Scholars console themselves with the notion that calamitous acts of death and destruction such as The Holocaust, the Bengal famine, and the atomic bombings of Hiroshima and Nagasaki are freak, singular aberrations. Psychologically, it’s reassuring to pigeonhole these as exotic historical events for academic study and push them away.
A Thought Experiment Envisioning A “Fully Automated Society”
from REITI, by IKEUCHI Kenta [池内 健太], Senior Fellow (Policy Economist)
In a world where human labor has become unnecessary because of AI, what should be the focus of the study of economics? In the future, if AI and robots have become capable of producing all goods and services necessary for our society, what kind of economic problems could remain?
I started thinking about this matter when I heard from a researcher acquaintance that a paper concerning AI’s impact on employment had caused quite a stir on X, and I decided to read it out of curiosity. The paper discussed the possibility that AI-driven job cuts could reduce workers’ incomes, weaken consumerdemand, and ultimately backfire on firms themselves (Falk and Tsoukalas 2026). Companies may earn higher profits in the short term by taking advantage of AI to cut back on personnel costs. However, if most companies follow that same approach, overall marketdemand would weaken because workers are also consumers.
The purpose of this article is not to question the validity of that paper’s argument. Rather, the focus is on what economic problems would remain in a future society if AI not only partially replaces human labor but also produces most goods and services.
Scarcity Will Continue to Be a Problem
There has already been extensive research regarding the impact of AI on employment. For example, Acemoğlu and Restrepo (2019) argued that while automation may replace existing human jobs, it may also create new ones. Moreover, the possibility that technological advances could free humans from labor and greatly alleviate economic problems was discussed long ago by Keynes (1930).
If AI and robots become capable of producing goods and services on a sufficiently large scale, would economic problems disappear? That would not necessarily be the case. Even in a fully automated society, scarce resources such as land, location, natural environments, energy, and rare metals will remain limited. Moreover, social status, influence, and political decision-making power are deeply connected to human intentions and perception, and cannot simply be delegated to AI. More land will not become available simply because more people wish to live in convenient urban locations. Quiet natural environments, advanced healthcare resources, social attention, and political influence also cannot be maximized for everyone at the same time.
Therefore, even in a fully automated society, some economic problems will remain. However, the main focus will shift from the “problem of insufficient ordinary commodities” to “how to allocate fundamentally scarceresources.” As production capacity increases, the value of true scarcity only becomes clearer.
In that case, the roles of markets and prices will still exist. Prices are not merely figures that allow for corporate earnings; they convey information about which resources are scarce and to what extent, how much demand there is for those resources, and what supply constraints there are. That perspective connects to a classic argument made by Hayek (1945), who argued that prices function as a mechanism through which dispersed information can be aggregated.
However, if AI becomes deeply integrated into the market, the concept of price itself may change. At present, prices serve as one-dimensional signals representing the levels of various factors, such as scarcity, quality, demand, supply, environmental impact, and future risks, expressed in terms of a single metric, that is, monetary value. If AI agents become capable of processing large volumes of information on behalf of consumers and companies, it is possible that multi-dimensional market signals that convey information concerning all those various factors, including quality, environmental impact, congestion, delivery time, reliability and social impact may come into use. Narita (2025) also discussed the possibility that the roles of money and prices may change, with more diverse evaluation standards becoming involved in economic coordination.
For People to Enjoy Affluence
In a fully automated society, how people participate in the market and society will become more important than ever. If the premise that people earn income through labor becomes obsolete, it will be necessary to develop a mechanism whereby purchasing power is distributed to everyone. In this context, universal basic income (UBI) may be reframed not only as relief for the unemployed, but as a form of fundamental purchasing power used by people to express their preferences. Managi [馬奈木 俊介] (2025) also pointed out that governance over the equitable distribution of the benefits of AI is essential.
Moreover, UBI may not be limited to simple monetarypayments. In the future, UBI may take the form of a system combining other benefits as well, including energy use quotas, rights of access to basic healthcare services and education, and rights to refuse or control the use of personal data. In a fully automated society, UBI would therefore be a matter not only of how much to provide, but also of what kinds of access to guarantee and over what time horizon.
