Month: August 2025

Both the budgets and methods of US statistical agencies like the Bureau of Labor Statistics and the Bureau of Economic Analysis have come under political challenge. this double-edged attack raises a question of sincerity: If the real goal is to enable these agencies to update their methods for the information age–for example, to rely less on survey-based instruments and more on administrative data collected for other purposes–then this policy requires an expansion of their budgets. Given the budgets of these statistical agencies are barely a ripple in the ocean of federal spending, raising their budgets would make no perceptible difference in the long-run trajectory of federal spending, deficits, and debt.

On the other hand, if the budgets and staffing of US statistical agencies are to be continually cut, which has been the pattern over the last decade or so and even more ferociously in the present, then expressing a concern that these agencies should update their methods is just empty talk. It gives rise to a reasonable concern that the objection is not to their statistical methods: indeed, one suspects many of those complaining about quality of the output of these agencies don’t actually know the mixture of methods used, and why the result is a combination of early and revised estimates. Intead, the critics tend to praise the economic numbers they like, while claiming that all the numbers they don’t like are just political bias, without any recognition that all the numbers are produced using common methods.

Nathan Goldschlag of the Economic Innovation Group offers “A Q&A with John Haltiwanger,” someone who really knows this stuff, in “US statistical agencies deserve support and funding. They also need to reform” (August 27, 2025). Here are some comments from Haltiwanger:

The U.S. federal statistical system continues to produce timely and high-quality economic indicators, but it is built on a foundation that was largely conceptualized and developed in the mid-20th century. This system remains heavily survey-centric, relying on a mix of high- and low-frequency surveys of households and businesses. With the digitization of nearly all aspects of modern life, administrative records and private-sector digital data are now more accessible than ever. …

At the same time, the current system is under increasing strain and requires fundamental re-engineering. Survey response rates have been steadily declining, a trend that accelerated during the pandemic. Reaching households by phone has become more difficult, and many businesses find that survey instruments — even online forms — do not align with their internal information systems. In a telling development, the U.K.’s Office for National Statistics (ONS) recently suspended (temporarily) the publication of unemployment estimates based on household surveys due to critically low response rates.

Beyond operational challenges, the accelerated pace of economic change increasingly challenges the capacity of current statistical systems to measure innovation and productivity growth effectively. Accounting for the effects of product turnover and quality change in estimates of inflation, real output, and productivity has become increasingly difficult under the prevailing survey-based framework.

Federal statistical agencies are acutely aware of these challenges and the need to modernize. However, the imperative to maintain the flow of official statistics along with the lack of investment and limited resources overall have only permitted incremental steps to modernize. The time has come to invest in a 21st-century statistical system that fully harnesses the potential of the digital economy. Such a system would deliver more accurate, timely, and detailed data while reducing the reporting burden on households and businesses. During the transition, it will be essential to maintain continuity and comparability; for example, legacy and modern systems will need to operate in parallel for a period of time. In addition, a modern system will likely blend survey, administrative, and private-sector data. Investing now is critical to building a future-ready infrastructure for economic measurement.

As one example that Haltiwanger points out, the data on measures of inflation, like the Consumer Price Index, has traditionally been collected by hundreds of actual “shoppers” going to actual stores all over the country every month and recording the prices for a specific selection of items. But as barcodes have become commonplace, it’s now becoming possible to collect barcode data on goods with specific characteristics, along with data on prices and quantities sold of those goods. But redesigning the measure of inflation based on this data isn’t a simple task–and ultimately may not be a cheaper approach, either.

In addition, if the government statistical agencies are going to rely more on data collected by private firms–like actual barcode data from actual consumer purchases stores–there will be questions about making sure that privacy is protected and the data remains anonymized. Again, this seems quite possible, but adds a level of complexity and cost.

For politicians, all that matters in government statistics is the final number that pops out of the calculation. But for statisticians and economists, what matter is spelling out a systematic method that can be used over time to produce comparable results. In addition, a systematic method can be understood, and criticized, and can evolve over time. From this perspective, the actual numbers that emerge at the end of the month or the quarter are less important than using a systematic and well-specified approach to estimating the number.

