gentle inquiry, it seems fair to ask what causes certain economic actors to do so very much business in the cross-border financial centers. In their article, Aldasoro, Hardy, von Peter and Wooldridge make a start at tracing where the external money comes from and goes to in these countries. Often the financial transactions involve what are called “non-bank financial institutions”–that is, companies that receive funds and loan or invest those funds, but are not subject to national or international banking regulations. The ultimate ownership of such companies (and ownership of the companies that own those companies, and so on) is often very hard to determine, which is almost certainly the point.

The US Postal Service has been losing money every year for about two decades, and borrowing money to keep the mail running. Now it has hit the debt limit imposed by Congress. Elena Patel of the Brookings Institutiontells the US side of the story in “What’s next? The US Postal Service’s fiscal crisis: When universal service outlives its financing model” (March 13, 2026) and provides some international perspective in “Postal systems worldwide confront the same financial pressures” (March 10, 2026).

Here’s an overview of the situation. The US Postal Service has a legal monopoly on the delivery of first-class mail. The idea was that the profits from first-class mail could then provide a cross-subsidy to support universal, six-day-a-week mail delivery. But as electronic communication has soared (email and text, in particular), first-class mail has dropped by more than half in the last two decades.

Luckily for the US Service, shipping and packages are up, and also pay a lot more than delivering letters. As a result, total revenue for the US Post Office has been roughly flat. However, because the US Postal Service does not have a monopoly on package delivery, these revenues are less likely to create a profit-stream that can cross-subsidize other Post Office operations.

However, about two-thirds of total USPS spending is on labor compensation and benefits, and while revenues have been flat, total costs have edged up over time.

So what’s to be done? The simplest step is probably for Congress to let the US Postal Service borrow more money, although that of course doesn’t actually address the problem.

Congress could admit that the old model of relying on first-class mail to generate funds for universal six-day service doesn’t work any more. Thus, Congress could let the Post Office shift to, say, delivering first-class mail to everyone, but only three days per week: for example, half the country would get Monday, Wednesday, Friday delivery, while the other half would get Tuesday, Thursday, Saturday delivery. Perhaps package delivery could continue to be daily, everywhere. Or if Congress wants to keep the universal six-day service, it could pay for it with a direct appropriation of perhaps $6 billion per year.

It’s also common to point out that if you take out the cost of obligations to retirees, the US Postal Service would actually be running at break-even, or a little better. But of course, if one could just remove the cost of obligations to retirees, federal, state, and local budgets all over the country would also be a lot closer to break-even. But at least in theory, Congress could take over these retiree costs.

The same decline in first-class mail is happening everywhere. What are other high-income countries doing about it? Patel notes:

In March 2025, Denmark’s state-owned postal operator PostNord announced it would traditional nationwide letter delivery, citing a roughly 90% decline in letter volumes since 2000. … 

In July 2025, the United Kingdom’s regulator approved reforms to the universal service affecting Royal Mail, a privately owned operator, in response to declining letter volumes and sustained financial pressure. The changes preserve six-day First Class delivery but allow Second Class letters to be delivered on alternate weekdays rather than six days a week …

In September 2025, persistent losses and falling letter volumes in Canada led the federal government to instruct Canada Post to begin a structural transformation, authorizing the conversion of four million door-to-door delivery addresses to community mailboxes,

I have no easy answer for the US Postal Service. But it’s been clear for some years now that it’s longstanding business model isn’t workable.

The US semiquincentennial (that is, half of 500 years) will be July 4 of this year, but economists celebrated a 250th anniversary of their own on March 9, marking the original publication date of Adam Smith’s An Inquity into the Nature and Causes of the Wealth of Nations. It’s of course fundamentally impossible to sum up a truly great work that runs more than 1,000 pages (in the edition on my bookshelf) in a quick sentence or a few hundred words. Below, I collected some of my posts over the years about aspects of Adam Smith’s work: just looking at the titles gives a sense of his breadth and insight. But here’s my own radical thought about Smith’s main insight: He was reconceptualizing, what should be meant by, yes, the “wealth of nations.”