Another important issue is whether it is appropriate to treat people merely as consumers. In a fully automated society, the need for people to work for a living may diminish. However, even without such a necessity, humans will likely still possess the desire to create or to be creative. It is human nature to try new things and to try to surprise or impress other people. The spirit of fun and curiosity, a desire for self-expression, an inquisitive mind, and an appetite for challenges are deeply and fundamentally connected to human nature. Therefore, when designing a future UBI system, it will be important to treat people not merely as consumers but as agents who can participate in creation and exploration.
Additionally, the question of who owns and controls AI systems, robots, foundation models, and computinginfrastructure is also a major issue. Even if a certain level of income is distributed to everyone, there may remain a power gap between those who control AI systems and robots and those who merely have access to them, in place of the income gap that currently exists in society.
All of the above-mentioned points for debate are relevant to the study of economics. How scarceresources should be allocated, how to guarantee people’s range of choices, and how to design ownership and controlling rights are problems central to economics. A fully automated society is not a near-future prediction. However, this extreme thought experiment serves as a useful guide for considering economic systems in the age of AI. Economics in the age of AI is not about discarding the intellectual legacy of economics, but about inheriting it and extending it toward a new society.
Narita, Y. [成田悠輔] (2025) Nijyu-ni Seiki no Shihon Shugi: Yagate Okane wa Zetsumetus Suru [22世紀の資本主義：やがてお金は絶滅する] (Capitalism of the 22nd Century), Bunshun Shinsho [文春新書].
The Overview of Japan, US, and the Euro area is renewed once a year after the Flow of Funds Accounts is released in June.
The Bank of Japan retroactively revises data for the Flow of Funds Accounts (FFA), in principle once a year, to reflect information updates, such as newly obtained source data and institutional changes, and to incorporate revised estimation methods. The retroactive revision of 2026 was implemented on June 25 and data from the first quarter of 2005 onward has been updated accordingly. The majority of the revision contents are unchanged from the Planned Retroactive Revision to the Flow of Funds Accounts [Archived PDF] released on May 25, 2026.
Working Session on “Reviving a Balanced, Shared and Sustainable Economic Growth”
On June 17, commencing at 10:30 a.m. (local time. 5:30 p.m. on June 17, Japan time.) for approximately 120 minutes, Ms. TAKAICHI Sanae (高市 早苗), Prime Minister of Japan, attended the G7Evian Summit Working Session on “Reviving balanced, inclusive, and sustainable economic growth for the benefit of all”. The overview of the session is as follows.
Prime MinisterTAKAICHI stated that the G7 and like-minded countries should maintain close communication to reduce uncertainty in the global economy. Prime MinisterTAKAICHI also stated that it is a common challenge for many countries to promote self-sustaining growth, by addressing non-market policies and practices (NMPPs) and the resulting excess capacity which are drivers of widening global imbalances.
Furthermore, Prime MinisterTAKAICHI stated that G7 members and the countries participating in this session should also demonstrate their contribution to reducing imbalances for their own balanced growth as well as for the stability of the global economy and financial markets. Prime MinisterTAKAICHI added that making use of data-driven, objective analyses and policy advice by the IMF and the OECD is extremely beneficial in advancing these efforts.
Prime MinisterTAKAICHI expressed her hope that the G7 and like-minded countries would lead the global economy through frank discussions. She also stated that she looked forward to discussions at the G20, chaired by PresidentDonald Trump of the United States, on reducing uncertainty in the global economy and becoming stronger and more prosperous together.
Situation in Iran (Signing of a Memorandum of Understanding between the United States and Iran)
Hereafter, it is important that free and safe navigation through the Strait of Hormuz is swiftly reestablished through the steady implementation of this MoU by all parties. Japan also considers it of critical importance that vessels be able to transit the Strait of Hormuz without being subject to additional costs, as has been the case thus far.
After the conclusion of a final agreement, Japan intends to play an active role in the reconstruction and recovery of the region. Japan will also continue to make every diplomatic effort, in close coordination with the international community, toward the realization of peace and stability throughout the Middle East region.
