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The federal budget for collecting statistics has been dropping for years, and the Trump administration is continuing that trend. The American Statistical Association has been working on a project documenting and discussing the trend called ASA FedStat Health Project. The project back in 2023, during the Biden administration. The final report called The Nation’s Data at a Crossroads: Assessing the Health of the Federal Statistical Agencies is apparently due this fall, but in the meantime, there’s a “Year Two Status Report” with updates through July 2025.

I’m as much in favor of trimming unneeded federal spending as the next person, perhaps even more so, but when it comes to federal spending on statistics, there just isn’t much meat on the bone. As the ASA reports:

Collectively, federal statistics cost about $7 billion in a non-census year—just
0.1% of total federal spending and less than 0.03% of GDP. Roughly half of
this amount is for the 13 principal federal statistical agencies. … [F]rom
2009 to 2024, inflation-adjusted budgets for most principal statistical
agencies fell by 14%, while other nondefense discretionary spending
rose 16% …

With the additional energy for cutting these agencies from the Trump administration, the consequences are starting to show.

As one example, consider statistics from the US Department of Education. I’ll just note here that personally, it seems to me that creating the Department of Education as a separate cabinet-level agency, rather than the previous structure of having it as part of the broader Department of Health, Education, and Welfare (now Health and Human Services) was probably a mistake. The federal role in education, for better or worse, is quite small. But one place where the federal government is well-positioned is to serve a central repository for all of the state-level data, which then allows for tracking patterns over time and making comparisons across states. But the National Center for Education Statistics (NCES) is now down to three staff members. In addition, the National Assessment of Educational Progress (NAEP), sometimes called the “Nation’s Report Card,” provides test scores across the states in reading and math. It used to do so for children at ages 9, 13, and 17–except that the age-17 evaluation has now been cut for budgetary reasons. But hey, does it really matter if we know much high schoolers have learned?

Inflation statistics from the US Bureau of Labor Statistics are taking a hit, as well. The Consumer Price Index statistics are based on actual humans who survey prices in actual stores in actual cities. But the number of cities in being cut back. There are also Producer Price Index statistics, except that the indexes for about 350 products are now being cut for cost reasons. But hey, it’s not like accurate inflations affect real-world stuff like, say, annual increases in Social Security benefits or whether your own pay raises are keeping up with inflation.

These examples can easily be multiplied. I’ve tried in some previous posts to explain the foolishness of continually cutting statistical agencies. Federal statistics are of course wildly useful to policymakers, but also to industry, journalists, and citizens. Here, I’ll just note that the statistical agencies face real non-budgetary challenges as well. For example, response rates for federal surveys are dropping (as I’ve discussed here and here), which makes it harder to estimate true underlying values. The vast improvements in information technology and current AI tools make it costlier to protect confidentiality.

If you are someone who believes that federal statistics are imperfect, then welcome to the club, and maybe don’t keep slashing their budgets. If you are someone who welcomes federal statistics that deliver news that you like to hear but grouse that federal statistics are totally politicized when they deliver news you don’t want to hear, maybe grow up and get over that. There is indeed something worse than imperfect federal statistics, which is trying to operate in a modern economy without such statistics. The ASA report summarizes:

Despite our grave concerns about what we have witnessed through July 2025—including data that are no longer collected and products that are no longer being published—at present we are confident that data users can trust the federal statistics that are still being released. We have not seen any meddling by the Executive Branch in the underlying data or published estimates. … Yet continued staffing and budget reductions for the statistical agencies could affect quality in the future. We are at an inflection point … [W]hat we have observed is uncoordinated and unplanned reductions with no visible plan for the future.

I’ve written about the importance of federal statistical funding a number of times ovr the years, although not recently. Those would like more might begin with:

• “How Economic Statistics are Being Transformed” (May 31, 2019)
• “`In Order That They Might Rest Their Arguments on Facts’” (March 29, 2017)
• “Death of a Statistic” (February 27, 2014)
• “Eliminating the Statistical Abstract?” (January 17, 2012)

The ongoing paradox of the US health care system is that US per capita spending on health care is much higher than any other country, but the results in terms of gains to US health don’t seem to stack up. Lawson Mansell describes the problem and offers some solutions in “Health Care Abundance: A Supply-Side Agenda” (Milken Institute Review, Third Quarter 2025, pp. 36-47).

To illustrate the problem, consider the category of “treatable deaths,” a statistic compiled by reseachers at the OECD. The idea is to leave out all deaths that happen over the age of 75, and focuses only on deaths from causes that could have been treated” with more effective and timely healthcare interventions. To be clear, this is a separate category from “preventable” deaths. The OECD writes:

The main treatable cause of mortality in 2021 was circulatory diseases (mainly heart attack and stroke), which accounted for 37% of premature deaths amenable to treatment. Effective, timely treatment for cancer, such as colorectal and breast cancers, could have averted a further 23% of all deaths from treatable causes. Respiratory diseases such as pneumonia and asthma (11%), as well as diabetes and other diseases of the endocrine system (10%) are other major causes of premature death that are amenable to treatment.

Mansell presents a graph with health care spending as a share of GDP on the horizontal axis, where it’s no surprise to see the US way above other countries. The vertical axis measures the treatable death rate, and given the high US levels of health care spending, it’s disconcerting to see that the US is an extreme outlier in this category.

Mansell offers a bunch of suggestions to hold down US health care costs. Some I like better than others, but here are two of the suggestions that seem worth attention. The first involves how Medicare pays more for the same health care if its delivered in a hospital than in a doctor’s office. Mansell writes:

Medicare is the source of a doozy of a perverse incentive blandly labeled site-based billing. Specifically, Medicare offers different reimbursement rates for different types of facilities providing the same service. In some cases, Medicare pays hospitals nearly double what they would pay a freestanding physician’s office. Even for routine services like X-rays, rates are up to four times higher for Medicare in hospital outpatient departments. Site-based payment discrimination has led hospital systems to acquire independent physician offices where they can collect more simply by labeling an off-campus facility as a hospital outpatient department. Indeed, all told, Medicare could save an estimated $127 billion over 10 years if site-neutral payments for routine services were extended to all hospital outpatient departments. 

