President Trump is declining to take credit for the bipartisan housing bill that recently passed Congress, instead allowing it to take effect at midnight without signing it. While we find his refusal to take a victory lap confounding, our efforts continue at understanding the rest of America. This week, Daniel takes a look at a fascinating new study on the economic benefits of a smaller labor force:
Economists have long viewed a shrinking native-born workforce as a crisis of arithmetic that imperils the nation’s economic growth (i.e., fewer workers = less output), usually concluding that the only way to avoid economic stagnation is to recruit workers from beyond our borders into our labor market. But a new paper from Daron Acemoglu, David Autor, and their coauthors titled “Baby Busts and Growth Booms” challenges this premise. The paper examines demographic change across more than 100 countries and hundreds of U.S. communities since 1950. It finds that lower birth rates do not suppress economic growth; instead, they incentivize employers to innovate so they can do more with less. Economies with fewer young workers, according to the authors’ research, produced more labor-saving patents, invested more heavily in technology, and, as a result, achieved faster productivity growth, ultimately resulting in higher wages and output per worker without suffering lower levels of aggregate output.
Their paper studies the economic effects of declining fertility rates. But its findings should inform our immigration policy. Weak enforcement of our immigration law that gives employers access to a large, unauthorized workforce, paired with permissive temporary visa programs, loosens the labor market, enabling employers to avoid raising wages and investing in the training and mechanization that would make their workforce more productive. While we should certainly not celebrate a declining number of births, the research clarifies that the nation should pursue stronger families not because the economy requires an ever-expanding supply of labor but because children are the source of national continuity. Policymakers can therefore support both family formation and tighter labor markets through a more restrictive immigration policy, and trust that scarcity induced by the latter will spur the innovation necessary to make existing workers more productive and the nation more prosperous. — Daniel
THE ARC OF THE MORAL UNIVERSE…
Speaking of settled economic wisdom that wasn’t: few have dispensed it with more certainty, or been wrong more often, than Paul Krugman. Among the high priests of free trade, he has always held a special position as crude ideological enforcer, what with his Nobel Prize and his habit of making absurdly absolutist assertions with condescending certainty. Some of our favorites:
In a 1993 essay in the American Economic Review, he answered the question, “What Do Undergraduates Need to Know About Trade?” with: “In the last decade of the 20th century, the essential things to teach students are still the insights of Hume and Ricardo. That is, we need to teach them that trade deficits are self-correcting.”
In 1996, in Business Economics, “I have tried carefully explaining economic concepts like, say, comparative advantage; it doesn’t work. What does work, sometimes, is ridicule. If you can make someone who imagines himself to be a deep sophisticate look silly, sometimes it gives him—or at least someone else who might be tempted to follow the same route—pause.”
In 1997, in the Journal of Economic Literature, “The economist’s case for free trade is essentially a unilateral case: a country serves its own interests by pursuing free trade regardless of what other countries may do.”
Harvard University professor Dani Rodrik, a skeptic of globalization, has also told the story of how Krugman’s feedback to him on a manuscript was that “he told me he had no quarrel with my economics, but that I should not be ‘providing ammunition to the barbarians’—that is, I should not give comfort to all those protectionists who stand ready to hijack any argument that seems to provide intellectual respectability to their positions.”
So it was notable last year when Krugman conceded to Oren that his claim about self-correcting trade deficits had been “naive.” But the fumble recovered and returned for a touchdown comes in his recent comments on Wall Street Week:
The idea that you need to maintain capacity in your own country or in reliable allies for strategically important stuff is now very, very real. I am really reluctant to be where I am right now, but I do think that conditional tariffs on Chinese cars are probably going to be necessary. … I’ve been shocked not only by my own change of mind, but by some of my colleagues’ … It’s not 20 years ago anymore. We really do need to rethink.
Far be it from us to spike the football, or perform some elaborate team dance in the end zone, or resort to the ridicule of which Krugman was so fond. At American Compass, we welcome converts, and so as our good friend Professor Krugman arrives at the party 30 years late, we pat him on the back and say, “Glad to see you.”
GOOD READS FOR YOUR WEEKEND
In the New York Times, Mohamed El-Erian writes America Was Being Played. The Bessent Doctrine Says Those Days Are Over. Treasury Secretary Scott Bessent has been doing yeoman’s work over the past couple of months (including at American Compass’s New World Gala), articulating the principles and successes of the Trump administration’s global economic reset. Here, El-Erian does an excellent job making sense of what it all means. But if you’ve been reading Understanding America for the past two years, you’ll wonder how anyone could only be figuring it out now.
