Yanire Guillén

All bad ideas come with alleged good intentions. Universal Basic Income (UBI) is one of them.

Proponents present themselves as compassionate and caring, when the idea generates guaranteed stagnation and the destruction of the same collectives they claim to support.

Universal basic income must be condemned as immoral and dangerous, hurting those it pretends to defend. It is the oldest trick in the book to create a zombie-dependent underclass.

It is presented as a generous handout to the poor, but it is nothing more than a sophisticated mechanism to perpetuate poverty and dependency while maintaining the privileges of the elite that eliminates any competition by paying handouts in a constantly depreciated currency.

The proponents of UBI argue that it is a solution to the inequalities generated by globalisation and technological progress. However, nothing could be further from the truth.

UBI is a perverse incentive that discourages work, destroys the entrepreneurial spirit, and condemns millions to a life of subsistence.

The fiscal reality behind UBI

Any serious analysis of the implications of UBI shows it is fiscally explosive, inefficient at reducing poverty, and dangerous for the productive base of the economy.

The central criticism is simple: UBI promises “Nordic” outcomes under the budget constraints of debt‑laden economies, so the likely result is not more social justice but weaker growth, higher inflation, more confiscatory taxes, and increasing dependence on the state. ​

Even relatively modest universal grants, once paid to all adults, quickly reach hundreds of billions per year, equivalent to several points of GDP

A genuinely universal UBI implies annual spending that in most advanced economies would require roughly multiplying tax revenues or dismantling much of the existing welfare state.

The evidence of taxation shows that implementing revenue measures never works because tax receipts never reach the level required to balance the books, capital flight follows, and tax revenues are cyclical, but handouts are structural.

Studies for different countries show that even relatively modest universal grants, once paid to all adults, quickly reach hundreds of billions per year, equivalent to several points of GDP. ​

The real cost of UBI

The bill must be paid with higher taxes, more debt, more inflation or all at the same time. In practice, that means significantly higher labour and consumption taxes.

A UBI financed by wealth taxes, higher income taxes and social contributions widens the tax wedge on employment, penalises investment and generates capital flights while hindering formal hiring.

When a guaranteed cheque is combined with higher marginal tax rates, macroeconomic models typically show lower participation, slower capital accumulation and a decline in output.

This is the predictable response to changing the relative price of work versus leisure in economies where the room to raise taxes without harming employment and investment is already limited. ​

The “basic income” becomes an irrelevant nominal figure that becomes worthless as the purchasing power of the currency declines

A permanent flow of transfers financed by higher government currency issuance through deficits and tax hikes passed on into prices creates persistent inflation, eroding the real purchasing power of the UBI itself.

As governments are forced to resort to artificial money creation to sustain a large new entitlement, the “basic income” becomes an irrelevant nominal figure that becomes worthless as the purchasing power of the currency declines.​

UBI risks creating a dual society: one integrated by employment and private enterprise, and a growing part stabilised in permanent beneficiary status with limited prospects for upward mobility.

Why most UBI designs fail

Surveys of leading economists, even consensus social democrat-orientated experts, show that a clear majority oppose large‑scale UBI, mainly because of its cost and the bluntness of the instrument.

Across policy journals, the recurring conclusion is that almost all realistic UBI designs crash into the “inadequate or unaffordable” wall.

Finland’s experience with basic income is a warning sign for ambitious UBI projects: after a high‑profile two‑year trial, the government ended the experiment because the results showed no discernible employment gains and generated no real benefits, proving to be too costly to be politically and fiscally sustainable.

The basic income did not raise employment – Finland’s experience with basic income

The headline result is clear: the basic income did not raise employment. Official evaluations by Kela and the Finnish government show that in the first year there was no statistically significant difference in days worked between basic‑income recipients and the control group, despite better financial incentives and the removal of job‑search conditions.

In the second year, employment among recipients improved slightly—only a few extra days of work per year on average—and even those modest gains are hard to interpret because a separate “activation model” reform tightened unemployment‑benefit rules for everyone at the same time.

Two central concerns

From the perspective of economists sceptical about UBI, the Finnish experiment confirms two central concerns.

First, if a generous, unconditional payment to selected unemployed people in a rich, well‑governed country produces only marginal changes in work behaviour, it is unrealistic to expect that a full UBI—much more expensive and financed through higher taxes—will dramatically boost employment. ​

Second, because the Finnish trial was not financed, it sheds no light on the wider general‑equilibrium effects of paying a basic income to everyone through higher taxes, spending cuts or more debt.

Those financing choices are precisely where many of UBI’s biggest risks lie: weaker work incentives for middle earners, heavier tax wedges, lower growth and a politically entrenched transfer that is almost impossible to roll back.

Once an unconditional universal income exists, electoral logic pushes politicians to expand it, not to reform or cut it

UBI adds many political‑economy risks and the degradation of incentives. The rise of UBI is another manifestation of redistributive populism that ultimately rebrands middle‑class incomes and small savers as “rich” to be squeezed to fund a permanent expansion of cheques and nominal “rights” that ultimately erode the productive base.

Once an unconditional universal income exists, electoral logic pushes politicians to expand it, not to reform or cut it, even in low‑growth, high‑debt environments.

This creates a ratchet effect: more structural spending, more borrowing, and heavier tax pressure on a shrinking pool of productive taxpayers, accelerating offshoring, informality, and brain drain.

UBI and the reality of global poverty

UBI is not only an economic mistake but also a mechanism of political dependency: it turns a growing share of citizens into a subclass of dependent clients of the state whose vote focuses on preserving transfers instead of backing reforms that raise productivity, investment and high‑quality employment

Furthermore, in over‑indebted countries, adding a large permanent entitlement increases the temptation to use inflationary policies to finance it, eroding the real value of wages and savings.

The UBI disincentivises work. Why work if you can receive a monthly cheque from the state? Studies show that when people receive unconditional income, labour participation decreases. In the second place, UBI destroys purchasing power.

To finance this supposed panacea, governments would have to print money or increase taxes, which would generate inflation and devalue the currency and lead to capital flights.

The worst part is that UBI benefits the privileged classes of rich countries at the expense of the poor of the world.

While the elites of the West receive their monthly stipend, the workers of developing countries are left without markets and opportunities. It is a selfish and myopic policy that ignores the reality of global poverty.