Aug 27, 2025

The Securities Industry and Financial Markets Association, typically referred to as SIFMA, is trade association: that is, it’s an organization made up of investment banks, asset managers, brokers, and others. Among other rule-setting, lobbying, and public education missions, it publishes an annual databook: this year, the SIFMA Capital Markets Handbook 2025 (July 2025). Here are a few charts that help to convey the size and structure of US capital markets in the global economy.

The two top panels of this figure show global fixed income markets–that is, bonds–for 2024 (on the left) and 2014 (on the right). The US has by far the biggest bond markets in the world, and had about 40% of the global market both in 2014 and 2024. However, it’s interesting to note that the share of global fixed income markets based in China has expanded dramatically in the last 10 years, from 7% to 17.3%. This explosion in debt in China is one of the problems plaguing China’s economy: the borrowing was used to boost measures of economic growth over the last decade, but a number of those building and development projects didn’t work out all that well, and now the debt payments are coming due.

The bottom two panels of the figure show the division of global equity markets–that is, stock markets– in 2014 and 2024. The remarkable fact here is that US stock markets had 37.8% of global market capitalization in 2014, but by 2024, this had risen to essentially half of all global stock market capitalization. American investors have become used to the idea of rising stock markets: the rest of the world, not so much.

But these figures raise a question: if the US is dominating the global bond and stock markets, how do firms in the rest of the world raise money when they need it? The answer is “banks.” To put it another way, US firms are much more likely to be affected by the judgements of outside investors, because they can see the value that these outside investors place on the company in stock market and when issuing new bonds. In the rest of the world, it is more common to have “bank-centered” finance for companies, in which a company has a long-standing relationship with one or a few banks as its way of obtaining capital.

The top panel shows financing for non-financial corporations in the US and the rest of the world. The US and the UK have a more “equity-centered” financial system, while the EU and Japan have a more “bank-centered” system. In China, firms are clearly very dependent on bank loans–mostly from state-owned banks.

The bottom panel makes a similar point focuse just on debt financing. You can see that in the US, when corporations borrow, they do so mainly by issuing bonds. In the rest of the world, when corporations borrow, they do so mostly by taking out bank loans.

There’s a long and heated debate over whether it is “better” for firms to receive their debt financing from a bank that knows the firm well (and may even own stock in the firm) or to rely on issuing bonds to investors in the market. As an American, I’m partial to the bond markets, but clearly, either approach can be functional, as long as the riskiness of loans is properly evaluated and priced accordingly.

In the long run, the standard of living for people in an economy rises as the amount of output produced per hour of work–that is, productivity–rises. There’s reason for concern when productivity in an industry falls for a sustained period of time. In partiuclar, productivity seems to be falling in construction of housing, at the same time that there is widespead public concern that the price of housing is becoming less affordable to those with mid-level incomes over time.

Chen Yeh of the Richmond Fed lays out some basic fact in “Five Decades of Decline: U.S. Construction Sector Productivity” (Economic Brief 25-31, August 2025). The dark solid line shows value-added per worker in the US economy since 1948 (with the 1949 level arbitrarily set to equal 1.0). The solid green line shows value-added per worker in the construction sector alone. Notice that value added per worker in the US economy as a whole and in the construction sector more-or-less tracked each other in the 1950s and 1960s, but since then, value-added per worker in construction has actually dropped over the last half-century or so. (I’ll talk about the meaning of the dashed line in a moment.) Yeh writes:

Similarly, a 2023 working paper estimates that, if construction productivity had grown at even a modest 1 percent annually since 1970, annual aggregate labor productivity growth would have been roughly 0.18 percentage points higher. This difference would have resulted in current aggregate productivity — and likely income per capita — being about 10 percent higher than actual levels.

The lagging productivity growth in construction is not just a US phenomenon. This figure comes from a research paper published by the Australian Government Productivity Commission called “Housing construction productivity: Can we fix it?” (February 2025). As you can see, while the US construction sector is lagging overall economic productivity by the most, other countries are experiencing a gap as well.