Parliamentary Vice-Minister for Foreign Affairs ERI’s Visit to the United States
During her visit, Parliamentary Vice-Minister ERI will attend the United Nations General Assembly High-Level Meeting on HIV/AIDS and deliver a statement in the meeting. She will also hold meetings with representatives of international organizations.
At this dialogue, following the enactment of Japan’s Cyber Response Capability Strengthening Act and Necessary Arrangement of Relevant Acts last year, as well as the adoption of its new Cybersecurity Strategy, the two sides exchanged views on broad range of topics, such as each country’s respective cybersecurity strategy and policy, and cooperation at both the bilateral and multilateral levels.
Both sides confirmed that they will continue to work closely together in the field of cyber, including through the Japan–Australia Cyber Policy Dialogue.
Although significant work remains to harness fusion energy, pursuing the development and deployment of IFE is crucial for the nation’s energy security, enabling the United States to shape implementation worldwide, avoid technological surprises from adversaries, and influence technical leadership in other energy-intensive technologies such as AI, machine learning (ML), and supercomputing.
IFE research stretches back to the early days of Lawrence Livermore, and today the Laboratory is fostering the overall fusion ecosystem. Livermore’s unique capabilities, expertise, and connections will be critical to laying the technical, logistical, and legal groundwork to make IFE possible. “IFE is a grand scientific and engineering challenge, something that is so incredibly difficult and high-risk and takes enormous expertise,” says Tammy Ma, Livermore’s IFE Institutional Initiative lead. “This challenge makes it the right kind of problem for national laboratories to pursue.”
This artist’s rendering shows the concept for an inertial fusion energy (IFE) power plant design, with a cutaway to show the plant’s target chamber in the center. Livermore researchers are laying the groundwork for private fusion companies to build similar designs. (Illustration by Eric Smith.)
Designing for Viability
NIF is the only facility to date to demonstrate the ignition and burning plasma conditions that are prerequisites for IFE, but it is an experimental facility for stockpile stewardship research, not a power plant. To be commercially viable and produce the energy to offset costs and meet demands (baseload power), IFE plants will need to generate more than 30 times the energy they deliver to the fusion target on every shot while firing 10 or more shots per second, compared to NIF’s rate of one or two shots per day.
The Laser Inertial Fusion Energy (LIFE) study, conducted between 2008 and 2013, aimed to build directly on technology developed for NIF to achieve IFE and took a systematic approach to this requirement by developing the Integrated Process Model (IPM). (See S&TR, April/May 2009 [archived PDF], pp. 6-15.)
IPM is a technoeconomic model of an IFE power plant with detailed technical and cost breakdowns and interdependencies of key systems and subsystems. “The work done under LIFE was fantastic,” says Ma. “IPM lays out engineering and physics requirements for the entire system to test out different scenarios and see the impact. Now, we not only get to expand on all that but also leverage 15 years of new data from NIF, better codes, and high-performance computing (HPC), as well as new work in AI, ML, advanced manufacturing, diagnostics, and nonproliferation across the Laboratory.”
IPM describes an IFE power plant that requires a solid-state laser driver system to “pump” lasers with optical energy using laser diodes instead of flashlamps as at NIF. The plant will also need to fabricate and fill target capsules onsite and send them into its target chamber at a high enough frequency to produce baseload power. “We will have to repeatedly inject targets into the chamber, so the targets must be able to withstand and survive that process,” explains Ma. “Then, the lasers will track the moving targets, and when one gets to the center of the chamber, they would fire on the centered target, repeating 10 to 20 times per second.”
The facility would convert fusion energy into heat and then electricity via steam turbines, sending most of the electricity to the power grid and recycling the rest to power operations on subsequent shots. Neutrons from the reaction would produce tritium needed for the DT fuel by bombarding lithium isotopes in a “breeding blanket” material lining its target chamber. By closing both the power and fuel cycles, IFE plants are expected to be self-sustaining.
Thanks in part to IFE STARFIRE (IFE Science and Technology Accelerated Research for Fusion Innovation and Reactor Engineering), a Department of Energy (DOE)-funded multi-institutional IFE research and development hub, researchers across the Laboratory are working to meet the new system’s demands. IPM can help identify key challenges, test the viability of new designs, and direct future research. “Many technical models and cost models exist for IFE, but very few, if any, pair systems and cost models together at the same depth as IPM,” says Mackenzie Nelson, a technoeconomic systems analyst in the Computational Engineering Division. “This type of tool offers such an advantage because we can assess design choices from both a technical and economic standpoint and create blueprints for what an IFE plant could look like.”