Lawson also emphasizes the importance of having more primary-care physicians. A cross-country comparison shows that the high-spending US health care system is also heavy on specialist doctors:

Lawson emphasizes that the US system for educating future doctors tends to drive them toward specialized career choices.

Becoming a doctor in the U.S. requires anywhere from 11 to 19 years of postsecondary education and training. U.S. doctors subsequently graduate with an average of over $200,000 in debt with no guarantee of a residency that’s well matched to their skills, locational preferences or interests. In contrast, medical students in Europe go through a dedicated six-year training program.

My own sense is that, in the US system for educating doctors, the idea of shifting back to a system that emphasizes primary care is a horse that left the barn several decades ago. Instead, I’d like to see substantial growth of the primary care health care services that can be provided by nurse practitioners and physician assistants. Overall, refocusing a share of the very high levels of US health care spending on reducing deaths from treatable (and preventable) causes doesn’t seem like an unreasonable ask.

There’s a game played about reducing US carbon emissions that I find annoying. It involves making a big deal about announcing timelines, but not actually taking the steps needed to meet those timelines. For example, as President Biden was leaving office late 2024, he annouced a goal that the US economy would be net-zero for carbon emissions by 2050. Or at the state level, California announced that zero-emissions cars would be two-thirds of all cars sold in California by 2030 and 100% of all cars sold in California by 2035.

Well, how is that going? Here’s the figure from a 2024 EPA report showing US greenhouse gas emissions from 1990 to 2022. As you can see, there’s a modest rise from 1990 into the early 21st century, and then a modest decline since around 2007. But at least for me, it’s pretty hard to look at that figure and extrapolate to net-zero emissions by 2050.

For those who view carbon emissions and the risks of global warming as existential issues, this figure should suggest that the timetables for when the US will have all zero-emission cars and net-zero carbon emissions is so far mostly fluff and foofaraw, and the actual on-the-ground progress on reducing greenhouse gases is not very impressive so far. Indeed, most of the US reductions in carbon emissions can be traced to burning less coal and more natural gas. Moreover, the very modest levels of US progress in reducing greenhouse gas emissions have an even more modest effect from a global perspective, given that China is 31% of global carbon emissions and rising, while the US economy is 13% of global carbon emissions and falling.

Global trade imbalances got bigger in 2024, driven by the big economies. Here’s a figure from the External Sector Report: Global Imbalances in a Shifting World, from the IMF (July 2025). The horizontal axis shows trade balances in 2023. Looking at the horizontal axis, the US has by far the largest trade deficit in 2023, while China and the “EA,” or euro area, have the biggest surpluses. Looking a little more closely, you can see that the DEU point for Germany is quite similar on the horizontal axis to EA, showing that most of the euro area trade surplus in 2023 was due to Germany alone.

The vertical axis shows the change in the trade deficit from 2023 to 2024. As you can see, the US started with the biggest trade deficit in 2023, and also experienced the biggest fall in its trade deficit in 2024. Conversely, China and the euro area started with the biggest trade surpluses in 2023, and also experienced by far the biggest rise in trade surpluses in 2024. Looking more closely, Germany’s trade surplus (the DEU point) didn’t rise much in 2024, so most of the 2024 increase in the euro area trade surplus must be traceable to other countries.

Tariffs and trade barriers cannot reasonably be the source of the changes in 2024, becusae they did not, in general, shift in any dramatic way in 2024. So what are the primary factors behind these changes?

The IMF report breaks it down this way. For the US economy, there were two main reasons why its trade imbalance worsened in 2024. One was. perhaps unexpectedly to the uninitiated in economics, that US investment levels went up. But if foreign investors are putting money into US investments, they are not purchasing US exports. The other reason is a decline in US public saving–that is, more government borrowing. Again, if foreign investors are buying US Treasury bonds, they are not using those funds to purchase US exports.

Conversely, in China and the euro area, the main factor driving the higher trade surpluses was a combination of weak economies and a declining level of investment. As the IMF writes:

Changes in investment rates uniformly contributed to widening saving-investment gaps, with an increased investment rate in the United States widening the current account deficit, and a decrease in key surplus regions (China, the euro area, and Japan) expanding the surpluses. These changes in investment partly reflect divergent domestic demand conditions in 2024 relative to 2023: continuing real estate correction and weaker demand in China, deteriorating conditions in the euro area, and strong growth in the United States.

The economic connections here may be unexpected to those uninitiated in economics, so let me spell them out a little. Imagine that the US economy is growing faster than the economies of other countries. In turn, this means that demand for goods and services is growing faster in the US economy than in other countries. As a result, it will be easier for foreign producers to sell into the faster-growing US market than it will for US producers to sell into the slower-growing foreign markets. Thus, at least in the medium run of a few years (and leaving out factors like interest rate or exchange rate adjustments), a relatively fast-growing US economy will tend to have bigger trade deficits (more growth in imports than in exports).

Indeed, this dynamic is one reason why large US government budget deficits tend to lead to larger trade deficits. The larger budget deficits stimulate demand in the US economy–which includes demand for imports as well as domestically-produced goods.

When it comes to investment, the Trump administration regularly announces with some fanfare that firms or investors in countries have agreed to make investments in the US economy. But where do the foreign parties get the US dollars to make those investments in the US? Of course, it’s from selling imports to the US, and not buying an equivalent number of exports. In this way, the Trump administration goal of high and rising foreign investment in the US economy can only work if other countries have a trade surplus with the US economy.