So what’s going on here? One obvious question is whether this gap is just a statistical issue, reflecting something about the way that productivity is being measured. For example, in the “value-added per worker” graph, how confident are we that the “labor” measured here includes, say, all subcontractors including undocumented immigrants? Or as another issue, the calculation of value-added per worker requires figuring out how much of the value of, say, a house came from workers vs. other costs of building a house, like materials. If these other costs are overestimated, then the value-added per worker may be underestimated (the dashed line in the first figure above shows the potential result of using one different method of adjusting for non-worker costs over time). But as Yeh points out, studies that have looked into these measurement questions more closely continue, using a variety of alternative methods, continue to find falling productivity in construction.

A plausible explanation here is that, in many urban areas, the ability to do large-scale homebuilding on nearly empty land went away some decades ago. In addition, the rules that impose limits on land use and raise costs of construction have become more stringent. One can imagine a possibility that, even as these other factor tended to push up costs of construction, innovations in materials used or methods of building could have offset these higher costs–but that has not actually happened.

In an essay in the recently released Summer 2025 issue of the Journal of Economic Perspectives, Brian Potter and Chad Syverson” consider the relationship between “Building Costs and House Prices” using US data over a time period reaching back more than a half-century. They find that there has never been a close overall correlation when looking at city-level data between movements of building costs and housing prices. In recent decades, for example, the run-up in housing prices in urban coastal cities from California to New York has not been caused by a corresponding rise in local costs of building. But they also point out that in a number of other cities–Atlanta, Chicago, Detroit, Houston, Minneapolis, and others–the long-term rise in housing prices over the decades has actually corresponded relatively closely to the rise in local building costs.

Finding ways to encourage productivity gains in housing could come in various ways. but one overall step would be to think about ways that builders could take greater advantage of economies of scale, both in allowing and encouraging the building of larger housing projects where that is feasible, and also in allowing and encouraging the use of new technologies in homebuilding (flexible but modular housing?) that could help to bring down costs.

Scott Wolla of the St. Louis Fed interviews Gary Hoover on his thoughts about teaching economics (“Gary Hoover: Teaching with Purpose,” July 1, 2025, transcript available). Here are a few excerpts, but there’s more in the full version:

How he got interested in economics

I’m a student who is in high school, and I’m watching my mother. At times my mother would have up to three jobs that she would work, and she’d work very hard at those jobs. Her mantra to me was: “If you just work hard, we’re going to get ahead.” But that didn’t seem to jive with what I was seeing. I mean, she was working very hard, but we never seemed to be getting that far ahead. I was told that by working hard, this would make one quite financially successful. But if that were the case, then I believed that my mother should be some type of millionaire, maybe even a billionaire, if it was just hard work that was necessary.

I suspected that my mother should have been rich. She wasn’t. So, I went searching for answers to that specific question: Why is it that just working hard didn’t always guarantee moving up the economic ladder? And where did I go to find answers to that question? … I initially thought about economics when I was asking these questions. So, I went to a high school teacher who was actually a social studies teacher. She said, “Look, the questions that you’re asking, about hard work and economic success, they can be addressed through economics.” … What she ends up doing is contacting the only African American economist that she knows—the late Walter Williams. … And she says, “I’ve got this young man who is interested in economics, and he’s asking these questions about inequality and race, and I don’t think that I have the right way to answer him. Could you please answer him?”

What Walter Williams does is he starts sending me his books. Interestingly, he doesn’t know me. He doesn’t know who I am. I’m some kid in a high school in Milwaukee, and he is a distinguished professor at George Mason. But he sends me his books, and we start a correspondence that lasts for the rest of his life.

So, even though later on I become an economist—I go all the way through graduate school—I still keep up with him. Later, our economic reasoning, our economic thinking, really diverged to the point that I don’t think we ended up seeing the world the same way. But I was so grateful that this person who did not know me reached out to me and started sending me books and kept writing back and forth with a high school junior—not corresponding with Nobel laureates—a high school junior who had one simple question about his mom. That was what kept me in economics.

Admiring the toolkit? 

I often tell my graduate students who are getting ready to finish up their Ph.D.s: “Look, my job is to transform you from a student who is looking for the answers to a scholar who’s looking for the questions. I’m actually looking for the good questions—that’s what a scholar does. Because a student needs to be given tools, I’m going to give you a toolbox. I’m going to give you tools that will allow you to find equilibrium and to take the second derivative. So, I’m going to give you a big bag of tools. And then you have to go out as a scholar and find the interesting things to build with them.”