Up until Smith’s time, the wealth of a country referred, explicitly or implicitly, to the wealth of its rulers: their stores of gold, the property they owned, the land over which they ruled, the number of soldiers, and so on. Smith offered a radicially different view. Smith argued instead that the wealth of a country was embodied in the abilities and efforts of its ordinary workers and in the consumption levels of average people. Maybe this seems obvious to you? But you are, after all, living in a world shaped by Smith’s great book.

From this point of departure, Smith then dug down into what made average citizens well-off. Yes, Smith pointed out that the operation of decentralized market forces were part of a higher standard of living. Look at the real world, then and now, and it’s impossible to deny the truth of that claim. But Smith also digs down into taxes, spending, education, trade, the role of money, and many other issues. Anyone who claims that Smith was an advocate for unfettered market forces is, to put it bluntly, ignorant and wrong.

It should be possible both to acknowledge that market forces can be extraordinarily powerful and productive, and to seek a deeper understanding of why and how this might be so, and also to acknowledge that market forces have both benefits and costs. The Wealth of Nations is, like the title says, an “inquiry” into these issues. Actual readers of the Wealth of Nations have long recognized the nuance, wide-ranging nature, and openness of spirit in Smith’s discussion. To illustrate the point, here’s the closing paragraph (chopped into smaller paragraphs for readability) of an essay by Jacob Viner based on a speech given on the 150th anniversary of The Wealth of Nations (“Adam Smith and Laissez Faire,” Journal of Political Economy, April 1927, 35:2 pp. 198-232).

Adam Smith was not a doctrinaire advocate of laissez faire. He saw a wide and elastic range of activity for government, and he was prepared to extend it even farther if government, by improving its standards of competence, honesty, and public spirit, showed itself entitled to wider responsibilities. He attributed great capacity to serve the general welfare to individual initiative applied in competitive ways to promote individual ends. … He helped greatly to free England from the bonds of a set of regulatory measures which had always been ill advised and based on fallacious economic notions, but he did not foresee that England would soon need a new set of regulations to protect her laboring masses against new, and to them dangerous, methods of industrial organization and industrial technique. Smith was endowed with more than the ordinary allotment of common sense, but he was not a prophet. But even in his own day, when it was not so easy to see, Smith saw that self-interest and competition were sometimes treacherous to the public interest they were supposed to serve, and he was prepared to have government exercise some measure of control over them where the need could be shown and the competence of government for the task demonstrated.

His sympathy with the humble and the lowly, with the farmer and the laborer, was made plain for all to see. He had not succeeded in completely freeing himself from mercantilistic delusions, and he had his own peculiar doctrinal and class prejudices. But his prejudices, such as they were, were against the powerful and the grasping, and it was the interests of the general masses that he wished above all to promote, in an age when even philosophers rarely condescended to deal sympathetically with their needs. He had little trust in the competence or good faith of government. He knew who controlled it, and whose purposes they tried to serve, though against the local magistrate his indictment was probably unduly harsh. He saw, nevertheless, that it was necessary, in the absence of a better instrument, to rely upon government for the performance of many tasks which individuals as such would not do, or could not do, or could do only badly.

He did not believe that laissez faire was always good, or always bad. It depended on circumstances; and as best he could, Adam Smith took into account all of the circumstances he could find. In these days of contending schools, each of them with the deep, though momentary, conviction that it, and it alone, knows the one and only path to economic truth, how refreshing it is to return to the Wealth of Nations with its eclecticism, its good temper, its common sense, and its willingness to grant that those who saw things differently from itself were only partly wrong.

Here are some of my previous posts over the years about aspects of Adam Smith’s work, looking at both The Wealth of Nations as well as his 1759 book which established his reputation at the time, The Theory of Moral Sentiments. The highest compliment I can pay is not that a work is correct, but that it is endlessly interesting, and Smith’s work reaches that level.