(left to right) Livermore researchers Bassem El Dasher, Claudio Santiago, and Mackenzie Nelson discuss a 3D model of a proposed IFE power plant design alongside the Integrated Process Model (IPM). IPM has more than 270 potential user inputs that researchers and collaborators can use to assess different IFE design choices to see the technical and cost impact on the entire design.
Operational Demands
NIF’s target capsules are extremely precise, fragile, and can take weeks to fabricate, fill, and position. Researchers are trying to reconcile that factor with the estimated demand of more than 800,000 capsules per day produced at less than $0.50 each to achieve IFE plant viability. To do this, they are examining optimal target designs for IFE and exploring advanced manufacturing methods such as microfluidics, volumetric additive manufacturing, and two-photon polymerization. (See S&TR, April/May 2025 [archived PDF], pp. 16-19.) Additional projects involve developing diagnostic instruments that can collect, analyze, and combine data with other diagnostics at the 10 to 20 shot per second frequency and use it to improve lasers in real time.
Nuclear fissionreactors are regulated through international agreements and export control rules, and the independent International Atomic Energy Agency (IAEA) verifies that nuclear material and facilities are only being used for peaceful purposes. Neither treaties nor the IAEA address fusion energy, and no consensus has been reached on whether fusion energy systems need an international verification program. Verification methods for safeguarding tritium are also far less developed than for plutonium and uranium and focus more on contamination and transfers than analytical accounting for discrepancies. The precise scale of allowable tritium unaccounted for without posing proliferation risk is also unclear.
Fusion systems can be designed for proliferation resistance, but not having an existing design remains a challenge.
International security analyst Anne-Marie Riitsaar and her colleagues are exploring these complexities and starting conversations with international fusion experts and private industry to raise awareness. Riitsaar also plans to collaborate with the IPM team to map tritium diversion vulnerabilities and identify high-risk points where researchers could incorporate surveillance methods into plant designs to detect and prevent potential misuse. “People sometimes ask me why I’m thinking about fusion energyregulations and proliferation risks at this point, but it’s not too early,” says Riitsaar. “Reaching a multinational consensus on regulating sensitive technologies takes considerable time and effort.”
The National Ignition Facility is an experimental facility and not a power plant, so a commercial IFE plant design has vastly different requirements—many of which are being studied by Livermore researchers and their collaborators.
The Laser Driven Fusion Integration Research and Science Test Facility (LD-FIRST) is a proposed blueprint for a proof-of-concept IFE facility that will test all the key IFE subsystems in an integrated fashion. A public-private partnership will likely be necessary to build the facility and will help the IFE community address the main subset of risks and the technological challenges of building a commercial plant.
Converging on a Solution
The team seeks to make IPM as accurate and comprehensive as possible by meeting with subject matter experts across the Laboratory to incorporate the latest research. “We’re trying to evolve the model so it has the same level of high detail across every single functional area to tell us where we can focus research and help us find optimized solutions that we could propose to industry,” says Nelson.
Computer scientist Claudio Santiago and his colleagues also modernized IPM by porting its framework from Microsoft Excel to Python in December 2024, making it compatible with AI, ML, design optimization, and HPC to further inform designs. “Once we think about all the forcing functions such as minimum shot yield and materials requirements pinning us in from every direction, we end up with an optimized solution space. As we sharpen the pencil more with these tools, that optimized solution box gets smaller until eventually we’ve converged on a point design,” says IFE lead systems engineer Justin Galbraith. Galbraith and his team’s point design is called the Laser Driven Fusion Integration Research and Science Test Facility, or LD-FIRST, a proof-of-concept physics demonstration facility for IFE. “That point design, we anticipate, will serve as the foundation for a future public-private partnership that would facilitate building and realizing a physical facility to focus the IFE community in pursuit of fusion power on the grid,” says Galbraith.
