Yanire Guillén

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.

When we discuss the economy, it is essential to explain the true causes of the European Union’s stagnation and excessive debt.

One of the causes is a confiscatory and extractive tax system that suffocates small and medium enterprises, which make up most of the European Union’s business fabric. The effective average tax rate for businesses in the EU is estimated at 21.0%.

However, when we account for all direct and indirect taxes, it soars above 35%. Furthermore, the average tax wedge in 27 European countries was 39.8% for a single worker without children, compared to the OECD average of 34.8%. Belgium had the highest at 52.7%. The enormous labour costs are one of the key drivers of weak competitiveness.

Employer social security contributions, a tax on labour, are very high. In France they go from 45% to 68%. This is a clear disincentive to investment, the creation of quality jobs, and the increase in business size, which is a critical factor in Europe.

Regulatory burden

Energy costs are also unacceptably high. EU industrial electricity prices are roughly 2 to 2.5 times higher than those in the US on average. In some EU countries, prices can be more than triple those in the lowest-cost US regions, according to a European Central Bank study (How enduring high energy prices could affect jobs, May 2025).

EU industrial gas prices remain between 2 and 4 times higher than in the US, even after the 2021–2023 energy crisis. This difference is a critical factor for sectors like chemicals, metals, and cement.

The European Union publishes approximately 1,200 regulations, 80 directives and 700 decisions each year, according to Toshkov’s 55 Years of European Legislation using data from the EUR-Lex portal.

Excessive regulation reduces investment, productivity, and per capita income

A simple, facilitating, and clear regulation is positive, but excessive regulation reduces investment, productivity, and per capita income.

The Spanish Juan de Mariana Institute has calculated a “Regulation Laffer Curve” that shows the tipping point when additional regulation hinders economic growth. It shows how Spanish regions like Madrid and the Basque Country, with lower regulatory density, grow much more than others like Catalonia, where the regulatory burden is up to four times higher.

Regulation and taxes

The cost of this fiscal and regulatory excess is enormous.

The cost of excessive regulation in the European Union is estimated at up to €1 trillion per year, or between 3.7% and 12.3% of GDP, according to Eurochambres. In Mario Draghi’s report, “The Future of European Competitiveness,” he explains how internal tariffs raise prices in manufacturing by 45% and in services by 110%

If the European Union abandoned its regulatory obsession, it would unlock a very significant source of growth and investment, which would lift the EU from stagnation, improve tax revenues, and significantly reduce the debt and deficit problem of many of the member states.

The European Union does not have a problem of human capital, entrepreneurs, or financial strength. The EU businesses and banks can compete with the best.

What the EU has is a confiscatory tax system and an enormous bureaucratic and interventionist regulation burden. Bureaucrats consider companies as ATMs to be raided and put small businesses and families at their service instead of them serving the productive fabric.

The European Union needs deregulation and lower taxes instead of constantly blaming an external enemy for its problems.

Most headlines recently have mentioned the US dollar collapse. However, the DXY Index, which considers the US dollar mostly against the euro and the yen, is higher than the average of the 2009-2023 period and, despite the recent correction, stands above the July 2023 low.

Furthermore, the nominal trade-weighted dollar index stands at 125 at the end of this article, which is significantly higher than the 2009–2023 period average and higher than a year ago.

Demand for US dollars and US debt remains robust, according to the Bank for International Settlements, and the latest figures of demand for 10-year Treasuries show a solid 2.67 times bid-to-cover, higher than the average of 2023 and 2022.

Thus, headlines suggesting a global loss of confidence in the US dollar seem more than exaggerated.

Investors should be significantly more concerned about the real collapse in markets, as the Chinese yuan has slumped to 20-year lows against the US dollar.

This new historic low is happening despite the People’s Bank of China’s iron grip on the exchange rate fixing and the world’s largest capital controls.

Many investors attribute this weakness as an engineered measure to boost competitiveness and adapt to rising tariffs.

However, we must remember that the PBOC has conducted a consistent policy of gold purchases, and the currency should have benefitted from the strength in gold holdings and, if it had existed, a shift out of the US dollar. Furthermore, the best way to reduce the impact of tariffs is a strong currency, not a weak one.

The US dollar remains the world’s reserve currency

In the latest figures, the US dollar remains the world’s reserve currency, accounting for 58% of global foreign reserve holdings, far outpacing the euro (20%) and all other contenders, including China’s yuan (2%), according to the Dollar Dominance Monitor.

The US dollar is still used in 88% of foreign exchange transactions and 54% of export invoicing, compared to 7% and 4%, respectively, for the yuan, and 31% and 30%, respectively, for the euro. You must remember that all these percentages add up to 200%, as all global currency transactions include two currencies.