The alternative to UBI

UBI is not a solution; it is a problem. It is the perfect tool for politicians who want to buy votes and for bureaucrats who want to justify their existence. It is the euthanasia of work and the suicide of freedom.

We need real solutions: education, opportunity, and freedom. Not handouts that chain people to dependency.

Against this model of permanent subsidy, the alternative is to lower tax wedges on work, create stronger legal and investor certainty, better education and active policies that make it easier to create jobs and businesses instead of replacing them with a fake guaranteed income.

The real choice is not between compassion and cruelty but between a system of subsidised stagnation and one of economic freedom and social mobility.

A recent study, “The Economic Impact of Brexit” (Bloom et al., 2025), argues that their simulation models suggest that Brexithad reduced UK GDP by 6% to 8% by 2025.

There are several inconsistencies in the study, starting with a view that staying in the EU would have not penalised growth, which does not seem logical considering that the UK’s major peers in the European Union are in stagnation and in a worse situation than the UK.

One can hardly assume that the UK would have led strong economic growth inside the EU when Germany, France and Italy remain in stagnation.

Furthermore, the study does not explain why the European Union registered no real improvement in growth, as well as showing no impact in their models from the excessive regulation that even Mr Draghi and the European Commission acknowledge to be large burdens of growth.

A tax system that “combines the worst of the US and Scandinavia”

No. Brexit did not wipe out 6% to 8% of the UK’s GDP. Germany and France are in stagnation, as is the euro area. Brexit, therefore, cannot be the cause of the UK’s stagnation, as it is experiencing similar economic conditions to France, Germany, and even Canada or Japan.

What has destroyed the UK’s economic potential was maintaining and increasing all the regulatory and tax burdens of the EU, raising taxes and imposing net zero interventionism.

This is more likely the reason why the UK economy is as weak as Canada, France and Germany: politicians have demolished the private sector and bloated political interventionism.

Brexit was supposed to open the UK economy to the world by eliminating unnecessary regulatory burdens, reducing taxes and increasing economic freedom.

UK slumped by keeping all the negatives of the EU burdens and eliminating all the positives of the UK’s own tax system

Instead, governments increased regulatory burdens to growth, imposed net-zero policies that crippled the industry and made energy bills even more expensive, and implemented a tax system that “combines the worst of the US and Scandinavia”, defined as “eating the rich” by the Financial Times.

The UK did not fall into stagnation because of Brexit. It slumped by keeping all the negatives of the European Union burdens and eliminating all the positives of the UK’s own tax system.

The result? A record capital flight. The UK’s leading export is millionaires, which leads to lower tax collection, lower investment and a disastrous economy.

Poor growth, high borrowing, and negative expectations

The latest official data paints a negative picture for the UK economy. Poor growth, high borrowing, and negative expectations ahead of Chancellor Rachel Reeves’s Autumn Budget.

Expecting another interventionist budget, consensus estimates warn of increasing challenges for growth, employment, and investor confidence.

UK real GDP grew by just 0.1% in the third quarter of 2025, significantly lower than the already weak 0.3% of the preceding quarter, missing market forecasts of 0.2%.

Consensus among forecasters anticipates UK GDP growth of just 1.5% for 2025

Annual growth reached 1.3% for Q3, and momentum worsened, as the effects of higher spending and rising taxes combined with sluggish consumer spending may create a worse slowdown into 2026.

The Office for Budget Responsibility (OBR) recently downgraded its estimate for economic growth, increasing the deficit and reminding us that higher taxes would not help improve receipts.

Consensus among forecasters, including the EY ITEM Club, anticipates UK GDP growth of just 1.5% for 2025, with a deceleration to 0.9% next in 2026.

Rising taxes and weak growth

With these estimates, the UK will be in a very weak economic growth environment. However, when we look at the estimates for France, Italy, and Germany, they are not better at all.

For France, estimates of 2025 GDP growth are at 0.7%, with 0.9% in 2026. For Germany it is worse, at +0.2% for 2025 and 1.2% for 2026. Furthermore, Italy is expected to grow 0.4% in 2025 and 0.8% in 2026. No, Brexit is not the cause of the UK’s problems.

The UK problem comes from governments that think they can solve the borrowing problem by constantly raising taxes, despite the evidence of failure.

Deficit rises with higher taxes as weak growth erodes revenues while unnecessary spending remains

The latest UK borrowing figures reveal the extent of the financial challenges of the economy. In October 2025, UK government borrowing hit £17.4 billion, exceeding both consensus forecasts and the Office for Budget Responsibility’s prediction.

This was the third highest borrowing figure in October since records began. Year-to-date (April to October), the government borrowed £116.8 billion, £9 billion more than last year and the second highest since modern records began.

Government net debt has risen to 94.5% of GDP. Although lower than France’s 114%, it is an unsustainable level considering the expected borrowing path. Deficit rises with higher taxes as weak growth erodes revenues while unnecessary spending remains.

The fiscal hole

The fiscal hole is estimated at £20–30 billion for the upcoming budget, and the evidence shows that higher taxes will not solve it.

The last budget’s combination of higher spending and tax hikes depressed the private sector growth and generated an even worse borrowing outlook.

Furthermore, recent GDP increases were artificially inflated by government spending rather than a productive economic recovery.

The anticipated Autumn Budget is expected to bet again on tax increases

Without meaningful productive investment and supply-side reforms, stagnation will worsen. Additionally, the negative outlook for fiscal deficits means that British 10-year bond yields have risen to more than 4.5%, showing the evidence of the loss of investor confidence after the budget announcement.​

The anticipated Autumn Budget is expected to bet again on tax increases. Reeves has reiterated a commitment to “iron-clad” fiscal rules, which seems to be a joke when she is constantly increasing spending.

Deficits are always a spending problem. Consensus expects damaging measures such as freezing income tax thresholds, increasing property taxes, and introducing new levies on sectors from electric vehicles to gambling.

However, these tax increases will further undermine investment and job creation and may accelerate capital flight among high earners and businesses.

Confidence low among investors and businesses

The OBR’s recent reduction in the UK’s productivity forecast weakens long-term fiscal sustainability. For every 0.1 percentage point drop in productivity, government borrowing is projected to increase by £7 billion, with a recent revision threatening a £21 billion budget shortfall

Meanwhile, unemployment is already on a slow rise due to elevated labour costs and is forecast to rise to 5% in 2026. Considering that inflation is rising to a 13-month high, the decline in living standards is evident as effective real net wage growth becomes almost non-existent.