I find economics interesting in that economists are the only people who have a toolkit, but they would build a very nice-looking house and then spend all day admiring the hammer—that I find to be quite odd—as opposed to saying, “Look, look at what I can do with this!”

Would you as a student have wanted to take the class you are teaching as a professor?

We, as economics instructors, need to quit thinking about ourselves in the front of the class and start remembering ourselves back in the class. Would you take a class from you? Are you good enough to teach this class? Are you doing it well enough?

If I went back in time, I’d tell myself [as a student]: “Pay attention, because there are several things I never want you to do when you’re up front. But there are some things I want you to do. So, I want you to watch.” And I’ve got to say that I think I’m at the point where I’m ready to teach previous me. It took only 35 years, but I think I’m ready to teach the class that I could actually appreciate. And I think that that’s where we, as economics instructors, have to be. Would you take your class? Would you?

One of the prevailing ideas that philosophers were trying out in the 17th and 18th century was that the line between personal interest and social good was not always clear-cut. Indeed, there were cases in which pursuit of personal interest was also of benefit to society as a whole. Here’s an example from Montesquieu in The Spirit of Laws (1748), from the 1777 translation into English (Chapter VII, “Of The Principle Of Monarchy,” arguing that in a monarchy, individual pursuit of honor can be socially beneficial. He writes (and note in particular the line I have rendered in boldface type):

A monarchical government supposeth, as we have already observed, pre-eminences and ranks, as likewise a noble descent. Now, since it is the nature of honour to aspire to preferments and titles, it is properly placed in this government. Ambition is pernicious in a republic; but in a monarchy it has some good effects; it gives life to the government, and is attended with this advantage, that it is no way dangerous, because it may be continually checked.

It is with this kind of government as with the system of the universe, in which there is a power that constantly repels all bodies from the center, and a power of gravitation, that attracts them to it. Honour sets all the parts of the body politic in motion, and, by its very action, connects them; thus each individual advances the public good, while he only thinks of promoting his own interest.

True it is, that, philosophically speaking, it is a false honour which moves all the parts of the government; but even this false honour is as useful to the public as true honour could possibly be to private people. Is it not a very great point, to oblige men to perform the most difficult actions, such as require an extraordinary exertion of fortitude and resolution, without any other recompence than that of glory and applause?

Of course, the belief that pursuit of personal interest might also benefit others and society as a whole has been familiar to economists at least since Adam Smith’s Wealth of Nations in 1776. Baby economists nestling in the crib of their introductory economics class are entertained before naptime with Smithian quotations like (boldface mine):

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. 

Or in Smith’s famous passage about the “invisible hand”:

He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

One intriguing part of the Smith “invisible hand” quotation is the phrase “as in many other cases,” which suggests that, in Smith’s view, the phenomenon of an alignment between pursuit of personal interest and a benefit to the broader social interest is reasonably widespread. The modern-day descendents of my wife’s Quaker ancestors, who arrived in what would later bcome the United States some centuries ago, would say that “they came to do good and ended up doing very well.”

Of course, the questions of when and how self-interest aligns with the public interest remain very much with us today. I would also argue that the questions of when the modern pursuit of honor, in the form of broad recognition or “preferments and titles” aligns with the broader public interest also remain with us. It would of course be overly simplistic and incorrect to say that public and private interests are always aligned. But an argument that people should disregard their private interest, while perhaps successful in certain limited communities, has never commanded broad and lasting appeal. Thus, the question for society is what set of social, political, and economic constraints might best encourage a reasonably strong alignment between private interests and social good.

For those interested in the evolution of these thoughts from the 16th up through the 18th century, my own favorite (in my limited reading on this subject) is the 1977 book by Albert O. Hirschman, The Passions and the Interests. (And yes, this is the same person whose name appears in the Herfindahl-Hirschman index used to measure the concentration of a market.)

Here’s the economic problem of antiquities: All over the world, there are historical artifacts buried under land or submerged underwater, or both. Also, there are museums and rich collectors all around the world who would like to possess these antiquities. But of course, the situatin here is more complex than basic supply and demand. Antiquities can have cultural, historical, and scientific importance. There is little reason to believe that treasure-hunters as a group will respect these values.

