American families are grappling with soaring mortgage rates, $100 fill-ups at the pump, and grocery bills that stretch budgets to the breaking point. But the political narrative gaining traction across the spectrum—that free-market capitalism is to blame—misses the mark, argues Norbert J. Michel, vice president and director of the Center for Monetary and Financial Alternatives at the Cato Institute.
During a recent Fox News segment, Vice President JD Vance echoed a popular refrain, stating, “the past 40 years of bipartisan economic policy has failed.” This sentiment is echoed by national conservatives who point to free trade and global competition, and by progressive populists who scapegoat corporate greed and deregulated finance. Both camps, Michel contends, are peddling a myth that ignores economic reality and misidentifies the true source of today's financial strains.
The last four decades were not a failure of market capitalism; they saw a surge in American living standards. When adjusted for total compensation, technological advancement, and product quality, real incomes and middle-class wealth grew substantially. Global integration and open financial markets allowed capital to flow efficiently, driving innovation and delivering unprecedented prosperity. Michel argues that these gains would have been even greater without heavy-handed government intervention.
Take higher education, where populists claim a generation was scammed into debt for worthless degrees. The real culprit behind skyrocketing tuition is not market pricing but decades of federal involvement that let universities raise prices without accountability. Similarly, the narrative that free trade “hollowed out” the Midwest is mistaken. U.S. manufacturing output reached near-record levels before recent trade wars, even as employment fell. Automation and productivity gains—not trade deals—transformed the labor landscape. Protective tariffs and industrial policies won't bring those jobs back; they only tax consumers and raise costs for American companies.
The true drivers of today's price spikes are fiscal profligacy and government overreach. Trillions in federal deficit spending have injected persistent inflationary pressures. The Federal Reserve's discretionary fine-tuning and credit allocation have distorted market signals and inflated asset prices. When politicians respond with more intervention—whether right-wing trade barriers or left-wing price controls—they exacerbate the very problems they claim to solve.
As America marks its 250th anniversary, Michel reminds us that two centuries of opportunity were built on individual freedom, competitive markets, and the rule of law. Solving today's cost-of-living crisis requires fiscal restraint in Congress, an end to harmful trade and immigration policies, and a return to predictable, rule-based monetary policy. Only these foundational principles, he argues, offer a proven path to lasting prosperity.
For more on how government actions shape economic outcomes, see our coverage of regulatory overreach in everyday life and how geopolitical tensions affect energy prices.
