Forward this issue to your friends and urge them to subscribe.
Read all Life, Liberty, Property articles here, and full issues here and here.
Fed Keeps Interest Rates ‘Mildly Restrictive, Even Modestly Restrictive’
Video of the Week: Freedom Works, Socialism Fails — In the Tank Podcast #530
Population Bombs, Busts, and Economic Growth
Space is limited and it’s coming soon, so act now!
Fed Keeps Interest Rates ‘Mildly Restrictive, Even Modestly Restrictive’
As expected, the Federal Reserve (Fed) announced last week that it would keep the federal funds rate target at its current level of 3.50 percent to 3.75 percent. The central bank’s Board of Governors stated they believe “economic activity has been expanding at a solid pace.” The governors noted, however, that the current economic outlook is ambiguous: “The implications of developments in the Middle East for the U.S. economy are uncertain,” their statement said.
In his address to the press, Chairman Jerome Powell sounded much more optimistic—or devoted to stomping on any signs of job growth for American workers. “The U.S. economy has been expanding at a solid pace,” Powell told the press. “While job gains have remained low, the unemployment rate has been little changed in recent months, and inflation remains somewhat elevated.”
Powell characterized the current interest rate target as “in the high end of neutral, or you can characterize it as perhaps mildly restrictive, even modestly restrictive, … somewhere around a borderline between restrictive and not.” Pared of the circumlocution, Powell’s response indicates that he sees the current rate as somewhat restrictive.
In his comments, Powell contradicted his claim of “solid” growth. After saying “[c]onsumer spending has been resilient, and business fixed investment has continued to expand,” Powell dropped a good deal of bad news that everyone already knew about, such as this: “In contrast, activity in the housing sector has remained weak. In our Summary of Economic Projections, the median participant projects that real GDP will rise 2.4 percent this year and 2.3 percent next year, somewhat stronger than projected in December.”
GDP growth of 2.4 percent is unimpressive, even if it is led by a much-needed decrease in the number of government workers, as has been the case in recent months. Powell’s comments reflect his concern that low unemployment leads to inflation:
In the labor market, the unemployment rate was 4.4 percent in February and has changed little since late last summer. Job gains have remained low. A good part of the slowing in the pace of job growth over the past year reflects a decline in the growth of the labor force, due to lower immigration and labor force participation, though labor demand has clearly softened as well. Other indicators, including job openings, layoffs, hiring, and nominal wage growth, generally show little change in recent months. In our SEP, the median projection of the unemployment rate is 4.4 percent at the end of this year and edges down thereafter.
Powell’s position on job expansion is based on the Keynesian-friendly Phillips Curve, which posits that high unemployment is the cost we have to pay for lower inflation. It was predictable, then, that Powell and the Fed’s board of governors would choose not to cut interest rates while still concerned about a possible longer-term rise in inflation and nobody has been complaining about the unemployment rate.
Answering a reporter’s question about the potentially inflationary effects of the oil shock caused by the Iran conflict, which would be temporary, Powell expressed a concern that President Donald Trump’s tariffs will cause inflation down the road:
So the oil shock for sure shows up here. Some of that will be in core [inflation] as well, but yes. But no, there’s also just the feeling that we haven’t seen the progress that we had hoped for on core goods, and on tariffs and on the rest of it. We’ve—so, for whatever reason people did write up their inflation forecast that will certainly be tied to events in the Middle East and the price of oil, but it’s also I think a reflection of the slow progress we’ve seen on tariffs, which we believe we will see, it’s just a question of how long it takes for them to get all the way through the economy, and it takes, it just takes some time.
Tariffs, however, cannot cause inflation, only a redistribution of spending within the economy as people and businesses adjust their choices in response to the changing prices.
I believe that Powell and the governors are sincere in their concerns about inflation being spurred by a rising demand for workers and by tariffs. It is also clear to me that they are wrong, for the reasons noted above. Federal Open Market Committee member Stephen I. Miron was the only one who seemed to realize this, voting for a one-quarter percentage point reduction in the federal funds rate while all the others opted to go conservative and maintain the current target rate.
My assessment is that the U.S. economy is growing significantly more slowly than it could, and that the central bank has been a major culprit by holding interest rates at a much higher level than it has for the past decade while resuming balance sheet expansion (which is inflationary).