What makes a world reserve a currency?

Challenging the US dollar’s reserve currency status is very difficult, as it requires more than a strong economy or ample gold holdings. To have a world reserve currency, a country needs investors, legal security, ample liquidity, and a transparent banking system.

A reserve currency must be backed by an open, transparent market and independent institutions that provide checks and balances

A reserve currency must be backed by an open, transparent market and independent institutions that provide checks and balances, limiting political interference and strengthening confidence in the currency.

The yuan cannot currently become even a contender for global reserve currency because the issuing country should maintain open financial markets, allow free movement of capital, and support an independent and transparent legal system.

China cannot reach reserve currency status if it maintains capital controls, currency exchange rate fixing, a government-dependent legal system, and a closed financial sector.

Combining the currencies and central banks of the BRICS nations is ineffective because their financial systems lack openness, and their issuers’ independence and legal frameworks are weaker than those of the United States.

Furthermore, the euro has significant challenges as well because it is the only large currency in the world with redenomination risk in case any country leaves the euro area, and the European Union’s legal and investor security frameworks are solid but not as open as the United States institutions.

The dollar’s supremacy

All these factors make it very difficult for any currency to challenge the US dollar as the world reserve currency.

However, the only thing that can really destroy the US dollar as the world’s reserve currency is the United States fiscal and trade policy.

If the United States continues to overspend and its twin deficits remain unsustainable, the supply of US dollars to the world will exceed demand as global investors lose confidence in the issuer’s solvency.

The dollar’s supremacy is rooted in six essential qualities of a reserve currency: economic size, deep and liquid financial markets, full capital account convertibility, a trusted legal system, political stability, and the network effects of widespread international use, according to the Bank for International Settlements.

The confidence in the US’s system can be eroded by an irresponsible fiscal policy and an unsustainable trade deficit

The United States consistently meets these criteria, but the confidence in its system can be eroded by an irresponsible fiscal policy and an unsustainable trade deficit.

The United States may have a small fiscal and trade deficit precisely because it is the world reserve currency, but excessive twin deficits will create the opposite effect; it would put the reserve status at risk.

That was the path that the United States had been taking since 2021, and it was an unsustainable fiscal and trade situation motivated by irresponsible policies.

Trading partners are reluctant to fully embrace the yuan

China has tried to strengthen the international use of the yuan with the Cross-Border Interbank Payment System (CIPS) and support of central bank digital currencies (CBDCs) through projects like mBridge designed to facilitate yuan-based transactions and reduce reliance on the dollar.

However, all these efforts have had a minimal impact on a global scale, as the legal and financial freedom and independence characteristics of the Chinese financial system have not improved significantly.

Similar BRICS initiatives, such as the BRICS Cross Border Payments Initiative (BCBPI) and the Grain Exchange, are created to facilitate trade settlement outside the dollar system.

China’s capital controls are an insurmountable burden that prevents the yuan from becoming a global reserve contender

All this may help reduce the underweight position of the yuan relative to the scale of the Chinese economy, but it cannot challenge the reserve status of the US dollar because of the impediments that Chinese legal, investor security, and financial systems create.

China’s capital controls are an insurmountable burden that prevents the yuan from becoming a global reserve contender. Additionally, the Chinese, Russian, Indian, Brazilian, and South African legal and regulatory environments are less transparent, independent, and predictable than those in the United States.

Furthermore, even strong trading partners are reluctant to fully embrace the yuan, concerned about increasing dependence on a geostrategic rival, according to Dollar Dominance Monitor.

Dominant yuan would lead to dependence on the Chinese government

Many nations understand that US dollar dominance does not mean dependence on the US government, but a dominant yuan would inevitably lead to dependence on the Chinese government.

A financial system and central bank that are as independent from the government as possible are also critical factors for being a reserve currency. This is why questions about the ECB’s independence also limit the options for the euro.

The reason why the media does not report on the record lows of the yuan against the dollar as often and alarmingly as a correction of the US currency is because most analysts and reporters fail to see the implications.

This weakness means that the economy, despite its strengths, is not the beacon of growth and stability that is often portrayed.

The yuan’s record lows against the dollar highlight the strength of the US dollar in the global financial system and the significant problems facing China’s financial and monetary structure.

Furthermore, a weak yuan is a bad omen for the world economy, as it discounts the enduring weaknesses of the build-and-export overcapacity and working capital challenges of the Chinese economic system. It is changing, but it will take time.

Unfortunately, the yuan weakness also shows the concerns about an economic and legal system that has been closing instead of opening barriers.

You cannot be a world economic leader and reserve currency without independent institutions and economic freedom. The only thing that can demolish the US reserve currency’s status is irresponsible spending, twin deficits, and indebtedness from the US government.