The IMF report also points out that the global economy is shifting toward more restrictions on trade, along with greater use of subsidies for domestic industries. Here’s a count of the number of these provisions. Of course, international trade is based on the idea of buying goods and services with the preferred combination of price and quality from anywhere in the world. Hindering or blocking trade, and replacing it with government subsidies, is based on the idea that firms will experience higher gains in output if they compete for government subsidies rather than for global and domestic market share.

Ultimately, trade imbalances are about big macroeconomic factors, not tariffs or “fairness.” Thus, to address the imbalances, the IMF points to macroeconomic changes:

• Economies with stronger than warranted external positions should focus on policies that promote investment and limit excess saving. In China, expansionary fiscal policy, to support consumption by scaling up social spending, and market-oriented structural reforms, including a scale-back of industrial policies, would help reduce excess saving. Structural policies that promote investment, for example by improving the business environment, liberalizing the FDI regime (India) and easing regulatory hurdles (Poland) can help external rebalancing. In some cases, expansionary fiscal policy is needed to invest in transportation and energy (Germany), and to spend on health care and human capital (Singapore). Improving social safety nets where needed would promote private consumption and help decrease the need for excess saving.
• Economies with weaker than warranted external positions should focus on policies that boost saving and competitiveness. In the United States, fiscal consolidation, that together with growth-enhancing easing of regulatory burden puts the debt-to-GDP ratio on a downward path, would increase public saving, supporting rebalancing.

Many of the arguments for risings US housing prices relate to events in metro areas. For example, some metro areas like Manhattan and San Franciso have limited land on which to build. Add in rising demand for living in these locations and rules that limit building, and the result is housing prices that rise faster than incomes. Another set of arguments is that in certain destination cities, either big US financial corporations or high-income foreign buyers or investors in short-term rental properties are looking to purchase homes, thus driving up prices.

But in most rural areas, none of these issues really apply . Land on which to build is plentiful, building codes usually aren’t highly restrictive, and buyers from outside the local area are not scooping up properties with the same vigor. But in rural areas, housing prices are rising faster than income anyway.

The Council of Economic Advisers provides a fact sheet showing some of the overall patterns in “The Deterioration of Housing Affordability in Rural America” (March 2025). The first figure shows income and rent for median-income rural renters; the second figure shows income and housing prices for median-income rural homeowners.

(For those interested in detail, “rural” is often defined as “not in an urban area.” CEA writes: “For purposes of this analysis, a rural area is one in which the population density is less than 250 people per square mile.3 With this definition, the estimated rural population in the United States in 2023 comes out to 58 million people, very similar to other estimates.)

It’s not at all obvious why this is happening. One possible explanation, for example, is that the new housing in rural areas has tended to be much more expensive than earlier housing, thus pushing up the average price. But if this was a big factor, then the average age of rural housing should be declining–as a result of this new building–and instead, the average age of rural housing is rising.

Another possible explanation is that the sustained period of low interest rates has cause homebuyers everywhere to feel that they could afford to pay a higher purchase price for a home–because the lower interest rate would hold down their monthly mortgage payments. But it’s not clear why this factor should affect rental housing. Also, if the supply of housing shifts only slowly, then households willing to spend more can drive up price. But shouldn’t the supply of housing in rural areas–with plenty of land and lower levels of regulation–be able to respond to any surge in demand? Or are regulatory constraints on building in rural areas stronger than I have previously believed?

The CEA doesn’t offer an answer here. But the report does point out: “Where housing is expensive and scarce, businesses also face greater difficulties recruiting and retaining workers. Rural America has much to gain if progress can be made revitalizing the growth of housing supply to drive greater affordability …”

Greg Mankiw delivered the Martin Feldstein Lecture at the Summer Institute of the National Bureau of Economic Research on the subject, “The Fiscal Future” (July 10, 2025, video here, text here). He notes:

Herbert Stein once wisely said that “if something cannot go on forever, it will stop.” And I have no doubt that this path of a rising debt-to-GDP ratio will stop at some point. The open questions are how and when it will stop. That is what I would like to discuss with you today. There are only five ways to stop this upward trajectory. They are (1) extraordinary economic growth, (2) government default, (3) large-scale money creation, (4) substantial cuts in government spending, and (5) large tax increases. I would encourage you to try to assign probabilities to these possible outcomes. Individually, each of these outcomes seems highly unlikely. But the probabilities you assign must sum to at least one. I say “at least” because more than one of these outcomes could occur.

It’s perhaps worth a pause here. My suspicion is that many readers will have two sets of probabilities to assign: one is what you would like to happen, and the other is what you think will actually happen through the US political system. Mankiw offers some thoughts on each option.

1) Extraordinary economic growth?

If economic growth leaped from its historical annual average of 2-3 percent all the way to, say, 6-8 percent, then the denominator of the debt/GDP ratio could rise fast enough that the overall ratio would fall. But 6-8 percent growth rates are only experienced in relatively small and relatively low-income economies making a big jump forward. There isn’t any precedent for a high-income technology leader to sustain this kind of explosive growth: remember, at a 7 percent annual growth rate, the US economy would be (roughly) doubling in size every decade.

2) Government default?

It is sometimes said that it is inconceivable for the US to default on its debt. But ion th 1930s, when many US bonds were written in a way that the lender could demand repayment in gold, President Franklin Roosevelt unilaterally dumped that part of the contract, and the US Supreme Court backed up his power to do so. As Mankiw points out, there’s a guy named Donald Trump who has been willing to entertain the option of a federal debt default. Mankiw quotes a comment from Trump from a descriptio n of a 2016 interview. Trump said:

“I’m the king of debt. I’m great with debt. Nobody knows debt better than me. I’ve made a fortune by using debt, and if things don’t work out, I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.”
“How do you renegotiate the debt?” the journalist asked.
“You go back and you say, hey guess what, the economy crashed. I’m going to give you back half.”