One simple policy response used in a number of countries (for example, Italy) is to declare that all antiquities are the property of the government. While this policy can satisfy a certain populist instinct, economists will insist, as they do, at looking at the actual incentives in play. In a lower-income country, the resource needed to search for antiquities, to preserve and explore sites, and to set up museums may be quite limited. A government might promise to pay those who discover antiquities, but then fail to do so–and then also fail to preserve and study the antiquities that have been discovered. For example, imagine a farmer who discovers an item while plowing a field, and turns it into the government, which then reacts by seizing the farmer’s land as a possible archaeological site. But the demand for antiquities remains high. The incentives for treasure-hunters to circumvent the government rules about owning antiquities, by secrecy or bribery or some combination of both, will be high.

Is there some form of contract that might help to resolve these conflicts? Presumably, such a contract would support the position that governments own the antiquities within their country (or else such a contract would be a nonstarter in many countries). However, the contract should also provide a potential flow if payments from museums and collectors in high-income countries, which could be used to compensate those who find antiquities, as well as those who preserve, study, and display them. In the Summer 2025 issue of the Journal of Economic Perspectives (where I work as Managing Editor), Michael Kremer and Tom Wilkening suggest “Protecting Antiquities: A Role for Long-Term Leases?” They write:

The use of leases to facilitate the movement of antiquities is not new, and a number of precedents suggest that leases are feasible. These precedents also suggest that the legal and auxiliary institutions currently used for loans between museums can be adapted to ensure that leaseholders exercise proper care to antiquities. A well-known example is the King Tut exhibit, more formally known as the “Treasures of Tutankhamun,” which circulated in the United States and London from 2005 to 2008. The exhibit, which displayed artifacts from the tomb of a boy-king of Egypt more than 3,000 years ago, was leased to a private company which charged $5 million per city and generated proceeds that went to the renovation of the Egyptian Museum in Cairo. The lease agreements for the King Tut exhibit specified transportation, display, and storage conditions, and required insurance for $650 million costing roughly $1 million per city (Boehn 2005). A second example is the long-term lease of two thirteenth-century Byzantine frescoes that were previously stolen from the Church of Cyprus and recovered by the Menil Foundation from the illicit antiquity market. The Menil Foundation restored the frescoes as part of the lease requirements and displayed them from 1992 to 2012, when they were returned to Cyprus. Leases have also been successful in the exchange of artwork. In 2007, the Louvre agreed to lease 200–300 artworks to its counterpart in Abu Dhabi over a ten- year period for $247 million (Riding 2007).

There are obvious practical concerns with contracts for leasing antiquities, but Kremer and Wilkening argue that such concerns are surmountable. My own sense is that trying to ban the forces of supply and demand in the market for antiquities–by simply declaring government ownership–hasn’t worked well. Leases can serve as a kind of controlled safety-valve, providing an avenue for regulated and conditional commerce in antiquities. The authors make the case:

When a market is viewed as repugnant, like the market for antiquities sold and transported out of source countries, a natural political response is to ban such activity and to back up the ban with a push to reduce international demand for antiquities by making collecting them or moving them out of the country socially unacceptable (Elia 1997; Gustafsson 2010; Renfrew and Elia 1993). However, when there is demand for antiquities from high-income countries and supply of antiquities in lower-income source countries, both historical and present experience show that the incentives lead to antiquities moving across national borders.

Allowing antiquities to be exported under time-limited leases allows these demand and supply incentives some scope to function, while also offering an opportunity to protect antiquities and to keep ultimate ownership in the source country. In this essay, we have argued that a lease-based policy offers a flexible approach that will often be superior to the other policies including export bans, discretionary incentive payments, and outright sales. The advantages of leases arise because they can address a variety of issues: the incentives of private individuals with knowledge of antiquities to make their discoveries public; concerns about corruption and shortcomings of enforcement in source countries; resource shortages in source countries that can make it difficult for them to protect sites or to maintain and display antiquities; political imperatives in source countries that may allow antiquities to be displayed elsewhere as long as they are scheduled to return; a potential resolution of long-standing conflicts that involve private and museum collections; and other issues.