When we look at expectations for Reeves’s Autumn Budget, confidence is low among investors and business owners. Analysts expect a “smorgasbord” of targeted tax changes, according to the BBC, rather than bold supply-side reforms.

Public opinion polls show a lack of support for the government’s handling of the economy, with 76% of citizens stating that the government is managing the economy badly or very badly, according to YouGov.

The result of big government and high taxes is stagnating GDP, capital flight, persistent deficit and a rising debt burden.

High taxes and big government are the recipe for stagnation. UK citizens deserve better, but the harsh reality is that the solution is not to copy France or rejoin the European Union, which are in worse shape, but to abandon net-zero and regulatory burdens and reduce taxes to attract investment and jobs.

Many Keynesian commentators have hailed the recent correction in gold prices as a fleeting victory. The same people who said that gold was worthless and had no reserve value at $600 an ounce celebrate the correction from $4,300 to $4,000.

Funny, as gold has risen 55% in 2025 up to October 24th, a 20% annualised increase and a total rise of 150% since 2022.

The recent correction is logical amidst a bounce in the US dollar index to 99, its highest level since July, and a liquidity problem.

A liquidity problem, not a demand problem

My dear friend Danielle Martino Booth reminds us that the correction in gold is a symptom of a liquidity problem, not due to a loss of faith in gold or its demand. This is a clear symptom of severe liquidity stress in the financial system.

As margin calls rise and leveraged investors are forced to raise cash, they are also forced to sell the assets they’ve made money on.

This explanation is also logical when we look at the US dollar bounce, as many investors globally took aggressive leveraged bets against the US dollar and long-risk assets. Paying attention to a liquidity event is essential to identify the moment to buy more gold.

Gold remains an essential hedge against fiscal irresponsibility and currency debasement

If we look at the fundamental drivers, nothing has changed in terms of the demand from central banks or the relentless expansion of global money supply, both of which continue to support the long-term investment case for gold.

Despite short-term price fluctuations, structural forces remind us that gold remains an essential hedge against fiscal irresponsibility and currency debasement.

A politically neutral reserve asset

Central banks are still actively moving away from sovereign debt, especially euro-denominated bonds. They are adding gold as a politically neutral reserve asset.

In 2025, central banks purchased over 1,000 metric tonnes of gold for the third consecutive year, bringing global official reserves above 36,000 tonnes.

This purchasing spree shows the evidence of the loss of confidence in developed nations’ debt, with 95% of central banks planning further gold additions in the next twelve months.

The National Bank of Poland, the largest buyer year-to-date, continues to buy

For the first time in decades, gold holdings surpass US Treasuries and euro area bonds as the leading reserve asset of central banks.

Even with a short-term moderation in quarterly purchases, with 166 tonnes added in Q2 2025, central bank demand remains solid and structurally intact.

The National Bank of Poland, the largest buyer year-to-date, continues to buy, while Kazakhstan, Bulgaria, and El Salvador also contributed to August’s net 19-tonne increase.

Persistent inflationary pressures that benefit gold

Central banks are buying gold because they don’t trust their peers. Most policymakers have abandoned any real control over inflation and fiscal irresponsibility and continue to prioritise state borrowing at negative real rates.

Thus, global money supply is expanding three times faster than output measured as GDP, driven by government debt and central banks’ financial repression.

The global money supply growth continues to rise at a much faster pace than productive economic growth

With global debt reaching $337.7 trillion, or 324% of global GDP in 2025, governments are betting on liquidity injections and low interest rates to avoid fiscal challenges, even when the outcome means currency debasement.

This monetary insanity drives persistent inflation, which is a form of de facto slow default that erodes real wages and savings.

The global money supply growth, particularly from major economies including France, China, the US, and Japan, continues to rise at a much faster pace than productive economic growth, while government spending maintains money velocity at an abnormal pace, thus creating persistent inflationary pressures that benefit gold.

Gold as a measure of fiscal insanity

Gold’s recent rise is a direct response to government excess and central banks that enable it. Inflation is a deliberate policy to disguise fiscal imbalances, and central banks have abandoned their independence, essentially avoiding any limit to governments’ inflationist policies and enabling excessive spending

Even with the current correction, gold and Bitcoin work as the only real limits on government excess, acting as independent money that cannot be devalued by political design.

Gold’s recent correction is not significant compared with the structural trend of loss of confidence in fiat currencies, which remains unchanged.

Gold is not just an investment but a measure of fiscal insanity, and its long-term trend reflects the decisions of governments and policymakers who have abandoned sound money in an era of perennial crises.

Many citizens ignore the elevated risks of constantly rising public debt. People often ask themselves, “Why do I care? It does not affect me.” However, it does. A lot.

Rising government debt means economic stagnation, weaker real wage growth, higher taxes, and persistent inflation. The only way to reduce debt is to stop the constant increase in government spending because high taxes are not a tool to reduce debt but to justify it.

In the first half of 2025, global debt hit an all-time high, and the world is now going through a crisis that is especially challenging in developed countries like France, Japan, and the UK.

The rising levels of sovereign debt, the need for record amounts of refinancing, and the possibility of higher interest rates are all changing the outlook for the economy, threatening growth, and putting pressure on policymakers to make real changes.

Driving force behind the increase in global debt

What the mainstream does not want to admit is that the welfare state in developed economies is unsustainable and unfinanceable, and the model of rising taxes and uncontrolled spending has created a global debt crisis.

By the second quarter of 2025, the world’s debt had reached an amazing $337.7 trillion, an increase of more than $21 trillion in just the first half of the year. The debt-to-GDP ratio is still over 235%, which is a tremendous burden on the world’s economy.

Investors have lost their confidence, and governments have exhausted their fiscal space

Governments are the driving force behind this increase in global debt. Government borrowing has gone up faster than private sector deleveraging. Public debt is now $99.2 trillion, which proves the big mistake of betting on government intervention around the world.

Policymakers promised that the enormous public sector stimulus plans would strengthen the economy, and they have worsened it. The world’s debt has reached levels like those during the peak of the COVID-19 crisis.

Investors have lost their confidence, and governments have exhausted their fiscal space. Interest expenses rise despite central bank rate cuts, and the global central banks are abandoning sovereign debt as a reserve asset to concentrate on increasing purchases of gold.

