The 2025 economy was a mixed bag. By several indicators, it performed well: economic growth was strong, with output increasing by about 4% in both the second and third quarters. The unemployment rate remained low throughout the year—4.4% as of September, the most recent month with available data due to the government shutdown.
Newly elected New York City Mayor Zohran Mamdani has promised to “freeze the rent” in response to the city’s high cost of housing. This is simply another term for rent control — a policy enacted in the early and mid-20th century that prevented rents from rising according to market conditions. Despite its surface-level appeal as a way to make housing more affordable, rent control does the opposite.
As of writing this column, the federal government is shut down. It is possible that the state government follows suit. The federal government typically shuts down for one of two reasons: either the debt ceiling has been reached, or the fiscal year has ended without a new budget. In this case, both the federal and potentially the state governments have shut down for the latter reason.
A 2024 poll by Navigator Research found that 57% of respondents blamed “greedy landlords who are jacking up rents” for the high cost of rent. This belief is misguided. Blaming landlords for rent is like blaming the weatherman for a heatwave. It is not possible for landlords to get together and collectively decide to “jack up rents.” Rent, like any price, is set by supply and demand. If landlords try to increase rent above the market price, a surplus of apartments will result, meaning apartments will go unrented, which will push rent back down.
With the goal of reducing America’s trade deficit, President Trump increased tariffs to rates not seen since prior to World War II. This was the stated goal behind his April 2nd “Liberation Day” when he announced these tariffs. However, economic theory suggests that tariffs will be ineffective in reducing the trade deficit.
The “Big, Beautiful Bill” that recently passed the House, Senate, and was signed into law by President Trump temporarily increases the deduction on Social Security income so that upwards of 90% of seniors will pay no income tax on Social Security benefits. This deduction is scheduled to expire in 2028 and benefits middle- and upper-income seniors the most as lower income seniors already do not pay federal income tax.
President Trump made a campaign promise that if elected, he would support legislation exempting tipped income from the federal income tax. On May 20, 2025, the Senate unanimously passed the “No Tax on Tips Act” with the House narrowly passing the “Big Beautiful Bill” on May 22 that also exempted tipped income from taxation. “No Tax on Tips” might make for a good political slogan, but it is lousy economic policy.
After peaking at nearly 45,000 points in early February, the Dow Jones Industrial Average sank to 36,645 on April 8. The Dow then staged a remarkable 3,000 point rally on April 9 following President Trump’s 90-day pause on implementing his tariffs. The Dow is at 40,000 points as of writing this column, which is about halfway between its early February high and its April 8 low. Why is the stock market reacting so strongly to tariffs?
As of this writing, President Trump has implemented record high tariffs across numerous countries. The stock market responded by dropping by 10% within two days. This has pushed the market 15% below its peak in February 2025, resulting in the loss of trillions in shareholder value.
The Trump Administration’s “Department of Government Efficiency” (DOGE) is making headlines for the substantial federal government layoffs that have resulted from its cuts. The idea behind DOGE is not new. President Obama had the “National Commission on Fiscal Responsibility and Reform,” collegially known as the “Bowles-Simpson” commission after its committee chairs, former White House Chief of Staff Erskine Bowles and former Wyoming Senator Alan Simpson. In December 2010, Bowles-Simpson proposed a series of budget cuts, reforms to Social Security and Medicare, and tax reforms to reduce the federal budget deficit. None of the commission’s recommendations were enacted.
President Trump has floated the idea of replacing the income tax with tariffs. As he correctly notes, tariffs were the primary funding source for the federal government until the 16th Amendment was ratified in 1913, which allows Congress to levy an income tax. However, attempting to return to tariffs to raise government revenue over a century later will encounter a practical difficulty, namely the federal government is much, much larger now than it was then.
Last month, I discussed the Median Voter Theorem and how voter concerns with the economy pointed to a Trump win. This presented a puzzle, as economic indicators leading up to the election were strong. Economic growth was a healthy 3%, the unemployment rate was below 4% and inflation was 2.4%, which was above the Federal Reserve’s 2% target but falling. Why did the economy dominate voters’ concerns, which spelled trouble for the incumbent Democratic Party?