3) Large-scale money creation?

If a central bank creates high inflation, then the value of past debt will decline. Mankiw says:

It is worth noting that Donald Trump has made clear that he believes the president should have more authority over monetary policy—an idea most economists reject. Last month, Mr. Trump even publicly mused about appointing himself to the Fed. And he has consistently pushed for more expansionary monetary policy. … It is unclear whether future Federal Reserves will have the fortitude to stand up to a demanding and belligerent president. So I wouldn’t rule out the high-inflation scenario.

4) Substantial cuts in government spending?

As Mankiw says: “Many people favor this alternative, at least until they consider the details of what it means. … When thinking about the federal budget, it is best to recall a quip from Peter Fisher, a Treasury official in the George W. Bush administration, who once called the federal government `an insurance company with an army.'”

The cold arithmetic is that if cuts in federal spending are going to be truly substantial, they will have to be applied to Medicare, Medicaid, and Social Security. More specifically, it would be necessary to reduce the projected future spending increases in these programs–even as the number of elderly Americans is on the rise and health care costs keep going up. Whether going after public broadcasting and foreign aid spending is sensible or not, there just isn’t enough money in those programs to come anywhere close to altering the US debt/GDP trajectory.

5) Large tax increases?

Mankiw views this option as “the most likely outcome in the long run,” in part because the other options seem “implausible or unacceptable,” He says:

To close a fiscal gap of 4 percent of GDP with only increased revenue, the United States would need to raise overall tax revenue by about 14 percent. That is a huge tax hike, but it would bring us only about halfway toward the level of taxation that prevails in the United Kingdom. U.S. taxes would remain below the OECD average and well below the levels in France, Italy, and Sweden. From a strictly economic standpoint, that is entirely feasible. … [T]here is now a bipartisan consensus about a central tenet of tax policy. The Republicans don’t want to raise taxes on anyone (except universities with large endowments). The Democrats want to raise taxes only on the richest 1 percent. So, the two parties essentially agree that 99 percent of Americans should not have to endure higher taxes. This bipartisan consensus is the roadblock between where we are and where we need to go.

At some point, the US debt/GDP trajectory will not be sustainable, and some mixture of these five options will be deployed. But it’s one of those problems where I can’t promise you that it will be disaster next month, next year, or even in the next decade. Instead, the growing debt will drive down the US growth rate by a few tenths of a percent each year, which gradually accumulates until American start asking: “When did the US economy lose its ability to grow?” The choices needed to prevent a continual rise in the US debt/GDP ratio aren’t expecially palatable. However, if the investors of the world eventually become unwilling to buy US Treasury debt unless they receive a substantially higher interest rate to account for what they perceive as a substantially higher risk from a growing debt/GDP ratio, the economic dislocations and the choices that would be forced upon US policymakers and citizens in a short time period are grim to contemplate.

There’s a well-known approach in politics when one agency wants another agency–not under its direct control–to do something. You first try to soften up the resistance of the other agency by accusing them of stuff. It’s even better if the accusations have some substance behind them, but really, all that matters is that the accusations put public pressure on them. When their public persona is tarnished and their resistance is weakened, you then follow up with what you actually want. The softening-up process is underway at the Federal Reserve.

Jay Powell’s four-year term as chair of the Federal Reserve expires in May 2026, although his 14-year term on the Fed Board of Governors lasts through January 2028. The softening up is about Federal Reserve staffing and budgeting. But President Trump would clearly prefer that the Federal Reserve be less independent, and instead would coordinate with the wishes of the US Treasury and the President.

For example, Treasury Secretary Scott Bessent is apparently one of the possibilities to replace Powell as Fed chair. In a recent interview with CNBC, he said:

I think that what we need to do is examine the entire Federal Reserve Institution and whether they have been successful. … The Fed, as well, deals with monetary policy, regulations, financial stability. And again, I think that we should think, has the organization succeeded in its mission? You know, if this were the FAA and we were having this many mistakes, we would go back and look at, why has this happened? … [Y]ou know, all these PhDs over there, I don’t know what they do. I don’t know what they do. This is like universal basic income for academic economists.

So is the Fed overstaffed? Here’s total Fed employment, including both the Washington, DC, office and the 12 regional Federal Reserve banks.

I cannot claim to have made an intense study of annual fluctuations in Fed employment levels. But in a big-picture sense, the overall drop in Fed employment in the first decade of the 21st century is partly due to a dramatic decline in the use of paper checks. One task of the Fed behind the scenes is to run the US system of payments, so that when a person or organization with accounts at one bank wants to make or accept a payment from a person or organization with accounts at another bank, the Fed keeps track of these transactions. Fewer paper checks meant fewer workers needed. In addition, the spread of email and voicemail mean that a number secretarial and support positions were eliminated.

In 2010, the Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank Act, was signed into law in the aftermath of the Great Recession. A number of provisions of the act gave the Fed a more central and leading role in bank regulation and supervision, as well as some oversight of credit card companies, mortgage and car lenders, and others. With those additional responsibilities, the number of employees expanded. Circa 2023, the reason for the turndown in employment seemed focused on technology jobs in the Fed, and a sense that new technology was requiring fewer people to run the systems.

Out of the total employment of about 21,000, the Fed employs about 400 PhD economists in its Washington, D.C. office and another 400 or so at the regional Federal Reserve banks.. If one was to take seriously Bessent’s comment he doesn’t know what Fed economists do–and I don’t recommend taking the comment seriously–then he should either fire some staff or resign himself. After all, any decent Secretary of the Treasury would know perfectly well how the Fed works and what the PhD economist are doing.