• “Adam Smith on Those Who Wish to Dominate Others” (March 6, 2025)
• “Does the Invisible Hand Work For Honor, Too? A Thought from Montesquieu” (August 22, 2025)
• “Adam Smith and Pin-making: Some Inconvenient Truths” (August 23, 2022)
• “Adam Smith: On the Disposition to Admire the Rich and Neglect the Poor” (December 27, 2021)
• “Adam Smith as a Practical Development Economist” (June 23, 2020)
• “Gifts and Consumer Durables: A Meditation with Adam Smith” (December 24, 2020)
• “Thought on Sumptuary Laws: Adam Smith to Plastic Bags” (March 4, 2020)
• “How Adam Smith’s Idea of the Division of Labor Led to the Digital Computer” (Aust 23, 2019)
• “Joan Robinson on Poets, Mathematicians, Economists, and Adam Smith” (December 31, 2018)
• “Adam Smith on the Conversable Spirit” (January 1, 2018)
• “Adam Smith on the Benefits of Public Education” (September 1, 2017)
• “Adam Smith: The Plight of the Impartial Spectator in Times of Faction” (August 15, 2017)
• “Adam Smith on Human Capacity for Self-Deceit” (July 28, 2016)
• “Adam Smith on Beggar Thy Neighbor” (May 3, 2017)
• “Adam Smith’s Watch-Making Example: Technological Progress Before the Industrial Revolution” (November 3, 2016)
• “Adam Smith on Teaching and Incentives” (August 29, 2016)
• “Adam Smith and the Economics of U.S. Independence” (July 4, 2014)
• “Division of Labor: GM, Toyota and Adam Smith” (February 10. 2014)
• “Adam Smith’s Support for Regulatory Financial Firewalls” (October 17, 2013)
• “Thoughts on the Diamond-Water Paradox” (August 22, 2013)

Want more? Here are links to two articles from the Journal of Economic Perspectives, where I work as Managing Editor, on Smithian topics:

• Persky, Joseph. 1989. “Retrospectives: Adam Smith’s Invisible Hands.” Journal of Economic Perspectives 3 (4): 195–201.
• Ashraf, Nava, Colin F. Camerer, and George Loewenstein. 2005. “Adam Smith, Behavioral Economist.” Journal of Economic Perspectives 19 (3): 131–145.

Asking a question of the generative AI tools often produces a reasonable first draft of the desired output. Sure, it may have some inaccuracies and even hallucinations, but first drafts are always imperfect. It’s up to the author to fix them up. (You may say that your personal first drafts don’t hallucinate. Really? You’ve never produced a first draft where you are sure that you remembered a certain article or quotation or statistic, but when you checked it out while revising the draft, you found your memory was just flatly incorrect?) As someone who has worked for many years as an editor, I like to say that the new AI tools have devalued the ability to produce an OK first draft–because that can now be done so easily in many contexts–but upvalued the ability to add value by editing.

But if you ask AI about specific statistics, this “reasonable first draft” standard no longer applies, because you don’t want a “reasonable first draft” of statistics–you want the actual data from the relevant official source. If you don’t ask in a careful way, the AI tool will not give you what you want.

James Tebrake, Bachir Boukherouaa, Jeff Danforth, and Niva Harikrishnan describe the problem and offer some solutions in “StatGPT: AI for Official Statistics” (International Monetary Fund, March 9, 2026,). The authors carry out an experiment with ChatGPT and other AI tools, asking about basic data on annual economic growth rates in recent years for seven leading economies. They describe their process:

The prompt `Can you generate a table of economic growth rates for the G7 countries taking the data from the latest issue of the IMF’s World Economic Outlook. Can you provide data for 2018 to 2025. Can you provide the output in a CSV file.’ was entered 10 times in the same conversation—10 times in 10 different conversations, and 5 times in the same conversation with a copy of the latest World Economic Outlook loaded in memory (total of 25 prompts).

How accurate are the results? For what seems like a fairly basic query, they find:

Overall, ChatGPT provided a correct response 34 percent of the time when the prompts were entered into the same conversation. The level of accuracy declined to 17 percent when the request was made using unique conversations. When the latest publication of the World Economic Outlook was loaded into ChatGPT, the level of accuracy fell to 14 percent.