In Compact, Ralph Leonard writes about The Deterritorialization of the World Cup. The national side has taken on a different meaning in a globalized world.
The New York Times reports on the work of Emma Waters, A Conservative Role Model for Ending the Fertility Crisis. Come for the important coverage of Emma’s work, stay for the hilarious rebuttals from “professional medical associations” suddenly concerned about efforts “motivated by ideology rather than solid clinical evidence” and a sociologist with only a loose grasp of causation who warns that romanticizing “traditional” family life is an “unhealthy kind of nostalgia” because, wait for it, “in reality infant mortality was high and standards of living were low.” Was it the traditional family life, or the lack of modern medicine, that led to high infant mortality in the past? Maybe the professional medical associations could weigh in.
Aaron Renn, noting that “deaths now outnumber births across most of the country—and the effects are just beginning to arrive,” writes that Most of America Is Pittsburgh Now.
The Wall Street Journal reports America Needs More Weapons. JPMorgan Wants to Add Its Firepower. “Jamie Dimon is putting the bank’s own funds into defense and other vital industries and plans to broadly expand in the national-security sector.” Mary Poppins would approve.
And Friend of the Stack Peter Harrell is launching his own Substack, to which you should subscribe if you’re interested in trade and industrial policy.
CHEERS AND JEERS…
…for AEI’s Michael Strain. At Project Syndicate, he has an excellent piece on the problems with remote work, a beat he has been ably walking for years now: “My advice for the two million young people who graduated with bachelor’s degrees over the last few months and are just starting their careers: Go to work—not just figuratively, but literally.”
But we must take issue with a couple of Dr. Strain’s recent tweets, including one that dismisses the idea of “America as a manufacturing economy” as an “elite vision of national greatness” and one that says economists are struggling to defend free-market capitalism against socialism because many “do not value viewpoint diversity, do not seem to care that enforcing viewpoint orthodoxy is severely damaging their ability to generate ‘true knowledge,’ and therefore do not have the muscles required for true, open debate.”
In the immortal words of Pam Beasley, “They’re the same picture.”
AND SORRY, JUST JEERS…
…for The Argument, where Jerusalem Demsas published one of the more bizarre meditations on America’s 250th birthday, Your God-Given Right To Be Happy. In the Declaration’s reference to the “pursuit of happiness,” she writes, “pursuit” really means “practice,” so it is asserting that we all have a natural right to be happy.
This is half true. She is on to something with pursuit-as-practice, but what is it that we are practicing? As the National Constitution Center’s Jeffrey Rosen explains:
Today we think of happiness as the pursuit of pleasure. But classical and Enlightenment thinkers defined happiness as the pursuit of virtue—as being good, rather than feeling good. For this reason, the Founders believed that the quest for happiness is a daily practice, requiring mental and spiritual self-discipline, as well as mindfulness and rigorous time management. At its core, the Founders viewed the pursuit of happiness as a lifelong quest for character improvement, where we use our powers of reason to moderate our unproductive emotions so that we can be our best selves and serve others.
That makes more sense, and seems more in keeping with the serious moral framework of the Founders, though not so much the fun of “libbing out” online.
Demsas concludes with, “day to day, what makes people happy are friends and family, yes, but also, stuff! The blast of AC when you come in from a hot day, a glass of wine with some friends on your front porch, a bouquet of flowers from your spouse, a place to call home …” Perhaps tellingly, almost none of these are actually “stuff.” It is not the glass of wine but the friends, not the bouquet of flowers but the spouse who thinks of you, not the lease on your Brooklyn brownstone but a home. Rewrite the sentence about stuff, “an air-conditioned apartment, flowers, a glass of wine,” and you may indeed have a description of life in the Abundance movement, but not one of human flourishing, or happiness well understood.
AND NOW, FOR YOUR LINKS
We have two weeks of material here, and you won’t make it through unless we speed things up. So, here goes:
On Globalization
Benn Steil, director of international economics at the Council on Foreign Relations, has an excellent essay on Why Rules-Based Orders Fail. “For a brief period after the Cold War, Americans persuaded themselves that the liberal order had become self-sustaining—that universal rules, democratic legitimacy, and economic interdependence had rendered old-fashioned power politics obsolete. But the order rested less on the autonomous authority of rules than on a historically exceptional concentration of American power and institutional confidence.”
Stephen Miran, recent chair of President Trump’s Council of Economic Advisers, writes in the Wall Street Journal on The Low-Tax Case for Tariffs. “The standard criticism from trade economists is that optimal tariffs only work in theory because in practice retaliatory trade measures from other countries erode the benefits of our trade levies. Experience, however, has disproved this objection.”