I’ll offer a bit of help to the US Secretary of the Treasury here by pointing to this “Meet the Researchers” webpage where the Fed lists researchers and links to their research. Also, a substantial number of the PhD economists at the Fed are not researchers or economic forecasters, but instead work in other activities of the Fed like payments, bank supervision and financial regulation, addressing financial instability (say, at the worst economic points of the pandemic or the Great Recession, when it looked as if the US financial system could seize up and fail to function), and so on.

There are legitimate questions to raise about whether the Fed should be trimming back further on its staff, both in DC and in the regional Federal Reserve banks. But by international standards, at least, the Fed doesn’t seem dramatically overstaffed. Benjamin Kingsmore at the Bank Underground website puts together the following chart showing a breakdown of how the 480,000 or so people who work at central banks around the world.

The other main pressure point for softening up the Fed is the cost of the the overhaul of its main building, which was originally estimated at a shade under $2 billion but now is apparently coming in at about 30% over budget. This is roughly the same as the cost of the new football stadium for the Buffalo Bills being built in upstate New York.

You can look here for a Federal Reserve website defending and explaining the costs and overruns. I have no particular desire to defend the cost or the overruns. From what I can tell, they trace back to a desire to not just refurbish and overhaul the earlier building, which was probably needed, but to decisions about what features should be preserved or added. As one example, the original facade was marble, which is heavier and costlier than granite, so the decision to re-do in marble (and bronze) raised costs. There are also added features, like a glass atrium and a rooftop garden.

For a critical but well-balanced overview of the Fed issues with staffing, pay, and building plans, a useful starting point is an essay by Andrew Levin, “Is the Federal Reserve Overstaffed or Overworked? Insights from the Fed’s Financial Statements” (Mercatus Center, March 27, 2025). The tone of his discussion is well-summarized by the the subheading: “The Fed has gargantuan payrolls and building upgrades. Time for an external review.” More recently, Levin has also written a follow-up critique of the costs of the Fed overhaul of its DC headquarters. For a taste his perspective, Levin writes:

[T]his initiative is properly characterized as an upgrade rather than an expansion or renovation. Indeed, the cost of this initiative far exceeds that of a simple update to internal building systems such as wiring, cables, plumbing, and ventilation. The Fed Board campus will be enhanced by various amenities such as glass atriums and rooftop garden terraces, with only minimal changes in the number of offices for employee occupancy.

Thus, I’m not arguing that everything is hunky-dory with staffing and pay at the Fed, or that the cost of the headquarters overhaul is justified, or in general that Fed budgets don’t deserve oversight and scrutiny. I am arguing that the reason these issues are rising to prominence right now is because they are an attempt to soften up the Fed (and to some extent the public) for a bigger agenda, which is to bring the Fed under political control of the Treasury and the President.

Here is where the rubber hits the road. This goal isn’t especially hidden. For example, here’s Kevin Warsh, another front-runner for the Fed chair position:

We need a new Treasury-Fed accord, like we did in 1951 after another period where we built up our nation’s debt and we were stuck with a central bank that was working at cross purposes with the Treasury. That’s the state of things now … So if we have a new accord, then the Fed chair and the Treasury secretary can describe to markets plainly and with deliberation, ‘This is our objective for the size of the Fed’s balance sheet.’

For those not up on their 1951 Fed-Treasury accord history, the Federal Reserve saw its mission during World War II as helping the federal government keep its borrowing costs low at a time of enormous deficits. But after the war, inflation was on the rise, and the Fed wanted to raise interest rates to stop it. However, the Treasury and President Truman saw no particular reason why the Fed couldn’t just keep interest rates and borrowing costs low forever. Their proposal was that if inflation was a problem, the Fed could set limits on commercial bank lending–and fight inflation in that way. The Fed pointed out that World War II was over, and that the 1935 Banking Act gave them both independence and a mandate to fight inflation.

Bessent’s CNBC interview, which I mentioned earlier, is not quite so explicit about bringing the Fed under control of the Treasury. But in the interview, as well as in other speeches, Bessent’s general tone is that the Fed needs to let the Treasury–and thus the President and the Executive Branch, take the lead.

Just to be clear, the fundamental issue here is that political incentives are not the same as economic realities. Congressional oversight of Federal Reserve spending, as well as setting the main policy objectives of the Fed, is fully appropriate. But the politicians in power pretty much always want lower interest rates, because it will make borrowers happier. Politicians in power–whether back in 1951 or in the present–are pretty much never willing to accept that higher interest rates might be needed to fight off inflation or for long-term financial stability. That conflict in incentives is why pretty much all high-income countries give their central bank a fair degree of independence and a mandate to keep inflation low, rather than leaving monetary policy and bank regulation up to politicians and the electoral cycle.

As a current example of politics at work, when the Federal Reserve lowered interest rates by a half-percent in September 2024, President Trump criticized the cut as a “political move” and much too large. Then as soon as Trump was elected, when the Fed cut interest rates further in November and December, he criticized those cuts as much too small. Now, Trump is calling for the Fed to cut interest rates by a cosmic and extraordinary 3 percent. But a central bank required to serve immediate political needs, with its interest rates and bank regulation decisions, will only end up being blamed by those same politicians when things later go wrong.

I have been asked a surprising (to me) number of times over the years whether the US dollar was in danger of losing its status as the global “reserve currency”–that is, the currency in which most international transactions are denominated. The assumption behind the question is that it’s a good thing for the US economy to have the US dollar as the reserve currency. After all, when imports and exports are denominated in US dollars, US firms involved in international trade don’t need to worry about exchange rates shifting against them. When two non-US dollar currencies are traded in foreign exchange markets, what usually happens behind the scenes is that currency A is first switched into US dollars, and then the US dollars are traded into currency B. With all these functions of the US dollar, many companies, financial firms, and government around the world want to hold a stock of US dollars. Moreover, because investors aroud the world view the US dollar as a “safe asset,” there is a steady demand for US Treasury debt, so the US government does not need to worry (much) that there will not be buyers when it wants to borrow money.