Lessons from France, Japan, and the UK

France is one of the most obvious examples of fiscal irresponsibility. In September 2025, public debt reached an all-time high of €3.4 trillion ($4 trillion), which was 115.6% of GDP. The deficit is expected to be 5.4% of GDP in 2025, which could lead to more credit downgrades for France.

The cost of servicing French debt is rising, with payments expected to more than double from €59 billion in 2024 to over €100 billion by the end of the decade. This is the biggest single item in the budget.

France has never implemented austerity measures, yet it maintains the largest government spending in the OECD and the highest tax wedge. Those that promote the idea that more public spending and taxes are the solution to the world’s fiscal challenges should remember the lesson from France: a debt crisis and no fiscal space.

While France was the poster boy of the welfare state and big government, it faces a debt crisis, and it is not the only country to do so.

The welfare state has proven to be unsustainable in all developed economies.

Japan is another example. In March 2025, the central government’s debt reached 1,324 trillion yen ($9.46 trillion), which was 234.9% of GDP. The prime minister announced that Japan’s fiscal situation was worse than Greece’s in the 2008 crisis.

In 2025, the UK’s government debt was £2.7 trillion, which was 104% of GDP

A structural debt overhang has built up over decades of fiscal stimulus and uncontrolled government spending amidst a decline in population. Japan’s long-term bond yields have reached record highs and prove that the market’s mood has changed.

Japan now spends a quarter of its entire budget on interest. The threat of a fiscal crisis is evident, and no politician seems to want to address the unsustainable levels of government spending.

Another example of a broken welfare system is the UK. In 2025, the UK’s government debt was £2.7 trillion, which was 104% of GDP. The government has tried to disguise this by inventing a new way of measuring debt, but no one believes their made-up 96.4%.

Regardless, the evidence of unsustainable spending is overwhelming. Chancellor Rachel Reeves is under pressure to act, as forecasts warn of a £41.2 billion borrowing gap, and calls for new taxes remind us that increasing taxation only led the UK to stagnation, while debt keeps rising.

The fiscal deficit has risen to £72.6 billion in the year ending March 2025, and gilt yields remain above 4.6% for the 10-year bond, making borrowing more expensive. The government says it aims to keep debt-to-GDP stable by 2030, but this goal is impossible to reach by implementing anti-growth policies, hurting job creation and investment with unacceptable taxes and keeping all unnecessary spending untouched.

The era of easy money has ended

As I’ve said in a few of my recent pieces, the “wall of debt” means that governments and businesses will have to refinance trillions of dollars over the next two years at much higher rates and with less investor demand

Risky public debt issued when rates were almost zero will have to be refinanced, and governments would rather not acknowledge the unsustainable spending levels they have reached.

All the above-mentioned nations are, again, announcing more taxes, which will drive out private investment and hurt productivity. Furthermore, the average taxpayer is exhausted. Public debt is not just a technical issue; it slows down economic growth, lowers real wages, and makes it harder for the government to respond to new crises.

The record amount of debt, the unwillingness of politicians to make real changes to spending, and the rise in interest rates are all coming together to create a historic moment.

Global investors and central banks do not trust policymakers that can only resort to tax hikes. If there are not any structural changes to an unsustainable welfare state where unfunded liabilities reach 400% of GDP in the case of France, many advanced economies will remain stuck in a cycle of stagnation, rising interest expenses, and declining investor confidence.

When governments reject the idea of structural reforms, they are creating the basis of the next inflationary and fiscal crisis. The era of easy money has ended.

The Misery Index has always been used as a simple gauge of a country’s economic problems by adding the current unemployment and inflation rates.

On August 22, 2025, Bloomberg data shows that most European economies remain burdened by elevated Misery Index levels, with Spain (13.10%), Greece (10.99%), Portugal (8.64%), Italy (7.96%), and even the broader Euro Area (8.20%) all demonstrating a high level of economic weakness. These figures show a significant difference with the United States, at 6.90%.

The biggest concern is that the Misery Index does not even start to paint a realistic picture of the unemployment problem in Europe. For example, Spain does not officially classify many individuals as unemployed, even if they are not working and are receiving unemployment benefits.

The official Active Population Survey (EPA in Spanish) does not count as unemployed the 736,528 inactive permanent seasonal workers nor the 10,518 affected by ERTE (furloughed jobs or temporary layoff schemes) at the end of June 2025.

The total number of unemployed registered at the unemployment service, SEPE, sits above 3.14 million in June, practically the same as in June 2018 (3.18 million). Thus, effective unemployment in Spain has not fallen since 2018.

The activity rate in June 2025, 59.03%, is practically the same as in June 2018, 58.80%, according to the INE, Spain’s National Statistics Office.

Public employment paid with rising debt

Between June 2018 and June 2025, public employment in Spain, paid for with rising debt, has increased by approximately 600,000 people, a growth of about 24% since Pedro Sánchez came to office.

Social Security affiliation in Spain is inflated by almost 600,000 people holding multiple jobs, a constant increase in public employment paid with debt, and the growth of contracts with hardly any remuneration.

The evidence of the failure of PM Sánchez’s employment policy is seen in the number of hours worked per affiliation, which has dropped from 34.5 to 33 hours per week.

This is happening in the middle of the largest stimulus package, the Next Generation EU Fund

According to Eurostat, Spain has the highest labour market slack rate (unemployment and underemployment) at 18.3%, even surpassing Greece’s 16.5%. The EU average is 10.9%.

Labour market slack includes the unemployed (actively seeking work), underemployed part-time workers (wanting but unable to get more hours), individuals seeking work but not immediately available, and those available to work but not seeking.

This is relevant because it is happening in the middle of the largest stimulus package, the Next Generation EU Fund, in years and a dovish stance from the European Central Bank as well as flexible fiscal rules.

Spain’s persistent high unemployment and above-target inflation

The elevated spending and expansionary fiscal stimulus packages after COVID-19 have contributed to persistent inflation from 2022 onwards. Elevated prices for essentials like housing, energy, and food persist due to the enormous increase in government spending (+25% since 2019) and the constant intervention in the market.

Spain’s annual inflation rate (2.7%) is clearly higher than both the EU average (2.4%) and the Eurozone average (2.0%), making it one of the countries currently facing above-target inflation across the region. Core inflation in Spain also stands at 2.3%, still above the core Eurozone figure, according to Eurostat.