As someone who has spent nearly 40 years working as an editor, I’m of course continually on the lookout for statements that praise editors. I know, I know–you’d think it would be easy to find examples of such a widely held sentiment. But it’s harder than you might think. However, in the 100th anniversary issue of The New Yorker magazine earlier this year, Jill Lepore comes through with some sweet music for the ears of editors everywhere (“War of Words: Editors, writers, and the making of a magazine,” February 17 and 24, 2025, pp. 48+). She writes:

Harold William Ross, who founded The New Yorker a century ago, had a rule that no one should ever write about writers, because writers are boring, except to other writers, and he figured the same was true about editors–only it was more true, because no one should even know an editor’s name. … Most editors remain unsung. To be unknown is, ordinarily, to be underestimated. “The only great argument I have against writers, generally speaking, is that many of them deny the function of an editor, and I claim editors are important,” Ross once wrote. For him, editors were worth more than writers in the way that a great batting coach was worth more than a great batter. “Writers are a dime a dozen,” Ross told James Thurber. “What I want is an editor.” Writers were children; editors were adults. “I can’t find editors,” Ross fumed. “Nobody grows up.” …

Ross also found it useful–and this was a pretty clever trick–to tell writers that the more they balked at being edited, the less worthy they were of being published. “The worse the writer is, the more argument; that is the rule,” he informed one very quarrelsome contributor. Stating this rule was an exceptionally effective way of getting a writer to pipe down. Then, too: it happens to be true. (I promise that my editor did not write that last sentence–he doesn’t even agree with it.)

The relationship between an editor and a writer can be as intimate as an affair and as ineffable as a marriage, but is also likely to involve two perfect strangers warily guarding a precise measure of distance: N95-masked and six feet apart, like pandemic shoppers, or flintlock-armed at ten paces, like eighteenth century duelists. “As to your coming to the office, we should be delighted to have you, though I should tell you we aren’t very impressive to look at,” one editor gently warned one of her writers in 1967.

When I first took on the job of Managing Editor of the Journal of Economic Perspectives, back in 1986, one of my fears was that it would involve successive bouts of mortal combat with a string of economist-authors. (Another fear was that the journal would fail to launch, so I would never have an opportunity for successive bouts of mortal combat with a string of economist-authors.) But over the years, I’ve been delighted to discover that the overwhelming majority of JEP authors have been positive and supportive of my editing efforts.

Yes, it does seem true in my experience that the authors who most object to being edited are often in the lowest quintile as writers. And yes, contrary to the common view that editors closely resemble Zeus throwing thunderbolts, we editors remain not very impressive to look at.

A person does not really read Voltaire’s Philosophical Dictionary (1764)–or at least I don’t –but instead surfs through it from time to time, trying to hit some of the high spots. Here are a couple of comments for reflection on a summer’s day, from the 1901 translation by William Fleming.

In the entry under “Presbyterian,” here is part of Voltaire’s reflection on how those of different religions seem to get along just fine in the Royal Exchange, that place where merchants and traders could come together, exchange information, and buy and sell. Voltaire wrote:

Enter into the Royal Exchange of London, a place more respectable than many courts, in which deputies from all nations assemble for the advantage of mankind. There the Jew, the Mahometan, and the Christian bargain with one another as if they were of the same religion, and bestow the name of infidel on bankrupts only. There the Presbyterian gives credit to the Anabaptist, and the votary of the establishment accepts the promise of the Quaker. On the separation of these free and pacific assemblies, some visit the synagogue, others repair to the tavern. Here one proceeds to baptize his son in a great tub, in the name of the Father, Son, and Holy Ghost; there another deprives his boy of a small portion of his foreskin, and mutters over the child some Hebrew words which he cannot understand; a third kind hasten to their chapels to wait for the inspiration of the Lord with their hats on; and all are content. Was there in London but one religion, despotism might be apprehended; if two only, they would seek to cut each other’s throats; but as there are at least thirty, they live together in peace and happiness.

For many of us, neither our daily job nor our neighborhood brings us into regular contact with anything resembling a cross-section of our fellow citizens. To see and interact with a broader group, we need to make a visit to a big-box retailer, or a shopping mall, or a second-hand store, a fast-food restaurant, or the food trucks aligned near a fairgrounds or an art festival. It seems to me an underrated aspect of markets that they offer an arena for cooperative behavior between very different types of people, including walking around in a shared space, standing in line, dealing with those working for sellers, and more.