The authors offer two solutions. For the short-term, they describe how to use a series of prompts so that the AI tool will start with a broader perspective, focus in on a specific dataset, and then on specific data from that dataset, and in that way retrieve the specific data you want.

For the longer-term, they also dream of building “a true Global Trusted Data Commons—a comprehensive, AI-ready index of official statistics data …” Unsurprisingly to those who know me, I love this idea. Like it or not, lots of people are going to seek an understanding of economic statistics through AI tools. Creating an environment in which these tools will actually work is a public good I can support.

The external challenge for Canada’s economy from President Trump’s acrobatic and erratic tariff policy choices makes headlines; the internal challenges of slow productivity growth show up in economic research and background papers. But for Canada, the internal challenges matter at least as much. The  International Monetary Fund provides an overview of both challenges in “Canada: 2025 Article IV Consultation-Press Release; and Staff Report” (January 20, 2026).

Canada and the United States are the single largest national trading partners for each other. Moreover, the global economy that has been dividing into three main trading blocs–one based around the European Union, one based around China, Japan, and Korea, and one in North America. However, during his first term of office, Trump strongly criticized the North American Free Trade Agreement and negotiated to replace it with the US-Mexico-Canada Agreement. The 2020 USMCA involved relatively modest changes from NAFTA. But upon signing the treaty in 2020, Trump said: “The USMCA is the largest, fairest, most balanced, and modern trade agreement ever achieved.  There’s never been anything like it.” In 2026, Trump now says that the agreement is “irrelevant” for the United States, although I have not yet heard him offer strong criticism of the politicians who so foolishly negotiated and signed off on the 2020 treaty.

Thus, the current external challenge for Canada’s economy is to react to the somersaults of US tariff policy. The IMF analysis is mildly positive on this score: “Canada is adjusting to the largest shift in North American trade policy since NAFTA. The economy has been more resilient than initially feared, supported by USMCA exemptions, resilient consumption, and policy cushioning. Nonetheless, elevated trade uncertainty has weighed on exports, investment, and confidence, reinforcing long-standing weaknesses in productivity and competitiveness.”

Here, I want to focus on those “long-standing weaknesses” that the IMF mentions. The IMF writes:

Canada’s productivity slowdown is a defining constraint on long-term growth and living standards. Despite strong institutions, sound macroeconomic management, and deep global integration, labor productivity continues to lag peers, including other commodity-exporting advanced economies such as Australia and Norway. Output per hour worked is now roughly 30 percent lower than in the United States, with the gap having widened over time. Productivity shortfalls are broad-based but particularly pronounced in technology and service sectors. …

Firm-level evidence shows a steady decline in entry since 2000, with the share of young firms in output falling from about 30 to 20 percent. … Industrial concentration has risen in around half of industries—particularly in mature service sectors such as retail, finance, and transportation—and markups have increased mainly among top firms. Higher concentration and markups are associated with weaker subsequent productivity growth (a 1 percent increase in markups is linked to about a 0.4 percent decline), pointing to structural barriers to competition. Limited turnover at the top suggests entrenched incumbents and fewer disruptive entrants, weighing on aggregate productivity despite high capital intensity among market leaders. …

Despite strong external openness, Canada’s internal market is fragmented by regulatory barriers. Differences in standards, licensing and credential recognition, procurement rules, and marketing regulations create de facto internal borders that restrict the movement of goods and services across provinces. Staff estimates suggest these frictions are equivalent to an average ad valorem tariff of about 9 percent, with barriers particularly high in services often exceeding 50 percent in sectors such as health, education, and retail. These barriers disproportionately affect smaller and more remote provinces by constraining market size and labor mobility. Deepening internal market integration offers among Canada’s highest-return structural reforms. Fully eliminating non-geographic internal trade barriers could raise real GDP by up to 7 percent over time, largely through efficiency gains as resources reallocate toward more productive firms and regions. …

Canada’s innovation performance has declined over the past 15 years (lowest among the G7), despite generous R&D tax subsidies, … R&D subsidies are ineffective when scientific talent is scarce. With a fixed supply of researchers, higher subsidies mainly bid up wages, offsetting cost advantages and limiting gains in technology creation. … Making Canada’s innovation framework effective requires pairing R&D tax support with policies that expand the pool of high-skilled workers—through education, immigration, and skill formation—so that incentives translate into sustained productivity and growth.