There is strong evidence for this assessment, and sources other than the Fed confirm it. The Conference Board research group lowered its Leading Economic Index by 0.1 percent on Thursday, after a 0.2 percent reduction in December and a decrease of 1.3 percent between July 2025 and January of this year, on top of a 2.6 percent decline in the previous six months, The Wall Street Journal reports. The Conference Board cut its GDP growth forecast to 2.0 percent as a result of the Iran conflict.
Note that the Atlanta Fed attributes most of the reduction to expected decreases in consumer spending and private inventories. Increasing employment would be the right course of action in response to such a slowdown.
The Atlanta Fed has been more optimistic than the Fed governors in regard to expected GDP growth since January 2025. The FOMC itself is predicting a steady decline of economic growth over the next two years:
In the face of this expected decline, the FOMC’s decision not to lower interest rates seems odd, and its near-unanimity in doing so is stranger still.
Another point goes to capitalism in the long war of economics, as Poland has overcome its once-communist decay and rocketed into becoming one of the world’s largest economies. Meanwhile, socialist Cuba slowly crumbles amid a fuel embargo and the decades of communist economic influence. We will contrast and compare these two examples of economic systems and see which one is best (Hint: it’s not the one represented by the hammer and sickle).
Get the latest best-seller from Heartland’s Justin Haskins!
America’s economy is teetering on the edge of disaster. Hidden beneath record stock market highs and reassuring headlines lies a fragile system riddled with debt, reckless speculation, and decades of political negligence. When the next big crash strikes—and it will—the fallout could be unlike anything we have ever experienced.
Writers, policy analysts, and lawmakers are increasingly expressing worries that shrinking populations will do enormous damage to the economies of developed nations all across the world.
This rising new concern is an ironic contrast to the near-universal panic, popularized in the 1960s and regnant through the end of the last century, over the belief that a “Population Bomb” was about to cause global starvation and the end of modern economies, as predicted most vividly by biologist Paul Ehrlich, who contributed to the population decline by dying last week at the age of 93.
Just as the population bomb idea was wrong, so is the population bust panic. Population decline does not have to bring on economic destruction, write American Institute for Economic Research Fellow Jeffery Degner and Senior Research Fellow Julia R. Cartwright at Law & Liberty:
Despite record-low birth rates among its billion-plus population, China continues to grow at roughly 5 percent [per year], a pace most advanced economies would envy.
Decades of declining fertility have steadily reduced the flow of new workers into China’s economy, even as growth has persisted.
Governments are panicking about the population bust, yet their actions have proven unable to raise fertility levels, Degner and Cartwright observe:
Falling birth rates have governments worldwide in a state of panic. From Brussels to Tokyo to Beijing, policymakers are scrambling to reverse fertility decline, yet expensive pro-natal programs in countries such as South Korea and Hungary have delivered little results. …
[In China, b]irth rates have continued to fall since the repeal of the one-child policy a decade ago. This fall is driven by factors including urbanization, rising living costs, delayed marriage, and changing social norms. These trends underscore that demographic decline is difficult to reverse directly, even with policy intervention.
With governments unable to get people to have more children, the only sensible response is for nations to acknowledge reality and adapt to their changing populations, the authors write:
To be clear, serious analysts do not claim that population decline mechanically produces economic collapse. But demographic aging does create real fiscal, labor-market, and growth headwinds. …
Declining fertility rapidly shrinks the workforce relative to dependent populations, particularly in countries with expansive welfare states. Japan illustrates this strain. As of 2024, it had the world’s highest old-age dependency ratio, with roughly two working-age adults supporting each person over 65, compared to 3.4 in the United States. Rising dependency has forced higher household contributions and expanded pension financing.
Countries with aging or declining populations must find ways to support the production of goods and services as people age out of the workforce, the authors argue. “The more productive question is not whether demography matters, but which policy frameworks allow societies to adapt successfully to it,” Degner and Cartwright write.
That means restoring pro-market policies that encourage productivity and reward hard work, the opposite of what most governments in developed countries have been doing throughout this century. The European Union exemplifies the wrong course of action, Degner and Cartwright note:
Over time, the EU has adopted a less market-friendly macroeconomic framework marked by heavier regulation, renewed industrial policy, and stringent environmental mandates that have produced energy supply crunches. These policies interact poorly with pay-as-you-go pension systems that depend on continuous population growth. As the worker base shrinks, higher payroll taxes and social contributions compress household budgets, discourage labor participation, and dampen private investment. Rather than adjusting policy to demographic reality, European governments have layered additional regulatory and fiscal burdens onto an already strained system. The result is an economic framework ill-suited to demographic contraction that amplifies rather than offsets the costs of low fertility.