Funcas and other analysts confirm net salaries remain below pre-pandemic and even pre-2008 crisis levels, with real net income down around 2.9% compared to the pre-COVID reference.

Despite some improvements since the pandemic’s peak, Spain deals with persistently high unemployment and higher inflation rates

Spain stands out with the region’s highest Misery Index (13.10%) despite headline GDP figures showing high growth. This is also because GDP has been supported by rising immigration and an increase of 25% in government spending, leading to a 500 billion euro rise in public debt.

Total public debt in Spain stands at 2.17 trillion euro, 135% of GDP. Public debt using the excessive deficit protocol stands at 1.67 trillion, or 103% of GDP.

Despite some improvements since the pandemic’s peak, Spain deals with persistently high unemployment and higher inflation rates exacerbated by rising government spending, interventionist laws, and labour market rigidity.

A poorer country despite some GDP growth

The number of inactive permanent seasonal workers in Spain has skyrocketed after the regulatory change requiring unique service contracts or seasonal contracts to be made “permanent seasonal”. This means that thousands of workers do not appear in official unemployment figures when they are not working

This legislative change, often criticised as a way of disguising real unemployment, has turned a figure once used as a bridge to reach stable, quality contracts into one that hides joblessness because those people are not counted in official jobless figures when not working.

Thus, inactive permanent seasonal workers in June 2025 are more than triple what was recorded in June 2018. The 736,258 inactive permanent seasonal workers recorded in June 2025 do not represent a success in employment or stability; rather, they illustrate an exercise in statistical manipulation due to regulatory changes.

Moreover, if the government truly cared about quality employment and stability, it would be alarmed by the figure of more than 4 million job seekers and the drop in contract duration and hours worked.

When effective unemployment does not fall, Social Security affiliation is inflated by multiple job holders, hours worked and contract duration are worse than in 2018, and the activity rate is stagnant, it shows the failure of 2022’s labour market reform.

However, these poor figures are even more alarming considering that the Sánchez government has received the largest monetary and fiscal stimulus in the history of Spanish democracy.

The Misery Index is concerning; however, if we considered the real unemployment rate, which includes inactive and furloughed jobs, it would be even more alarming.

A persistently high Misery Index impacts consumer confidence, spending, productivity, and ultimately investment. Elevated unemployment suppresses wage growth, while inflation erodes the purchasing power of salaries, leading to a poorer country despite some GDP growth.

Recent official data shows that prices in the US economy are exceedingly far away from the runaway inflation fears created by Keynesian economists.

Contrary to Keynesian consensus estimates, inflation expectations among consumers are falling, the Consumer Price Index (CPI) remains contained, and the prices of essential goods are not rising.

While tariffs can be criticised for policy and geopolitical reasons, the narrative that they are direct drivers of sustained inflation does not stand up to empirical and theoretical scrutiny.

Consumer inflation expectations in the US have been trending downward. In June 2025, expectations fell to 3.0% from 3.2% in May, with projections suggesting a further decline to 3.0% for 2026.

The CPI year-over-year change stood at 2.7% in June 2025, well below the levels many forecasters feared at the start of new tariff implementations. Monthly core inflation, excluding food and energy, has hovered around 0.1-0.3%, consistent with pre-tariff periods and a far cry from any narrative of spiralling prices.

The USDA projects food-at-home prices to rise 2.2% in 2025, below the 20-year average—while certain categories like eggs and fresh vegetables are experiencing price declines.

Although some imported goods, such as appliances and toys, have recorded modest price increases, these have been counterbalanced by declines in other essentials such as gasoline, rent, and clothing. The all-in basket of essential household goods thus remains well within historic bounds.

Tariffs do not cause inflation—key arguments

1. Costs do not dictate final prices; it is the other way around, as the Menger imputation principle shows.

A key principle of economics, the Menger imputation principle, reminds us that final prices drive costs, rather than the reverse.

The value of factors of production is derived from the value of the final goods they help produce, not from their own intrinsic characteristics or costs.

Sellers can only raise prices to the extent that demand allows; otherwise, costs get absorbed along the supply chain or by exporters themselves.

2. Tariffs do not suppose more units of currency in the system nor higher monetary velocity. Furthermore, they do not impact aggregate prices.

Tariffs, unlike aggressive fiscal policy or monetary expansion, do not inject additional currency into the economy nor accelerate monetary velocity.

Higher government spending leading to a soaring money supply, not tariffs, played the driving role in the inflation surge that peaked in 2022

True inflation—sustained, cumulative, and annualised rises in the general price level—requires an increase in money supply and/or spending velocity, and tariffs do not drive any of those factors.

Higher government spending leading to a soaring money supply, not tariffs, played the driving role in the inflation surge that peaked in 2022.

3. Supply chains are not a binary producer-buyer chain. They are exceedingly complex, and many of those rivets and links absorb costs.

The US supply chain network has grown nine times more complex since 2009, including a large number of components, partners, and processes.

Such complexity means tariffs on finished goods often see the cost spread widely and absorbed by producers, distributors, and transport or storage and packaging businesses.

Supply chain actors have varied strategies for mitigating cost increases, from technology to efficiency and inventory management, among others.

4. Most exporter nations have overcapacity and working capital challenges and thus prefer to keep prices attractive to sell to the US, the largest and richest market.

Countries like China struggle with industrial overcapacity, particularly in sectors like automobiles, batteries, and electronics.

The EU overcapacity is evident in steel, chemicals, automotive, and machinery as well as agricultural and farming goods.

These exporters face working capital constraints and often choose to keep prices attractive to maintain access to the massive US market, the largest and richest in the world, eating tariff costs.

5. Tariffs do not increase aggregate prices.

If tariffs created a sudden burst of aggregate prices, which is impossible as per the previous points, inflation would plummet in the following month due to declining consumption. Demand is not inelastic

If tariffs were truly inflationary at the aggregate level, economies like the EU or China—both with significant tariffs and trade barriers—would be suffering high inflation.

Instead, the redirection of Chinese goods to Europe is forecasted by ECB economists to reduce European inflation by up to 0.15 percentage points, showing how market competition and surplus supply suppress inflationary effects.