There is a tendency for Canadian politicians define themselves relative to US politicians and policies. Blaming foreign influence is always easier than cleaning up one’s one house, on both sides of the Canada-US border. But Canada has its own long-standing internal productivity issues as well.

Global debt is at an all-time high, and the buyers of that debt are shifting to players who are more sensitive to interest rates and risks. The OECD tells the story in its Global Debt Report 2026, subtitled “Sustaining Debt Market Resilience Under Growing Pressure” (March 2026). Here are some snapshots to tell the story.

Total government and corporate bond debt is now about $109 trillion. More bonds are being issued. As as share of global GDP, the combination of government and corporate debt issued during a given year peaked during the pandemic at 28%. However, bond issuance has been on a longer-term rise, from 15% of of global GDP back in 2007 to a projected 23% of global GDP this year. The jump in debt for the higher-income countries that are part of OECD is espeically apparent in recent years.

This figure shows the gross borrowingby governments on the horizontal axis, and the “yield” or expected interest rate to be paid on the vertical axis. The green dots show a combination of high borrowing and high yield in recent years.

The share of longer-term bonds being issued is down, which is typically a sign that the risks of issuing such bonds (and the interest rate that would need to be paid for issuing such bonds) appears to be up.

In this report, what especially caught my eye was a shift in the economic players that hold bonds. This figure seemed useful for organizing one’s thoughts on the subject. It shows the big categories of bond holders. The left-hand figure compares “duration appetite”–or the preference for long-term bonds–relative to whether the bonds are likely to be held to maturity. For example, life insurers like to purchase long-duration bonds; hedge funds and commercial banks are less likely to hold bonds to maturity. The right-hand figure shows that retail investors, exchange-tradded funds, commercial and investment banks, and hedge funds are the most price-sensitive about purchasing bonds.

The underlying story here is that holders of bonds are shifting. During the pandemic, central banks often bought bonds, as can be seen in the figure below. Central banks are not very price-sensitive, especially when buying bonds from their home country. But more recently, the share of bonds bought by price-sensitive investors like households, money market funds, hedge funds, and others is on the rise. If these investors perceive more risk–say, perhaps as a result of geopolitical tensions–they will want higher returns to compensate.

The overall message here is that debt markets are both growing, looking riskier (higher yields and shorter maturities), and increasingly reliant on investors who, unlike central banks, will be highly sensitive to price and risk and not planning to hold bonds to maturity. This doesn’t add up to impending catastrophe, nor anything close, but it’s something to watch. The OECD report notes: “These risks must be carefully managed to ensure that sovereign and corporate bond markets, with a combined size of USD 109 trillion, continue to provide stable financing to governments and corporations. This is especially important as they are set to play an increasing role in funding AI investment and defence spending, at a time when decisions on monetary policy, public debt and pension fund asset allocation are coming under growing pressure.”

There are times when the direction for fiscal and monetary policy is obvious. During the Great Recession in 2007-09, it was clear to most that the Federal Reserve should be reducing interest rates and the federal government should be running larger budget deficits, to counter the effects of the recession. Perhaps this seems obvious? But during the Great Depression in 1932, the federal government reacted to lost tax revenue from higher unemployment with a large tax increase. A year earlier in 1931, the Federal Reserve has raised interest rates out of desire to maintain the gold standard (that is, to keep the same value between US dollars and gold). Fiscal and monetary policy in the early 1930s were rowing together, but in the wrong direction.