This economic policy brutality has been enormously destructive, Degner and Cartwright observe:
The EU remains stuck in sluggish growth and industrial erosion: Eurozone GDP expanded just 1.6 percent in 2025, while the EU’s economy shrank from roughly 90 percent of US GDP in 2008 to about 65 percent in 2023. Fertility across the bloc has steadily fallen to roughly 1.38 births per woman in 2023, well below replacement.
Similarly damaging economic policies in Japan and South Korea have exacerbated those countries’ demographic decline, the authors note:
Both have turned away from market openness toward greater economic intervention and regulation. … Prolonged loose monetary policy has inflated asset prices and living costs—particularly housing—raising barriers to marriage and child-rearing. Rigid labor markets, long working hours, seniority-based employment systems, limited immigration, and slow institutional adaptation further suppress family formation and labor-force replenishment. As the working-age population contracts, governments lean more heavily on monetary stimulus and public spending to sustain growth, increasing debt and cost-of-living pressures.
The results in those two countries have been awful:
Japan’s share of global nominal GDP collapsed from 17.8 percent in 1995 to just 3.6 percent in 2025, marking the culmination of its “lost decades.” South Korea now posts the world’s lowest fertility rate at 0.74 births, and after years of strong performance, its economy grew 1.0 percent in 2025.
Pro-market economic policies spur productivity increases that enable nations to sustain economic growth as their populations age, the authors conclude:
Comparing Singapore, China, Japan, South Korea, and the European Union reveals that economies that pursue relatively market-oriented macroeconomic policies are better able to adapt to shrinking populations by raising productivity per worker. Those that respond to demographic pressure by constraining markets instead tend to suppress growth precisely when flexibility and innovation matter most.
After decades as global leaders in growth and innovation, the European Union, Japan, and South Korea now exemplify lost economic dynamism, driven partly by demographic decline, but more by macroeconomic policies ill-suited to absorb it.
The United States has been an outlier because our politicians have expanded the nation’s population through mass immigration (both legal and illegal), analysts widely argue. Mass immigration enriches the nation by adding working-age people to the population as native-born Americans age out of the workforce, the story goes. A good economy requires an expanding workforce, they tell us.
we need more population! we cannot have fewer children or fewer people! it’s a demographic disaster!
but is it? why?
Today’s worries are just as wrongheaded as the Malthusian panic of the last four decades of the twentieth century were, Gato Malo argues. As the economist Julian Simon observed, human beings have an amazing ability to adapt to changing conditions and even turn them to their advantage. Human ingenuity is “the ultimate resource,” as the title of one of Simon’s books aptly put it.
The Malthusian habit of projecting trends forward, unchanged, all the way to disaster, ignores this truth. That is the premise behind the worries about population, Gato Malo writes:
it was just people who do not understand adaptive systems taking exponential processes and extending them to infinity until they looked like inevitable doom.
and now they do the same but using inverse exponentials toward zero until, wait for it, they look like impending doom. …
In response, Gato Malo asks the right questions:
are we seriously to believe that no matter how cheap land and housing become that people will not change their behavior?
or that people do not, perhaps, have some sense of what “optimum” population or population density should be?
lots of species stop breeding when they feel overcrowded.
are we sure humans are any different?
The tendency of people to adapt to changing conditions refutes the claim that good economies require ever-larger working-age populations, Gato Malo notes:
people talk about how the US was better in the 1990’s (or even the 1950’s) but somehow they get the vapors about the US reverting to anything resembling the number of people we had then.
why?
how do we know it wasn’t preferable?
we have 350 million people now (likely more if you counted illegals fully). in 1990? 253 million. 28% fewer. in 1950, we had 154 million, 66% fewer.
what’s the right number of people for america to be wonderful?
how would anyone even arrive at such a number much less be so confident of it that they were sure that we needed to open floodgates of immigration to make up for low US birth rates?