Moreover, demand is never perfectly inelastic; should tariffs sharply increase prices, which is impossible as we have mentioned, US consumers would simply buy less, quickly stabilising any upward pressure.

Inflation expectations are receding; CPI is rising in line with historical trends; and essential goods prices are flat or have fallen.

Only excessive government spending driving money supply and velocity growth create high inflation.

After the latest trade agreements signed by the Trump administration, the ridiculous narrative that tariffs are paid for by U.S. consumers has been dismantled.

That mantra was repeated because it ignored two essential factors: the high level of overcapacity among exporting producers and the complexity and efficiency of global supply chains.

Some biased analyses incorrectly assumed that price transmission occurs in a simple producer-to-buyer chain, when there are many more links.

Tariffs can be criticised for many reasons, but it’s a mistake to claim they cause inflation since they don’t create more units of currency in the system nor increase the velocity of money.

In fact, if global exporters truly believed that American consumers would shoulder the tariffs, they wouldn’t have panicked and rushed to negotiate immediately.

Trump had three aces up his sleeve: the enormous overcapacity of global exporters, the fallacy that they can replace American consumers with another market, and, as a negotiator, the knowledge that exporting countries lacked leverage to threaten the United States, facing “death by working capital.”

Everyone knew that their trade surpluses were not the result of spontaneous cooperation among free companies but the outcome of years of obstacles placed in the path of U.S. firms and barriers to pick winners and losers.

Higher tariffs over barrier removal

Many countries have preferred higher tariffs rather than removing their own trade barriers. Why? It’s simple. Many countries want to keep their tariffs and barriers because they give power to their government.

The Trump administration has reached important deals with major powers such as Japan and strategic Asian countries, setting the stage for an imminent agreement with the European Union.

The historic deal between the United States and Japan is a clear example, both for its scale and its symbolism.

Japan will direct $550 billion in investments into the United States, implying a very positive increase in jobs and exports for both countries

Japanese products will have a 15% tariff, lower than the threatened 25% but higher than the previous average of 10%.

Although Japan agreed to import American trucks, rice, and agricultural goods, easing its import system, it preferred to keep part of its barriers and thus accepted 15% tariffs.

Japan will direct $550 billion in investments into the United States, primarily in sectors such as pharmaceuticals, semiconductors, and strategic mineral extraction. All this implies a very positive increase in jobs and exports for both countries.

We do not live in a world of free trade

The most relevant aspect is that these agreements limit the possibility for China to resort to “origin washing” and channel products through Vietnam and other countries.

Indonesia is removing 99% of its tariff barriers on American exports, unlocking access to minerals such as nickel and guaranteeing openness to industrial and agricultural goods.

The Philippines accepts a 19% tariff on its products, while American products are exempt from tariffs

Meanwhile, Trump achieved a historic agreement with China, which now, along with the deals with Vietnam, Japan, and the Philippines, as well as with Australia, makes global trade freer and, above all, fairer.

After closing the deal with Japan, global attention is now focused on the European Union.

The European Union had the easiest deal of all, as it only had to follow the recommendations of the Draghi report and remove its trade barriers.

However, EU negotiators have been waiting, thinking that historic agreements like those with the UK or Japan would not materialise.

The European Union cannot afford to sabotage a deal because Japan or the UK would seize the opportunity to capture market share from European exporters.

These agreements have reminded us that we didn’t live in a world of free trade, that tariffs and trade barriers were the global norm, and that now we’re approaching an environment where trade balances will have more to do with the spontaneous cooperation of businesses and less with the barriers of global statism.

Many people blame Brexit for the UK’s problems. However, the stagnation of the British economy and its challenges are the same as those faced by most European neighbours, especially France and Germany.

If the UK had remained in the EU, the economic outcome would have been similar, as it has not removed any of the barriers to growth that still affect its former EU partners.

The UK’s problem has not been Brexit but the failure to deliver on the promise to remove excessive regulation, high taxes, and misguided immigration policies. In other words, the true problem is socialism, not Brexit.

It’s also important to remember that when we talk about socialism, we must consider the Huerta de Soto’s definition of “any system of institutional, methodical aggression against the free exercise of entrepreneurship”.

The UK suffered from a form of conservative socialism, and much of the blame lies with Sunak and May, the Conservative leaders who broke their promises and kept the high taxes, regulatory obstacles, and trade barriers of the European Union.

Liz Truss dared to present a pro-growth, supply-side plan that would have lifted the UK from the dire stagnation situation it was in.

However, the mainstream sabotaged her and blamed her for a bond rout that had nothing to do with her budget and everything to do with the consequences of the inflationist policies of central banks and governments before her.

At the same time that UK bonds were experiencing a decline, Japanese and French bonds also plummeted as inflation expectations shifted from being considered “transitory” to “persistent.”

However, nobody in the mainstream said anything about the French, Japanese, or current Labour Party budgets nor demands for resignations because those are poster boys of the new religion of neo-Keynesian statism, which must be imposed at any cost.

As expected, Truss was forced to resign, and the Sunak administration implemented anti-growth policies, raising both taxes and public spending.

What happens when Conservatives abandon their principles of low taxes and deregulation? Voters faced the unappealing option of conservative socialism or more socialism. And they got socialism.

Starmer’s budget: worst in decades

The budget presented by Keir Starmer’s government in 2025 is the worst in decades. With public spending soaring, confiscatory taxes, and a horizon of unchecked deficit and debt, the country has witnessed a mass exodus of millionaires, a worrying rise in unemployment as of June, and disastrous fiscal management.

Starmer has enacted a deeply interventionist fiscal policy marked by a massive tax hike—over £40 billion in new taxes—which stifles investment and penalises the private sector.

The Labour government’s budget increases public spending by £69.5 billion, or 2.2% of GDP, per year from 2025 to 2026. Two-thirds of this spending goes to current expenditures.

Once it became evident that deficit, and debt would spiral, the yield on the UK 10-year government bond surged and is trading around 4.68% as of July 18, 2025. Yields have fluctuated within the 4.5%-4.7% band and represent a notable jump from previous periods.

The fiscal disasters in France and Japan were ignored, while Truss was forced to leave

UK bond yields are at the highest level since 2022 but with three times lower inflation than when Truss was forced to resign. However, nobody resigns, because socialism must be whitewashed at all costs.