Ma chaired DOE’s “Basic Research Needs for IFE” workshop and report in 2022 and co-chairs the subcommittee providing recommendations on the nation’s fusion activities through DOE’s Fusion Energy Sciences Advisory Committee. She and her team travel often to Washington, D.C., working with DOE and legislators to expand fusion energyresearch and advocacy in the nation. Livermore also leads a “Collaboratory” with other DOEnational laboratories to connect research project leads and facilitate public-private partnerships. The Collaboratory has hosted multiple events with industry, and the Laboratory has partnered with three private companies who aim to design pilot IFE plants.
Meanwhile, Galbraith and other IFE leaders have served as technical advisors for engineering design teams at Texas A&M University and given them IFE-relevant problems to solve, including advanced chamber and blanket design. Galbraith is working with Nelson to develop the IFE plant design portion of a high-energy-density science summer school program, which Nelson is leading in 2025 at the University of California at San Diego, and they have developed IFE curriculum that has been deployed at six universities starting in spring 2025. “We’re hoping we can get a group of students really excited about fusion and start to build up the next generation of engineers and scientists that will make fusion a reality,” says Galbraith. The team has led IFE strategic planning exercises at the Laboratory, and Lawrence Livermore will stand up a new fusion institute—named “LIFT,” for Livermore Institute for Fusion Technology—a research and development center that will coordinate and centralize institutional fusion energyresearch.
Harnessing IFE will be a massive undertaking, but Livermore’s broad and deep expertise, facilities, and capabilities put the Laboratory in a unique position to lead and play an impactful role. “If we can set it up correctly, IFE will be a big piece of the Laboratory’s long-term vision,” says Ma. “IFE plays off of our history and all of our strengths, and it is critical for long-term national security.”
The great price revolution of the 16th and 17th centuries provided a powerful lever for the specifically capitalistic tendencies of seeking profit through cheapening production and lowering the price. This revolution is rightly ascribed to the continuous inflow of precious metals, in consequence of the great overseas discoveries. It lasted from the thirties of the 16th century down to the time of the Thirty Years’ War, but affected different branches of economic life in quite different ways. In the case of agricultural products an almost universal rise in price set in, making it possible for them to go over to production for the market. It was quite otherwise with the course of prices for industrial products. By and large these remained stable or rose in price relatively little, thus really falling, in comparison with the agricultural products. This relative decline was made possible only through a shift in technology and economics, and exerted a pressure in the direction of increasing profit by repeated cheapening of production. Thus the development did not follow the order that capitalism set in first and the decline in prices followed, but the reverse; first the prices fell relatively and then came capitalism.
Notice the last sentence above, Weber explicitly describes price revolutions exactly as Fischer argues.
In the history books we read, the emphasis is always on colorful personalities, inventions and other more theatrical events. This obviously omits the idea of phenomena like price revolutions. We cannot explain history merely by these personalities; we need to zoom out and view the larger picture.
Drewry Maritime Financial Research (DMFR), is the marketing name of Drewry Financial Research Services Ltd. DMFR, is an independent equity research service focused on the maritime industry. DMFR’s parent organisation, Drewry Shipping Consultants Holdings Limited was established more than 50 years ago and is now widely regarded as one of the leading independent sources of global industry analysis and insight. This in-depth industry knowledge is fully applied in our analysis of quoted maritime companies.
The railway is the most revolutionary instrumentality known to history, for economic life in general and not merely for commerce, but the railway was dependent on the age of iron; and it also like so many other things, was the plaything of princely and courtier interests.
Zooming out you may intuit that these narrow gauge explanations are inadequate but much better than nothing. We are faced with the problem of connecting railroads and the Iron Age to larger transformations from which these railroads were born.
Despite the brilliance of Watt’s engine, however, without the financial backing of Matthew Boulton, it might have been a failure.
If you read Watt and Boulton’s correspondence, Watt is always thinking locally, whereas Boulton is already talking about selling the invention globally. This is the ecosystem in which Weber’s economic observations reside.
Land transport also remained as before. The post produced no change; it merely forwarded letters and small packages, but did not concern itself with large scale production, which was decisive for economic life.