Christina D. Romer discusses these and other episodes in “Rowing Together:
Lessons on Policy Coordination from American History” (Hutchins Center Working Paper #105, February 2026). She writes:

It is not enough for monetary and fiscal policy to be well coordinated. They also need to be moving toward the appropriate goal. To put it another way: Rowing together is great when the boat is headed in the right direction; it can be a disaster when the boat is headed in the wrong direction. Coordinated policy was a godsend in 2009; it was a tragedy in 1931. A corollary to this fundamental point is that sometimes rowing in opposite directions can be preferable. At least then, the boat stays where it is rather than move in the wrong direction. If monetary or fiscal policy is going astray, it is vitally important that the other tool of macropolicy be uncoordinated.

The current policy issue is that the federal government is running an expansionary fiscal policy with large budget deficits, and President Trump would like the Federal Reserve to run a more expansionary monetary policy as well with dramatic interest rate cuts. But as Romer points out in her review of historical examples, the US economy has some precedents here worth considering.

First, in the late 1960s and early 1970s, fiscal and monetary policy were coordinated on a substantial stimulus. There was a big tax cut in 1964, then spending increases related to the Vietnam War and social programs (“guns and butter,” it is sometimes called), followed by more tax cuts and spending increased when President Nixon assumed office. Meanwhile, the Federal Reserve was cutting interest rates. The new head of the Federal Reserve under Nixon, Arthur Burns, viewed himself as a political ally for Nixon and cut interest rates further in 1971 to stimulate the economy in the lead-up to the 1972 election.

A prevailing economic theory of that time held that stimulating the economy in this way could lead to faster growth and only modest inflation. That theory went badly off the tracks by the mid-1970s as inflation and recession combined in what was called “stagflation.”

A second example, from the late 1970s and into the early 1970s, was that the federal government kept running large budget deficits, in part in response to the deep recession of 1974-75 and the double-dip recessions from 1980-1982. However, the Federal Reserve under Paul Volcker did not coordinate with an expansionary monetary policy, and instead raised interest rates by six percentage points (!), and kept the rates that high for two years until inflation came down.

A third example, from the mid-1990s was that tax increases and minimal spending increases early in the Clinton administration, combined with the “dot-com” economic boom of the 1990s, led not only to lower budget deficits but to actual budget surpluses for a couple of years. During this time, the Federal Reserve did not raise interest rates, thus keeping a monetary stimuls in place. The overall result of this 1990s policy–contractionary fiscal policy and expansionary monetary policy–was that the US economy managed to dramatically reduce its budget deficits while continuing to grow.

These kinds of examples are what economists have in mind as they consider the current mix of fiscal and monetary policy. Here’s a figure showing the inflation rate on which the Federal Reserve focuses: core PCE inflation. “Core” means that price changes in food and energy are not included, because these fluctuate a lot, and the Fed is trying to focus on longer-term inflationary momentum. PCE refers to “personal consumption expenditures” index, which included more of consumer spending, and using a more flexible formula to allow for substitution between goods, than does the better-known Consumer Price Index measure of inflation.

Inflation spiked during pandemic, under pressure from coordinated strong expansions of fiscal and monetary policy, along with supply chain disruptions. Although core PCE inflation has come down since then, it’s still not yet down to pre-pandemic levels. In this situation, the Federal Reserve is going to be hesitant to cut interest rates dramatically. Among central bankers, the remembrance of what happened when Arthur Burns cut rates in the early 1970s and inflation took off remains crystal-clear.

As best I can tell, the strong preference for the Federal Reserve would be to re-run the 1990s, in which the government made a substantial effort to reduce budget deficits, and the Fed could then make sure that economic growth remained solid by counterbalancing the tighter fiscal policy with looser monetary policy. However, the Fed was also been gritting its teeth back around 2022 for a possible repeat of the early 1980s, when the central bank might need to fight inflation all by itself with a large jump in interest rates. Inflation has come down enough that a large jump no longer seems needed, but remains high enough that a large interest rate cut doesn’t make sense either. The lesson from the early 1970s about not letting a president prod a central bank into interest rate cuts for his own political purposes remains clear-cut, as well.

One provision of the Patient Protection and Affordable Care Act of 2010 created what are commonly known as the “Marketplaces,” which are health insurance exchanges run at the state level, intended to allow those with medium and low incomes to purchase health insurance with the aid of federal subsidies? How are they working out?