For one more entry, here is a quotation from Voltaire’s entry on “Money,” touching on aspects of money, inflation, mercantilism, the business of giving financial advice, and public finance:

Provided we have a pledge of exchange for the necessary things of life, commerce will continually go on. It signifies not whether this pledge be of shells or paper. Gold and silver have prevailed everywhere, only because they have been the most rare. … I will not speak of the innumerable adventures which have happened to money since it has been stamped, marked, valued, altered, increased, buried, and stolen, having through all its transformations constantly remained the idol of mankind. It is so much loved that among all Christian princes there still exists an old law which is not to allow gold and silver to go out of their kingdoms. This law implies one of two things—either that these princes reign over fools who lavish their money in a foreign country for their pleasure, or that we must not pay our debts to foreigners. It is, however, clear that no person is foolish enough to give his money without reason, and that, when we are in debt to a foreigner, we should pay him either in bills of exchange, commodities, or legitimate coin. Thus this law has not been executed since we began to open our eyes—which is not long ago.

There are many things to be said on coined money; as on the unjust and ridiculous augmentation of specie, which suddenly loses considerable sums to a state on the melting down again; on the re-stamping, with an augmentation of ideal value, which augmentation invites all your neighbors and all your enemies to re-coin your money and gain at your expense; in short, on twenty other equally ruinous expedients. Several new books are full of judicious remarks upon this subject. It is more easy to write on money than to obtain it; and those who gain it, jest much at those who only know how to write about it.

In general, the art of government consists in taking as much money as possible from one part of the citizens to give to the other.

The last line in particular is pure Voltaire. When I tell people that I work in economics, often their first question is about my predictions for the stock market. Thus, I’m especially fond of Voltaire’s line: “It is more easy to write on money than to obtain it; and those who gain it, jest much at those who only know how to write about it.”

Back in 1974, in the aftermath of the OPEC oil embargo, the National Maximum Speed Law was passed by Congress and signed into law by President Richard Nixon. It required all states to enact a maximum speed limit of 55 miles per hour, or else to face a cutoff of federal highway funding. The goal was to reduce US oil consumption. At the time, advertising campaigns to inform the public of the new speed limit said, “It’s not just a good idea, it’s the law.”

In a similar spirit, the idea that the US Federal Reserve should have a considerable degree of independence from the president and the executive branch is not just a good idea (which it is), but it is also the law. Gary Richardson and David W. Wilcox provide the legislative history in “How Congress Designed the Federal Reserve to Be Independent of Presidential Control” in the Summer 2025 issue of the Journal of Economic Perspectives (where I work as Managing Editor).

The legislative history here goes back to the Great Depression. As Richardson and Wilcox point out, the original design of the Federal Reserve back in 1913, with 12 “regional” Federal Reserve banks and the main branch in Washington, DC, was meant to decentralize monetary power. Indeed, the regional banks had some degree of power to set monetary policy in their own district. But in 1933 during the Great Depression, Congress gave President Franklin Roosevelt temporary control over monetary policy on an emergency basis. Not unexpectedly, Roosevelt liked this control. Thus, in the lead-up to what became the Banking Act of 1935, it was proposed that the president should continue to make decisions on monetary policy.

A leading figure in this argument was Marriner Eccles, a name well-known to those who have studied the history of the Fed–indeed, the Federal Reserve building in Washington, DC, is named after Eccles. He was first appointed to the Federal Reserve Board of Governors in 1934, and ended up serving until 1951–and acting as Chair of the Board from 1936-1948. Eccles pretty much wrote a bill that was introduced in the House of Representatives, proposing that the power of monetary policy should be centralized at the federal level, with the president setting that policy. In support of this position, Eccles wrote:

[A]n administration is charged, when it goes into power, with the economic and social problems of the Nation. Politics are nothing more or less than dealing with economic and social problems. It seems to me that it would be extremely difficult for any administration to be able to succeed and intelligently deal with them entirely apart from the money system. There must be a liaison between the administration and the money system—a responsive relationship.