Only the roads underwent an extraordinary improvement, through the construction of turnpikes. In this the French government under Sully took the lead, while England leased the roads to private enterprisers who collected tolls for their use. The building of the turnpikes wrought a revolution in commercial life comparable to no other before the appearance of the railways. There is no comparison between the present density of road traffic and that of this period. In 1793, 70,000 horses went through the little town of Lüneburg while as late as 1846 only 40,000 were used in freight transport in all Germany. The costs of land carriage amounted to ten or twenty times the freight on the railways at a later time, and were three to four times as high as the charges for inland shipping at the same period. A half billion ton-kilometers was the highest figure for transportation for the movement on land in Germany, while in 1913, 67 billions were carried on the railroads.
Everything is connected to everything else, and without realizing this truth and sensing the underlying transformations, you cannot get a clear signal from history.
Ever since new tariffs were enacted in early 2025, a key policy question has been what is the extent to which businesses will pass tariff costs through to prices, and when? The effects of a tariff are rarely straightforward, given, among other things, competitive dynamics and the challenges of implementation, but the historically large and changing nature of these tariffs have created additional levels of uncertainty over the effects.
In uncertain times, anecdotal evidence from businesses can be especially insightful. We are learning how businesses are reacting to tariffs through the Richmond Fed’s business surveys as well as through hundreds of one-on-one conversations with Fifth District businesses since the start of 2025.
These conversations showcase that navigating tariffs is a complex and sometimes protracted process for firms, particularly when there is uncertainty. Firms describe several reasons they may not have experienced the full impact of proposed tariffs yet (even when goods and countries they deal with are subject to them), as well as reasons that even when they have incurred tariff-related cost increases, there can be a delayed impact on pricing decisions.
Reasons Firms May Not Have Incurred Tariffs Yet
Business contacts describe several strategies or circumstances that can delay or reduce the tariffs on inputs or other imported items. These include the following:
Delayed ordering. In response to announced tariffs, many firms ran down existing inventories or ran inventories lean in hopes that tariffs would become lower. For example, a national retailer said everyone was “delaying all we can delay in hopes we get more clarity on trade deals” and reported meeting with procurement teams multiple times per week to discuss ports and ship capacity, evolving tariffs, and inventories to keep goods flowing and prices as low as possible. One port said they have a crane waiting to be shipped but can’t do so now due to the tariffcost.
Cost-sharing.Vendor relationships are often long term, and many firms report partnering with suppliers and customers to share costs. When tariffs first rolled out, multiple firms (a beverage distributer, supply chainlogistics company) anticipated a “rule of thirds” where the cost was split evenly among the supplier, the importer, and the customer. A national retailer reported being large enough to force suppliers to bear much of the cost, though it varied by relationship and item. Interestingly, firms also reported that cost-sharing is not necessarily a permanent solution: A steeldistributer said that with the second round of tariffs announced in June, “The ‘kumbaya’ of cost-sharing was likely to come to an end.” Similarly, a fabricmanufacturer said that upon an announced trade deal with Vietnam that took tariffs from 10 percent to 20 percent, suppliers took a new stand on cost sharing: “Most vendors said you’re on your own” for the second 10 percent, and one even clawed back cost-sharing from the first round.
Transit time. It takes up to six weeks for container ships to arrive to the East Coast from China, so even if firms are ordering goods, there is a natural delay when the tariff is incurred. Shipping time in a world of rapidly changing tariff proposals add to uncertainty around tariffcosts.
Tariff implementation delays.Richmond FedeconomistMarina Azzimonti has found that a variety of tariff implementation delays help explain why actual tariffs as of May 2025 were much lower than expected. These factors include legacy exemptions and delays in customs system updates. Azzimonti also finds that a small percentage is explained by countries substituting away from high-tariff countries. For example, one national retailer we spoke with was in the process of dropping 10 percent of products sourced from China. Whether a company can change sourcing varies dramatically by type of firm and product.
As our monthly business surveys have found, many firms report deploying more than one strategy to delay tariffs. Notably, many of these delays are only temporary.