The data make it obvious that the claims of a desperate need for more working-age people to jack up gross domestic product are false, Gato Malo writes:
population growth is the most overrated economic idea in the world and you can thrive with a stable or even declining population if your underlying system is good.
life can be wonderful. population decline can be fine and what people really respond to and perceive as “the good life” is not just rampant growth in aggregates: they care about the life and lifestyle that they get to have.
the best gross stat for this is per capita GDP measured at PPP (purchasing power parity). this measures a country’s output per person and then adjusts it for the local cost level. housing in warsaw is far cheaper than london etc.
and when people tell you that money cannot buy happiness, show them this chart:
Gato Malo’s observations align well with the argument Degner and Cartwright make and which this newsletter stands for. Public policies and sound currency that reward hard work, thrift, individual initiative, and cooperative enterprise will maximize people’s productivity. That means free-market policies. This is true regardless of the size or composition of the population.
Population growth is in fact negatively correlated with per capita GDP PPP, Gato Malo finds:
Culture and free markets are the real deciding factors, Gato Malo argues: “one can easily grow without population growth. you just need good human capital and reasonable laws.”
Japan’s population began to decline only after the country adopted anti-growth economic policies, Gato Malo notes (which Degner and Cartwright likewise observed in their article, published a week later, as quoted above):
people trot out japan as the “warning case” for population decline. their population peaked in 2008 and has dropped 5% since. their economy has not really grown since 1995.
but japan’s economic problem is not population contraction. they crushed their economy under debt, unaffordability, regulation, and bad corporate structure 35 years ago and have been moribund since. they could not grow when their population was growing either.
That brings us to the core assumption behind the worries about the presumed economic effects of population decline: Are these national economies declining because their populations are shrinking and aging, or are their national populations shrinking and aging because their distorted, declining economies discourage family formation and childbearing? (There is also the possibility that the two phenomena are unrelated, an argument that has not received much support in public-policy discussions.)
Are these national economies declining because their populations are shrinking and aging, or are their national populations shrinking and aging because their distorted, declining economies discourage family formation and childbearing?
The effects of which assumption we choose are enormous. For several decades, economists and big businesses have called for immigration from high-fertility, less-developed nations into developed countries to prevent aging populations from causing economic decline. The governments of the United States, Canada, and Europe have transformed their national populations radically by importing large numbers of immigrants from cultures very different from their own.
How has that worked out? After initially going along with the idea, the public in each of these places has reacted in horror at the social consequences.
Meanwhile, the economic results have been much less beneficial than was promised. In Europe, for example, the immigrants don’t do the work the locals do not want to do or are becoming too old to do, Gato Malo notes. Instead, they take advantage of the generous welfare states in these nations: “66% of those receiving burgergeld in germany (welfare) are immigrants. parts of the UK are no[w] poorer than the poorest parts of lithuania or Slovenia. study after study bears this out,” Gato Malo notes.
Poland, by contrast, has rejected the EU’s demand to take in massive amounts of Third World immigrants and has instead accepted refugees from Ukraine, a much more culturally similar country. Poland has enjoyed rapid economic growth while the economies of the immigrant-heavy nations of the EU and U.K. have stalled. Poland just passed Switzerland to become the twentieth-largest national economy in the world and is on pace to pass Great Britain by 2030.
Immigrants from developing countries are less devoted to the Protestant work ethic than the native-born people of Europe and Canada, as masses of truly appalling statistics attest. Recent and emerging scandals in the United States suggest that many immigrants from those countries bring those attitudes here as well. Gato Malo provides a compelling graphic from X:
Attracting the “best and brightest and hardest working, the most useful and talented who enrich a nation” is good and productive and drives economic growth, “but this is not that,” Gato Malo writes.
The population of the United States has been rising for decades, yet the U.S. economy rises and falls without any connection to that steady growth, contrary to the claims of population doomers and the advocates of mass immigration. What causes the ups and downs of the American economy today is the same as always: ever-changing levels of interference by the government and central bank. As far as the economy is concerned, we have nothing to fear but government “help.”
The evidence is clear: we do not need to import more working-age people; we need to stop our government from discouraging people from working and (especially) from starting families. To accomplish that, we desperately need to vote better people into office.
‘The CSDDD is the greatest threat to America’s sovereignty since the fall of the Soviet Union.’
Contact Us
The Heartland Institute 1933 North Meacham Road, Suite 559 Schaumburg, IL 60173 p: 312/377-4000 f: 312/277-4122 e: [email protected] Website: Heartland.org