An Eccles-type bill giving the president the power to set monetary policy passed the House of Representatives, but then ran into the opposing point of view in the Senate, where almost all the witnesses supported the idea of monetary policy being made at the national level, but opposed the idea of letting the president be the one to set monetary policy. As one example, Henry Morgenthau, who was at that time Secretary of the Treasurey, chair of the Federal Reserve Board and a close confidant of President Roosevelt, argued that monetary authority should be “concentrated in an independent Government agency” and should operate independently of “all outside influence—just as independent as you can make it . . . . [like] the Supreme Court . . . . independent of the President. . . . No member of the board could be removed except by impeachment.”

There was concern about political control over monetary policy (given that politicians always have an incentive to juice the economy before elections), and concern that political control might actually mean control by well-organized special interests like banking and financial interests. It was pointed out that central banks of other leading economies were structured to be independent of politics. Thus, the Banking Act of 1935 as passed into law and signed by Roosevelt contained the provisions for Federal Reserve independence that are familiar today: 14-year nonrenewable terms for a seven-member Board of Governors, with monetary policy decision made by a 12-member Federal Open Market Committee that incluced the Board of Governors and the heads of five regional Federal Reserve banks, chosen on a rotating basis.

One reason why Roosevelt was willing to sign this independent Fed into law was that the new Board of Governors would be phased in over time: thus, Roosevelt could continue to have a compliant Board of Governors that he had appointed for at least a few more years.

Given the current gnashings by President Trump and his advisers, who desire more direct power over setting monetary policy, this history is worth remembering. The idea of the president setting monetary policy directly was tried on an emergency basis in the early 1930s. It was then proposed on a permanent basis and thoroughly debated in Congress. However, the Banking Act of 1935 says that political independence of the Federal Reserve is not a good idea, but actually the law.

Of course, Congress retains ultimate control over the Federal Reserve. For example, the  Federal Reserve Reform Act of 1977, signed into law by President Jimmy Carter is typically credited with establishing the “dual mandate” for the Fed: that is, it should seek to pursue both maximum employment and stable prices. (To be technical, the law also requires that the Fed  maintain long-run growth of money and credit and seek moderate long-term interest rates, but if the “dual mandate” is successfully pursued, these other goals will tend to happen at the same time.) Congress could alter the goals for monetary policy and the Federal Reserve if it wished to do so. In addition, Congress can hold hearings and grill the Federal Reserve leadership about budgets and spending plans. Congress assuredly has the power, if it wishes, to alter the law so that Federal Reserve would be required to implement policies set by president and the executive branch.

Some legal questions involve considering very specific circumstances and shades of gray. But unless or until Congress changes the law, the political independence of the Federal Reserve and monetary policy from presidential authority is “black letter law”–that is, it is as close to clear and undisputed as a law can be.

It seems clear that China’s economy is moving from being a technological follower, primarily using technology invented elsewhere, and moving toward generating a greater share of its own technology. But other than pointing to anecdotes or stories of specific companies, how might we measure the extent of this shift? François de Soyres,  Ana Maria Santacreu,  and Ethan Hunt from the St. Louis Fed offer some quantitative evidence based on international royalty payments–that is, the payments made to a company in another country for using the patents owned by that company (“China’s Role in Global Innovation Is Changing,” August 14, 2025).

This figure shows royalty payments received from other countries. The US leads the way, with Germany and Japan in second and third place. China is much lower.

That said, there are a couple of additional points worth noting. Yyou can see that China has shown a substantial jump in international royalty income since about 2016, increasing by a multiple of about seven from 2016-2021. China’s royalty income has now surpassed South Korea (although of course, South Korea’s GDP is only about one-tenth as large as that of China). Thus, the story of China making a transition to being an innovator, rather than a copier of innovations of others, is true–but the extent of the transition is limited. To put it another way, total international royalty payments received by US firms are about 0.6% of US GDP; in contrast, total international royalty payments received by China are about 0.07% of China’s GDP.

I’d also add that discussions of international trade often focus on imports and exports of goods, or of goods and services combined, but often leave out financial flows like royalty payments–which is clearly one of the ways that US firms benefit from their research and development efforts.