Liz Truss was sabotaged and forced to resign for presenting a pro-growth budget that cut taxes and encouraged economic expansion. The social-democratic Keynesian consensus pushed her out because bond yields rose.

Those same people remained silent when bond yields spiked in France and Japan at the same time and look the other way now when yields adjusted for inflation are in much worse territory.

Let us make things clear. Bond prices plummeted worldwide in 2020–2022 due to the inflationist policies of central banks and governments, not Truss’s budget.

Unfortunately, Keynesian orthodoxy shields those who raise taxes and spending and attacks anyone cutting taxes. Thus, the fiscal disasters in France and Japan were ignored, while Truss was forced to leave.

The 2025 wealth exodus

After Sunak’s disastrous approach, who, despite being Conservative, implemented policies more socialist than many European social-democrat governments, Starmer now leads the UK into an even greater collapse of sovereign bonds. Yet, no one resigns; the newly established dogma of predatory statism must be protected.

“Wexit”: The Wealth Flight

In 2025, the UK faces the largest exodus of millionaires in the world, with an estimated 16,500 people with wealth exceeding one million dollars leaving the country this year, according to the Henley Private Wealth Migration Report.

This “haemorrhage” is double that of China, which ranks second. The cause: regressive tax changes, legal uncertainty, and a perception of diminished economic freedom following the harsh budget.

This outflow, dubbed “Wexit” (wealth exit), erodes the tax base and damages investment, driving away highly qualified professionals across finance, technology, and law

Labour Market Weakness

Recent labour data show severe deterioration. In June, the UK’s unemployment rate rose to 4.7%, the highest since 2021. The latest available statistics show that only part-time contracts drove employment growth in June, with permanent, full-time jobs barely increasing.

The number of job vacancies fell to 727,000, the lowest since the pandemic. The inability to create quality jobs and weakening economic activity are direct consequences of fiscal irresponsibility.

A Triple Crisis of Confidence

Starmer’s budget, far from reassuring markets and strengthening social stability, has opened a triple front of mistrust. UK 10-year bond yields have surpassed 4.5%, which is higher than at the worst point in 2022 and even worse when adjusted for inflation; capital flight is eroding the investment outlook, endangering tax revenues, while rising unemployment and stagnant wages are increasing social discontent.

The sad conclusion is that the UK voted to eliminate EU barriers and taxes, but the worst forms of socialism have prevailed while all the old obstacles remain. Now, Starmer is adding more burdens to growth.

As it stands, the United Kingdom suffers the worst of the EU and has seen none of the Brexit promises. Falling competitiveness, stagnation, capital flight, and poorer social and economic outcomes are direct consequences of abandoning supply-side policies and extending interventionism.

The UK does not have a problem with human capital, entrepreneurship, or financial market strength. It has a political problem. The UK could have lifted itself from stagnation with higher growth and more investment, and now its government seems content with stagnation and excruciating taxation.

President Trump has announced a 50% tariff on all Brazilian imports, effective 1 August. His rationale for these tariffs extends well beyond trade disputes.

To understand the reasons behind this announcement, it is important to consider Brazil’s large trade barriers, lack of legal security, recent attacks on freedom of speech, and the ongoing fiscal and economic challenges under President Luiz Inácio Lula da Silva.

Brazil is a country with enormous potential, excellent human capital, and a vibrant entrepreneurial class. However, it is also one of the countries with the highest trade barriers, ranking among the most restrictive globally.

In 2023, Brazil ranked 109th in the Trade Barriers Index, highlighting the significant barriers to trade that make it the worst in the region in terms of open commerce.

These restrictions include elevated tariffs on imports, complex customs procedures, and a proliferation of non-tariff barriers, all of which make Brazil an exceedingly difficult market for foreign exporters, including those from the United States.

The Trump administration has repeatedly mentioned these barriers as justification for reciprocal action. The new 50% tariff is positioned as a direct response to what Trump describes as a “very unfair trade relationship,” seeking to pressure Brazil into reducing its protectionist stance and opening its market to U.S. goods and services.

The decision is also influenced by concerns about attacks on freedom of speech and the use of the legal system to silence opponents, including the accusation of a coup attempt against former president Jair Bolsonaro.

Bolsonaro and his supporters argue that the coup accusations are meritless and politically motivated, claiming that similar tactics are used against political opponents in countries like Venezuela, Nicaragua, and Cuba.

Unpredictable regulatory environments

Another major factor influencing Trump’s decision is the perceived lack of legal security in Brazil. The World Justice Project’s Rule of Law Index for 2023 ranked Brazil 111th out of 142 countries, highlighting issues such as corruption, uneven access to justice, and inconsistent enforcement of laws.

Foreign investors and exporters face unpredictable regulatory environments and significant legal risks.

Another factor behind the tariff decision is Brazil’s recent clampdown on digital free speech. In August 2024, Brazil’s Supreme Court ordered the suspension of X. The ban was seen by many as an attempt to control political discourse and suppress dissenting voices.

“Brazil can survive without trade with the US and will look to other partners to replace it” – Lula da Silva

Trump’s letter announcing the tariffs explicitly condemned Brazil’s “attacks on Free Elections and the fundamental Free Speech Rights of Americans,” referencing the X ban and similar actions against other platforms.

He argued that such measures undermine democratic norms and threaten the open exchange of ideas, further justifying the imposition of punitive trade measures.

President Lula’s response was defiant. In a televised interview, Lula asserted, “Brazil can survive without trade with the US and will look to other partners to replace it.” He emphasised that Brazil’s trade with the U.S. represents only about 1.7% of its GDP.

Brazil faces a clear choice

However, this response obscures a more complex reality: Brazil’s economy is heavily dependent on U.S. and foreign investors.

The U.S. dollar remains the primary currency for trade settlements, foreign reserves, and external debt in Brazil.

Brazil’s public debt is high, at about 80% of GDP, and a significant portion is held by foreign investors. Furthermore, Brazil’s persistent fiscal deficits, around 8% of GDP, require ongoing access to international capital markets

Lula’s administration has struggled to balance ambitious social spending with fiscal responsibility. Efforts to implement a new fiscal framework have been hampered by political resistance and credibility crises, leading to significant currency devaluation and emergency spending cuts.

Most analysts forecast a modest 1.5% GDP expansion in 2025. Persistent deficits, the weak financial situation of state-owned companies, a ballooning public debt nearing 80% of GDP, and a recent $500 million deficit in federal state companies have raised concerns about Brazil’s fiscal sustainability.