President Trump seems to like the idea of the US dollar as a global reserve currency, too. As one example, at a campaign event last September, the subject came up of other countries that were trying to agree on an alternative currency (or mix of currencies) to challenge the preeminence of the US dollar. Trump said: “You’re not going to leave the dollar with me. I’ll say you leave the dollar. You’re not doing business with the United States because we’re going to put 100% tariff on your goods.”

Thus, I have been surprised to see comments from the Council of Economic Advisers, Steve Miran, to the effect that having the US dollar as the world’s reserve currency imposes substantial costs on the US economy. As one example, consider “CEA Chairman Steve Miran Hudson Institute Event Remarks” (April 7, 2025). For a similar argument made before Miran joined the CEA, see “A User’s Guide to Restructuring the Global Trading System” (Hudson Bay Capital, November 2024). For example, here’s Miran:

Today I’d like to discuss the United States’ provision of what economists call “global public goods,” for the entire world.  First, the United States provides a security umbrella which has created the greatest era of peace mankind has ever known.  Second, the U.S. provides the dollar and Treasury securities, reserve assets which make possible the global trading and financial system which has supported the greatest era of prosperity mankind has ever known. Both of these are costly to us to provide. ….

On the financial side, the reserve function of the dollar has caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits.  These trade deficits have decimated our manufacturing sector and many working-class families and their communities, to facilitate non-Americans trading with each other.

Let me clarify that by “reserve currency,” I mean all the international functions of the dollar—private savings and trade included.  I’ve often used the example that when private agents in two separate foreign countries trade with each other, it’s typically denominated in dollars because of America’s status as the reserve provider.  That trade entails savings housed in dollar securities, often Treasurys.  As a result of all this, Americans have been paying for peace and prosperity not just for themselves, but for non-Americans too. …

But our financial dominance comes at a cost.  While it is true that demand for dollars has kept our borrowing rates low, it has also kept currency markets distorted.  This process has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage, and forcing a decline of our manufacturing workforce by over a third since its peak and a reduction in our share of world manufacturing production of 40%. …

There are other unfortunate side effects of providing reserve assets.  Others may buy our assets to manipulate their own currency to keep their exports cheap.  In doing so, they end up pumping so much money into the U.S. economy that it fuels economic vulnerabilities and crises.  For example, in the years running up to the 2008 crash, China along with many foreign financial institutions, increased their holdings of U.S. mortgage debt, which helped fuel the housing bubble, forcing hundreds of billions of dollars of credit into the housing sector without regard as to whether the investments made sense.  China played a meaningful role creating the Global Financial Crisis. 

Miran’s policy conclusion is that because the US dollar as a global reserve currency is bad for the US economy, other countries should pay the US for their use of the dollar. He suggests that this could happen by other countries paying US import tariffs, or they “can boost defense spending and procurement from the U.S.,” or other countries could reimburst us by building factories in the United States, or other counties “could simply write checks to Treasury.” He has raised the possibility that just as the US would like other countries to share the burden of defense spending, other countries should also share the “burden” of the global reserve currency, perhaps by having a blend of currencies take over from the US dollar.

Miran is asserting a number of economic claims here. But before mentioning them, just notice the overall framing of his argument: the chair of the CEA views the reserve currency status of the US dollar as a cost. In his view, the US economy would be better-off if the US dollar was not the global reserve currency. I do not think this view is widespread, whether among the economists, the US general public, or even among policymakers in the US and around the world.

One of Miran’s implicit claims is that the exchange rate of the US dollar is artificially high, because of the global reserve status of the dollar. Another is the claim that the if the US dollar was not artificially high, it would move in away that would eliminate the US trade deficit. There is a claim that the stronger US dollar is the main source of the decline in US manufacturing jobs. There is a claim that when the US economy and government want to borrow money, then foreign investors who provide that money are “forcing” credit upon the US economy.

I will not try to dissect all of these claims in details, but at a minimum, these claims are highly disputable. For example, while understanding the value of the enormous and volatile foreign exchange markets remains a work in progress, the standard factors that lead investors to buy and sell currencies have to do with changes in national interest rate, inflation rates, and productivity rates. Also, the Federal Reserve can and does adjust the supply of US dollars, and it can take the demand for the US dollar as a global reserve currency into account in doing so.

The standard arguments about the size of the US trade deficit refer to factors like the US being a high consumption and low-saving economy, and thus a magnet for buying imported goods, while China (for example) is a low consumption and high-saving country, and thus focuses on exports. These fundamental patterns of national consumption and saving are not driven by the exchange rate. The argument that a higher US dollar is responsible for the loss of manufacturing jobs is a peculiar one, in the sense that US manufacturing jobs are indeed down–a genuine social issue deserving of a real policy response, but US manufacturing output is not down. The ability of US manufacturing firms to produce output with less labor is the key issue here, which relates both to the use of robots and automation and to an emphasis on US production of more complex and higher-valued goods. There’s no reason to think that it’s about exchange rates.

Miran’s claim that when the US government or US financial market want to borrow lots of money, and it leads to economic stress, the real problem is that foreign investors “force” their funds upon America–well, that claim just seems silly to me. Indeed, Miron apparently wants foreign investors to “force” their money on the US if they are building production plants in the US, but not to “force” their money on the US if they are buying US government debt. Overborrowing in the US economy is fundamentally a US problem, not an outcome forced upon us.