Drew DeSilver provides a fact-based overview in “What the data says about Affordable Care Act health insurance exchanges” (Pew Reseach Center, January 22, 2026). Before the pandemic, the exchanges were a mechanism for health insurance coverage for about 10 million people. During the pandemic in 2021, Congress and President Biden passed into law a substantial expansion of the subsidies, and the number of people receiving insurance through the Marketplaces more than doubled to 23 million. “Data from the Centers for Medicare & Medicaid Services shows that the government spent $116.6 billion on marketplace tax credits and subsidies in the 2024 calendar year.” The additional subsidies enacted in 2021 had been scheduled to sunset at the end of 2025, and after considerable political acrimony, they did so.

Here is DeSilver’s quick overview of the health insurance offered by these plans:

All plans sold on ACA exchanges have to cover a set of “essential health benefits,” though the precise services vary by state.

As in the regular insurance market, exchange plans can have different premiums, deductibles, copayments, covered services and reimbursement rates. To help consumers sort through all that, exchange plans are sorted into four tiers, based on how much of patients’ covered health care costs they pay on average (that is, not for any specific customer or claim):

• Platinum: 90% of costs covered, on average
• Gold: 80%
• Silver: 70% (or possibly more depending on income)
• Bronze: 60%

In general, Platinum and Gold plans have the highest premiums and lowest deductibles, while Bronze plans have the lowest premiums and highest deductibles. There also are “Catastrophic” plans, with very low premiums and very high deductibles, but they’re only available to certain people. Fewer than 1% of exchange customers opt for Catastrophic plans.

In some cases, people who choose Silver plans – but no others – can get extra federal subsidies that lower their copayments and other out-of-pocket costs. Those subsidies, which are known as “cost-sharing reductions” and vary depending on income, can raise Silver plans’ payout shares to as much as 96%. Perhaps for that reason, Silver plans are by far the most popular. More than half (56%) of all plans selected on all exchanges during the pre-2025 open enrollment period were Silver …

In 2021, Congress made the premium tax credits more generous and made more people eligible for them. Before these changes, the required contribution percentages ranged from 2.07% to 9.86% of income. Afterward, they ranged from zero percent to 8.5%. The law also extended subsidies to people whose income exceeded 400% of the federal poverty level (which itself varies by household type). Previously, 400% was the upper limit.

Thus, some key questions include to what extent the failure to renew the additional federal subsidies added in 2021 will affect the number of people without health insurance, how much money will the government save, and the extent to which the spike in Marketplace enrollment came from people not actually eligible for the program. The Bipartisan Policy Center summarizes a rang of evidence on these points in “Enhanced Premium Tax Credits: Who Benefits, How Much, and What Happens Next?” (Octover 15, 2025).

It cites estimates that that the decision to extend the 2021 subsidies by a year, though 2026, would have led to to 2.0 million more people with health insurance. As noted a moment ago, because the subsidies already reached people up to 400% of the povert line in some states, and higher after 2021, many of those losing health insurance would have incomes above the poverty line. Extending the subsidies by a year would also have increased the federal deficit by $23.4 billion. Long division tells me that extending the 2021 expandion of benefits through 2026 would have led to an 2 million people with health insurance at an average cost to the federal goverment of $11,000 per person.

In addition, the Congressional Budget Office estimated that about 1.3 million of those receiving health insurance subsidies were not, in fact, eligible for them. The subsidies depend on income reported, but the specific amount of income that makes one eligible for subsidies varies across states. The CBO conclusion is based on observing that the share of people reporting the specific income levels that made them eligible for health insurance subsidies–for example, in many states, income between 105-110% of the poverty level–was much higher in the states where this level of income was necessary to receive the subsidy.

My own sense is that before the pandemic, the state-run health insurance marketplaces were working better than many of their critics had expected. However, a number of the policies enacted in haste during the pandemic deserve reconsideration, and the 2021 expansion that more than doubled the program size is one of them. I hold out no particular hope that a careful reconsideration is politically possible, but research in the next year or two may offer some guidance.