A critical issue facing Brazil is significant industrial overcapacity. As of February 2025, Brazil’s seasonally adjusted manufacturing capacity utilisation rate stood at only 78.9%, compared with a long-term average of around 80.8%.

This persistent 20% overcapacity creates substantial working capital challenges for exporters, and the weak financial situation of state-owned companies underscores this problem.

Consequently, Brazil cannot simply offset its sales to the United States with other nations, nor can it easily mitigate its industrial working capital issues.

President Trump’s 50% tariff on Brazilian imports is a response to Brazil’s trade barriers, legal insecurity, recent attacks on digital free speech, and the country’s fiscal and economic challenges under Lula.

Brazil faces a clear choice: negotiate or lose. The Trump tariffs will be eliminated only if legal security and freedom of speech are restored and if Brazil’s elevated trade barriers are at least partially removed.

The fiscal package of the Trump administration, the “Big Beautiful Bill” (BBB), has passed through Congress and the Senate, and it is worth explaining why it is great news and should be defended.

It is sad to see that some analysts have tried to sabotage this programme by arguing that it increases the deficit and does not reduce spending enough.

It is alarming that some libertarians buy into the flawed static estimates and deny the positive effects on growth, investment, and tax revenues from deregulation, tax cuts, and trade negotiations.

The combined effect, even with conservative estimates, massively reduces the annual deficit and the debt-to-GDP ratio.

– The bill includes $1.6 trillion in mandatory spending cuts, the largest in U.S. history in this category.

– $2.6 trillion in discretionary spending cuts.

– $4 trillion in extraordinary revenues from trade negotiations, increased exports, and reduced imports.

– $7 trillion in committed investments.

It is puzzling how some liberals forget the positive effects of deregulation, trade negotiations, and the Laffer curve.

The Big Beautiful Bill is the greatest effort in decades in deregulation, spending cuts, tax reductions, and liberalisation, essential to save the U.S. economy from the disaster inherited from Biden and to achieve more growth and a significant fiscal improvement.

It should be supported not only for its positive aspects but also because the alternative would have been the largest tax increase in U.S. history and a disaster for the private economy and, consequently, the deficit and debt.

Just as happened with Milei upon arriving at the Casa Rosada, Trump is being judged by his inheritance. It seems conservatives and libertarians must produce immediate results upon entering office. Well, in a few months, as with Milei, results will be seen.

These results demonstrate the new administration’s commitment to reducing spending and the deficit in a very adverse budgetary context

When Trump assumed the presidency in January 2025, 97% of the federal budget was already spent and committed due to the outrageous “continuing resolutions” approved by the Biden administration.

It is curious that some in the liberal and libertarian world forget that the fiscal year starts in October and that Biden carried out a huge spending increase between October and December that took effect in 2025.

At the end of 2024, Biden approved an 8% increase in the largest mandatory spending programmes and a brutal 700% increase in the EPA (Environmental Protection Agency) budget. All this left extremely limited room for immediate cuts, especially in mandatory spending.

Despite these restrictions, the Trump administration has managed to reduce discretionary spending by $541 billion in the first six months of 2025, and the accumulated deficit between March and May has decreased.

– In March, the deficit was $161 billion, a 32% reduction compared to March 2024.

– In April 2025, the second-largest fiscal surplus in history was recorded, $258 billion.

– In May 2025, the adjusted deficit was $219 billion, 17% less than the adjusted deficit in May 2024.

These results demonstrate the new administration’s commitment to reducing spending and the deficit in a very adverse budgetary context.

The Big Beautiful Bill is the most ambitious exercise in deregulation, liberalisation, mandatory spending cuts, and tax reductions carried out in the United States and must be defended as an essential giant step to return the economy to the private sector.

Key Measures Included

– Indefinite extension of the 2017 tax cuts, thus avoiding the largest tax increase in the last sixty years. It is unclear why some liberals ignore this second part.

– The first reduction in mandatory spending in five decades: historic cuts without affecting services, totalling more than $1.6 trillion, including $700 billion in Medicaid.

– Elimination of taxes on tips and overtime for workers earning less than $160,000 annually.

Fiscal Impact and Projections

– The fiscal impact is the largest deficit reduction in 30 years.

– The Council of Economic Advisers (CEA) shows that public debt will be reduced to 94% of GDP by 2034, compared to 117% projected under Biden’s policies.

– The annual deficit will be cut in half.

These estimates are conservative and do not assume the positive effects of trade negotiations or additional discretionary spending cuts mentioned by Treasury Secretary Scott Bessent.

The plan aims to reduce the deficit by $11.1 trillion by 2034, combining spending cuts, revenues from trade negotiations, and economic growth stimulus.

In fact, the projection of achieving a primary surplus by 2034 is conservative, and a strong increase in tax revenues is expected from deregulation, tax cuts boosting consumption and investment, and new trade agreements.

This programme is essential as a first step to recover the United States, unlock the U.S. economy, liberalise, reduce spending, and strengthen growth, which should be driven above 3% and up to 4% thanks to attracting investment and businesses.

Criticism and Counterarguments

Organisations like the Congressional Budget Office estimate that the bill could add up to $3.3 trillion to the deficit over the next decade if the positive effects on growth and tax revenues do not materialise.

However, even that estimate is better than the disaster that Harris’s policies would bring, and it does not consider any positive impact from deregulation, the Laffer curve, or revenues from trade agreements.

Remember the alarmist estimates about tax cuts from Ayuso, Meloni’s programme, or Milei’s programme? Keynesians are always wrong because they assign public spending multiplier effects that never occur and assume negative effects from supply-side measures that also do not happen.

Libertarians should not buy into that flawed narrative.

A turning point

The Big Beautiful Bill marks a turning point in U.S. fiscal policy and is an essential step for a more ambitious medium-term strategy. We must value the greatest effort in state reduction and deregulation in decades

If the conservative estimates are met, the United States will not only avoid a fiscal crisis but will also lay the foundations for solid, productive, and sustainable growth.

Reagan was criticised for the same reasons and led the U.S. economy to its greatest period of prosperity and global leadership.

Libertarians should positively value the Big Beautiful Bill because it is a giant step in liberalisation, state reduction, and private sector improvement, and because the alternative was predatory socialism.