The subject of the US dollar as the world’s reserve currency has other aspects I haven’t touched upon here. For example, the US has been using economic sanctions on Russia based on the international payment system. This is possible because of the central role of the US dollar as a reserve currency, and might well be impractical otherwise. But again, the fundamental issue here is whether the US dollar as a global reserve currency should be viewed as a burden or a benefit to the US economy.

When I was first worrying about public policy issues, back in the late 1970s, discussions of fertility rates often invoked the 1968 best-seller, The Population Bomb, written by Paul Ehrlich. At that time, the global population was about 3.5 billion–roughly half its current level. But the book warned that it was already too late, that population was on the brink of overwhelming food supply and the environment, and that there would be mass famine around the globe in the 1970s. Even by the late 1970s, it was clear that the more apocalyptic predictions of the book were hyperbolic. But there was a multi-year famine in the early 1970s in the Sahel region of Africa (basically, a band across the continent reaching from parts of Senegal and Mauritania in the west to Sudan and Eritrea in the east).

I run into a fair number of people who seem to believe that the forecasts of the Population Bomb were only premature, not incorrect. My own sense is that when you predict impending overpoplation leading to mass famine, but then it doesn’t arrive in the next half-century even as population doubles, the odds are good that your analysis has overlooked some key ingredients. The current global food problem involves issues of both too little and too much: that is, about 9% of the world population is undernourished, but 40% of the world population (many of them in lw-income countries) are obese.

Moreover, the current concern seems not to be focused on overpopulation, but on the consequences of low fertility. The June 2025 issue of Finance & Development, published by the IMF, has several articles of interest about declining fertility rates.

David E. Bloom, Michael Kuhn, and Klaus Prettner provide an oveview of the arguments in “The Debate over Falling Fertility.” They write:

In 1950, the global total fertility rate was 5, meaning that the average woman in the world would have five children during her childbearing years, according to the United Nations Population Division. That was well above the 2.1 benchmark for long-term global population stability. Together with low and falling mortality, this drove global population to more than double over a half century, from 2.5 billion people in 1950 to 6.2 billion in 2000. A quarter of a century later, the world’s fertility rate stands at 2.24 and is projected to drop below 2.1 around 2050 (see Chart 1). This signals an eventual contraction of the world’s population, which the UN agency expects to top out at 10.3 billion in 2084. … Over the coming quarter century, 38 nations of more than 1 million people each will probably experience population declines, up from 21 in the past 25 years. Population loss in the coming quarter century will be largest in China with a drop of 155.8 million, Japan with 18 million, Russia with 7.9 million, Italy with 7.3 million, Ukraine with 7 million, and South Korea with 6.5 million …

For those concerned about overpopulation, this news must be concerning in the short run (global population will rise for the next few decades), but perhaps reassuring about the longer run (global population eventually set to decline.

Economists, of course, are proverbial for their every-rose-has-its-thorns mindset–that is, seeing the potential downside in all news. In that spirit, there are obvious concerns over lower fertility. For government finances, a much larger proportion of citizens will be elderly, thus relying on government pension and and health insurance benefits. Economic growth may slow down as well, with a greater share of the population either retired from working and/or starting new businesses.

There is occasional discussion of public policies to encourage families to have more children, but at least so far, countries that have adopted such policies have barely moved the needle of the overall fertility trends. My own sense is that the biggest pro-family policies include affordable family-style housing, high-quality schools and affordable higher-education, and a broader sense that of progress and economic growth.

Other articles in the same issue focus on a different adjustment: can people live longer in a healthy way, and perhaps also plan to work longer before retirement?

Andrew Scott and Peter Piot discuss “The Longevity Dividend,” by which they mean the ability of the healthy elderly to work more years. As they write: “The current health system is at risk of keeping us alive but not healthier for longer, at an ever-increasing cost to individuals, families, and society. In short, in the 20th century, we added years to life. In the 21st, we must add life to these extra years. This requires a shift toward chronic disease prevention and health maintenance, not just treating people when they become ill.” 

They describe a social and policy focus on what it would mean to have a society where the expectation for many people was that they would be in good health into their 80s. From an employment view, they add: “But good health alone is not enough to keep people engaged in employment for longer. We also need the kinds of age-friendly jobs older people prefer—with more flexible hours, fewer physical demands, and greater autonomy. By reducing the competition between younger and older workers, such jobs limit the career impact on the former.”

Similarly, Bertrand Gruss and Diaa Noreldin describe “Sustaining Growth in an Aging World.” They point out that people are remaining healthy later into life:

Data on individuals from 41 advanced and emerging market economies reveal that the recent cohorts of older people—those 50 and older—have better physical and cognitive capacities than earlier cohorts of the same age. When it comes to cognitive capacities, the 70s are indeed the new 50s: A person who was 70 in 2022 had the same cognitive health score as a 53-year-old in 2000. Older workers’ physical health—such as grip strength and lung capacity—has also improved. Better health means better labor market outcomes. Over a decade, the cumulative improvement in cognitive capacities experienced by someone aged 50 or over is associated with an increase of about 20 percentage points in the likelihood of remaining in the labor force. It’s also associated with an additional six hours worked per week and a 30 percent increase in earnings. All this could mitigate aging’s drag on growth.

It feels to me as if many people haven’t yet internalized what it means to have a reasonable expectation of living not only longer, but also healthier. I hear from (and about) people who just see it as a chance for a longer and more active retirement. But at least some older people could be enticed by more flexible labor market arrangements to keep a foot (or even just few toes) in the labor market for longer. I suspect that both they as individuals and society as a whole would benefit from that happening.

Back during the Great Recession of 2007-09, it became common for economists to talk about “financial plumbing” as part of the problem. The metaphor of pipes and drains and valves was meant to suggest that a relatively small blockage or capacity limitation in one part of the financial plumbing could lead to much bigger systemic effects. In other words, the financial plumbing might work just fine in ordinary day-to-day use, but if one part of the financial system came under stress, problems could back up unexpectedly.