Reasons Tariffs May Have a Delayed Impact on Prices
Even when firms have incurred tariffs, they give several reasons why tariffs may not be immediately reflected in the prices they charge for their products. These include the following:
Waiting for tariff policy to clarify. Higher prices could reduce demand for goods and services and/or lead firms to lose market share, so many firms said they are hesitant to increase prices until they’re sure tariffs will remain in place. For example, a large national retailer said if tariffs are finalized at a sufficiently low level, they’ll absorb what they’ve incurred to date, but if high tariffs stick, they’ll have to raise prices. A steel fabricator for industrial equipment described being reluctant to raise prices on the 10 percent cost increases they’d seen thus far but would have to raise prices should the increases reach 12 to 13 percent. A grocery store chain was reluctant to raise prices and instead might reduce margins, which had recovered in recent years, to maintain their customer base. Some firms explicitly noted a strategy to both raise prices over time and pursue efficiency gains to cut costs and completely restore margins within a year or two.
Elasticity testing. Firms reported testing across goods whether consumers will accept price increases. A furnituremanufacturer said he’s seen competitors pass along just 5 percentage points of the tariffs at a time so it isn’t such a huge shock to customers, though in that sector, “We all end in the same place which is the customer bearing most of it.” A national retailer said most firms are doing a version of stair-stepping tariffs through, e.g., raising prices a small amount once or twice to see if consumer demand holds, and if so, trying again two months later. This retailer said prices were going up very marginally in early summer, would increase more in July and August, and would be up by 3 to 5 percent by the end of Q4 and into 2026. Another national retailer said they would start testing the extent to which demand falls with price increases, e.g., when the first items that were subject to tariffs—in this case back to school items—hit shelves in late July.
Blind margin. Some firms reported attempting to pass through cost in less noticeable ways. While any price increase to consumers will be captured in measures of aggregate inflation, the fact that price increases may occur on non-tariffedgoods might make it difficult to directly relate price increases to tariffs. An outdoor goodsretailer said, “Unless it’s a branded item where everyone knows the price, if something goes for $18, it can also go for $19.” A national retailer plans to print new shelf labels with updated pricing, which will be less noticeable for consumers compared to multiple new price stickers layered on top. This takes time (akin to a textbook “menu cost” in economics), so it will not be reflected in prices until July and August. A grocery store said their goal was to increase average prices across the store but focus on less visible prices.
Selling out of preexisting inventory: Many firms noted they still have productioninventory from before tariffs were announced, so they do not need to raise prices as long as they still sell these lower cost goods. A national retailer noted they have at least 25 weeks of inventory on hand for most importedproducts. A firm that produces grocery items said they will decide how much to raise prices as they get closer to selling tariff-affected products. Similarly, retailers order seasonal items quarters in advance. Many were receiving items for fall and winter when the new tariffs were going into effect in the spring. They paid the tariff then, but we won’t see the price increase until those items hit the shelves in the fall or winter. One retailer speculated that seasonal décor items will look the most like a one-time increase.
Pre-established prices. Many firms face infrequent pricing due to factors like annual contracts or pre-sales. For example, a dealer of farm equipment gets half its sales through incentivized pre-sales to lock in demand and smooth around crop cycles. They noted that while it would be difficult to retroactively ask those customers to pay for part of the tariff, they will pass tariffs directly through on spare parts. A steel fabricator for industrial equipment has a contract for steel through Q3, so they haven’t been impacted yet by price increases. However, they will face new costs once that contract expires.
In general, compared to small firms, large firms have more ability to negotiate with vendors, temporarily absorb costs, burn cash, wait for strategic opportunity, and test things out. This matters because large firms often lead pricing behavior among firms, so these strategic choices may influence the response of inflation to tariffs more generally. Even within firm size, one often hears that negotiations on price vary considerably by relationship and item.
Conclusion
A key question surrounding tariffs is whether any effects on inflation will resemble a short-lived price increase—as in the simplest textbook model of tariffs—or a more sustained increase to inflation that may warrant tighter Fedmonetary policy. When asked in May what will determine the answer, Fed ChairJerome Powellcited three factors [archived PDF]: 1) the size of the tariff effects; 2) how long it takes to work their way through to prices; and 3) whether inflation expectations remain anchored. The insights shared above suggest the process from proposed tariffs to the prices set by firms is far from instantaneous or clear-cut, particularly when tariff policy is changing.