On Artificial Intelligence.
In the Wall Street Journal, Is an AI Jobs Apocalypse Coming? Three Economists Square Off. “The predictions are all over the place. Why do the optimists and pessimists see the same data—and come to such widely different conclusions?”
In the Financial Times, Heavy Corporate AI Spenders Add Staff Faster Than Peers. “Study of 22,000 US companies challenges fears that generative AI will trigger broad job losses.”
In the New York Times, Can You Embrace A.I. Without Layoffs? This Company Says It’s Trying. “The German software giant SAP says it is betting that employees can reinvent jobs instead of eliminating them. Experts are divided on whether it will work.”
Yascha Mounk has an excellent conversation with Princeton computer scientist Arvind Narayanan on Why AI Isn’t All That Revolutionary. “There are so many bottlenecks between AI capability increasing and it having these impacts, both good and bad, especially if you want to really integrate it into the economy and derive something useful out of it. There are so many things that have to go right. We think those are going to happen over a period of decades, not months or years.”
And back to the Journal, Big Tech Has Suddenly Flipped on the AI Jobs Wipeout Scenario. Is it because they read all of the other fine pieces in this section, or because, “as public opinion of AI shifts into negative, warnings of mass employment reductions diminish”? You be the judge!
On the Labor Market.
In the Wall Street Journal, He Earns $33 an Hour as a Costco Cashier. Now He’s a Millionaire. “Long-tenured workers like cashier Tony Barzar are reliable, experienced and able to speed shoppers through a checkout line. Costco is willing to pay to keep them around.” As Oren noted on Twitter, this one simple trick ensures Costco can fill jobs with American workers!
In Compact, Representative Riley Moore (R-WV) writes on Restoring the American Worker’s Agency. “Pro-worker conservatives need not listen to corporate America and its media allies’ lectures about fiscal responsibility, workers’ rights, or conservative values. Instead, we should be working to address the broken arrangement these companies have with their own employees through policy that gives American workers more agency.”
And back to the Journal again, Moving Back Home Used to Be a Sign of Failure. Now It Shows Financial Savvy. “Nearly half of American adults under 30, pinched by the high cost of housing, are living with a parent. It can be an adjustment for both.” If only these young Americans knew to adjust their wages using the PCE deflator instead of the CPI deflator, they’d understand that it has become easier than ever to make it on their own.
The Washington Post profiles Four Black Women. Nine Degrees. Not One Steady Paycheck. A deeply depressing story about, more than anything, a downright fraudulent higher education system.
Speaking of education…
Even the New York Times has decided it might be a good idea to have objective standards for college preparedness, instead of calling the standards racist. Of the University of California system, the editorial board warns, A Great University Undermines Its Mission. “Tellingly, when the university system announced in 2020 that it was going test-blind, it also vowed to develop an alternative test that would be ‘fair,’ ‘useful’ and ‘reliable.’ The system has since abandoned the effort as ‘not feasible.’ The reversal is a sign of the obvious: Any fair, reliable test would have results resembling those of the SAT and ACT.”
At AEI, Mark Schneider dives into Learning Disabilities and the Perils of Well-Meaning Programs. “Private not-for-profit universities have the highest concentration of students with disabilities. That proportion is even higher at the eight Ivy League universities. The lowest concentration is among public two-year institutions (community colleges).”
Is it education? Is it tech? In the American Compass Slack, it gets filed under #dystopia:
From Brooke Istook at Jonathan Haidt’s After Babel, What Does a 13-Year-Old See on Snapchat in a Normal Week? “Exposing children to graphic content, sexual material, exploitation, and predatory contact has never been something society accepted as normal…”
Nevertheless, enjoy the weekend!
Editor’s Note: This piece was updated as of August 31, 2026.
The outcome of a stable economic output with fewer workers and rising incomes is anathema to the ruling political class who demands a growing economy to tax in order to increase their power. A stable economy with growing per capital income should be the objective in a low birthrate situation. The fixation with GDP growth, instead of per capita or per working-age person, needs to be swept away.
It's always sad to read this kind of piece, where the author ignores the performative cruelty inherent in Don's immigration policies. There is a legitimate debate to be had with good faith actors of every perspective on these issues. There is also a way to execute those consensus policies without the violence and cruelty we've witnessed.
A sober analysis of administration policy must acknowledge this reality to be taken seriously. There are fellow human beings involved, we should be able to act like a civilized nation.
Establishment elites like AC have a special responsibility to lead on the values embedded in our Declaration. Assuming they believe in them...