With that general concept in mind, consider the total amount of US Treasury debt held by the public. Back in 2001, it was about $3.5 trillion. By 2009, it had doubled again to $7 trillion. By 2016, it had doubled again to $14 trillion. By 2024, it had doubled one more time to $28 trillion. The Congressional Budget Office forecasts suggest that by 2035, based on current law (that is, before the passage of this year’s budget and tax bills, which in their current form would increase the debt further), total US debt could nearly double one more time to $52 trillion.

So here’s the question: How confident should we be that the financial plumbing which handled the trading of US Treasury debt when the market was one-eighth of its current size, back in 2001, is equally capable of handling the much larger volume–especially when the market comes under stress? Darrell Duffie rings some warning bells in “How US Treasuries Can Remain the World’s Safe Haven” (Journal of Economic Perspectives, Spring 2025). (Full disclosure: I am the Managing Editor of JEP, and thus predisposed to find the articles of interest.)

If it seems far-fetched that the US Treasury market should come under stress, then it’s worth noting that it happened in March 2020. Duffie explains:

When the World Health Organization declared COVID-19 a global pandemic on March 12, 2020, … the dealers who make markets for Treasuries were unable to handle the flood of demands by investors around the world to buy their Treasury securities. Bond dealers were asked at the same time to buy enormous quantities of mortgage-
backed securities and corporate bonds, among other demands for liquidity. Total customer-to-dealer bond-market trade volumes suddenly jumped to over ten times their respective 2017–2022 sample medians (Duffie et al. 2023). The bond market reached the limits of its intermediation capacity and became effectively dysfunctional. Yields for Treasury securities lurched higher, while dealer-to-customer bid-offer spreads and dealer-to-dealer market depth worsened by factors of over ten (Duffie 2020). Among other steps to support the market, the Federal Reserve purchased almost $1 trillion dollars of Treasury securities from primary dealers in the first three weeks after March 12, freeing dealer balance-sheet space to handle more sales from customers. Weak market functionality persisted for several additional weeks (Duffie et al. 2023). Although liquidity in Treasury markets gradually returned to normal, many Treasuries investors presumably noticed that in the heart of the March 2020 crisis, they had not benefited from the safe-haven requirement of a liquid and deep market. Even before the COVID-19 crisis, the vaunted liquidity of the market for trading Treasuries had been showing cracks under stress.

Potential difficulties in the market for US Treasury bonds have large implications. As Duffie notes, many financial institutions and investors around the world view US Treasuries as their “safe” asset. Pretty much by definition, a safe asset holds its value and can be sold when desired. The ability of the US government to market its debt at favorable interest rates depends on this widespread perception. But if the market for Treasury debt can become illiquid in a crisis, as happened in March 2020, then Treasury debt is less safe than it previously appeared. The higher risk means that the US government would need to pay higher interest rates when it borrows.

As Duffie explains the plumbing in the market for Treasury debt, about $1 trillion is traded every day, and most of that flows through 25 firms that are designated as “primary dealers.” Essentially, this means that when there is a surge of sellers of Treasury debt, these primary dealers need to be financially able to act as immediate buyers–although of course they will be planning to re-sell most of that Treasury debt later. But the total amount of Treasury debt is rising fast, much faster than the financial size of the primary dealers. In 2007, before the Great Recession, the ratio of total Treasury debt to the assets of the primary dealers was less than 0.2; by 2023, the ratio was above 0.7. In short, the financial plumbing for the US Treasury market is running much closer to its capacity, and it has already gotten clogged once.

Of course, one way to make it easier for the primary dealers to guarantee that they will buy Treasury debt when needed would be to have less government borrowing and less Treasury debt. Now that we’ve all had a good giggle over the implausibility of that happening, what are the serious options? Ultimately, the goal might be to move beyond having the Treasury debt market flow through these 25 firms, and instead create an “all-to-all” market, more like the stock market, where buyers and sellers of Treasury debt can interact directly. But setting up such a market is nontrivial, and it still would raise the question of what happens in world financial markets if a wave of sellers of Treasury debt start driving down the price.

Duffie reviews a number of policy options, some of which are being implemented. You can read his article for details, but to give a sense of the possibilities:

• Require that trades for Treasury debt be carried out through a central clearinghouse, rather than as trades between two separate parties: “The clearinghouse offers a guarantee: if one of the original counterparties fails to perform at settlement, then the clearinghouse will complete the settlement.”
• “Regulators are slowly moving toward a plan for improving post-trade price transparency in the market for US Treasury securities by publishing trade price and quantities shortly after each trade (Liang 2022). Post-trade price transparency will likely improve competition and allocative efficiency. … The efficiency with which dealers are matched to trades will improve, likely expanding the intermediation capacity of the market. Eventually, greater post-trade price transparency will also speed up the emergence of all- to-all trade.”
• The Federal Reserve could set up arrangements to guarantee in advance that if/when US Treasury debt markets are melting down, they will extend short-term credit to key market players as needed. Experience has taught that when such backstop arrangements are known to be available in advance, they are less likely to become necessary!
• The US Treasury could buy back US Treasury debt issued in the distant past, which is harder to trade in the market, and replace it with newly-issued debt which is easier to trade in the market.
• Re-consider the specific bank supervision rules that try to make sure banks have sufficient capital to face crises, and make sure that these rules are not having the effect of discouraging banks from holding Treasury debt in a financial crisis situation.

Duffie says it bluntly: “The market for Treasury securities is simply growing too large to rely exclusively on dealers to intermediate investor trades.” Ultimately, the choice is whether financial regulators will proceed with all deliberate speed to implement the necessary changes before the next crisis hits the Treasury debt market, or whether the regulators will be improvising less-considered schemes when the next crisis hits the Treasury debt market.