Sensing from businesses suggests that the impact of tariffs on their price-setting [archived PDF] has been lagged, but it is starting to play out. Nonetheless, it remains highly uncertain how tariffs will impact consumerinflation. The discussion above makes clear that firms are nimble and innovative in the face of challenge, and they are concerned about losing customers in the current environment, particularly consumer-facing firms. We will continue to learn from our business contacts and share their insights.
There have been all kinds of “voices” in the history of Western civilization. Perhaps the loudest voice is that of monomaniacs, who always claim that behind the appearance of the many is the one. If we illustrate the West, and at its roots, the intersection of Athens and Jerusalem, we see the origins of this monomania. Plato’s realm of ideas was supposed to explain everything encountered in our daily lives. His main student and rival, Aristotle, has his own competing explanation, based in biology instead of mathematics.
Currently, the monomania impetus continues full-force. For example, Professor Seth Lloyd of MIT tells us that reality is the cosmos and not chaos, because all of reality together is a computer. His MIT colleague, Max Tegmark, argues in his books that the world is not explained by mathematics, but rather ismathematics. Perhaps the climax of this kind of thinking is given to us by the essay “Everything Is Computation” by Joscha Bach:
These days we see a tremendous number of significant scientific news stories, and it’s hard to say which has the highest significance. Climate models indicate that we are past crucial tipping points and irrevocably headed for a new, difficult age for our civilization. Mark van Raamsdonk expands on the work of Brian Swingle and Juan Maldacena and demonstrates how we can abolish the idea of spacetime in favor of a discrete tensor network, thus opening the way for a unified theory of physics. Bruce Conklin, George Church, and others have given us CRISPR/Cas9, a technology that holds promise for simple and ubiquitous gene editing. “Deep learning” starts to tell us how hierarchies of interconnected feature detectors can autonomously form a model of the world, learn to solve problems, and recognize speech, images, and video.
It is perhaps equally important to notice where we lack progress: Sociology fails to teach us how societies work; philosophy seems to have become infertile; the economicsciences seem ill-equipped to inform our economic and fiscal policies; psychology does not encompass the logic of our psyche; and neuroscience tells us where things happen in the brain but largely not what they are.
It is the notion of computation. Computation, at its core, and as informally described as possible, is simple: Every observation yields a set of discernible differences.
These we call information. If the observation corresponds to a system that can change its state, we can describe those state changes. If we identify regularity in those state changes, we are looking at a computational system. If the regularity is completely described, we call this system an algorithm. Once a system can perform conditional state transitions and revisit earlier states, it becomes almost impossible to stop it from performing arbitrary computation. In the infinite case that is, if we allow it to make an unbounded number of state transitions and use unbounded storage for the states—it becomes a Turing machine, or a Lambda calculus, or a Post machine, or one of the many other mutually equivalent formalisms that capture universal computation.
Computation is different from mathematics. Mathematics turns out to be the domain of formal languages and is mostly undecidable, which is just another word for saying “uncomputable” (since decision making and proving are alternative words for computation, too). All our explorations into mathematics are computational ones, though. To compute means to actually do all the work, to move from one state to the next.
Computation changes our idea of knowledge: Instead of justified true belief, knowledge describes a local minimum in capturing regularities between observables. Knowledge is almost never static but progresses on a gradient through a state space of possible worldviews. We will no longer aspire to teach our children the truth, because, like us, they will never stop changing their minds. We will teach them how to productively change their minds, how to explore the never-ending land of insight.
A growing number of physicists understands that the universe is not mathematical but computational, and physics is in the business of finding an algorithm that can reproduce our observations. The switch from uncomputable mathematical notions (such as continuous space) makes progress possible. Climate science, molecular genetics, and AI are computationalsciences. Sociology, psychology, and neuroscience are not: They still seem confused by the apparent dichotomy between mechanism (rigid moving parts) and the objects of their study. They are looking for social, behavioral, chemical, neural regularities, where they should be looking for computational ones.
Friedrich Nietzsche rebelled against this type of thinking the most profoundly. If scientism represents the modern, then Nietzsche was the prophet of postmodernism. Nietzsche’s famous phrase, “God is dead.” is not about a creator or divinity, but rather finality itself. There is no final explanation.
