The rule of law is key to capitalism − eroding it is bad news for American business

This article stood out to me, especially since I rarely use The Conversation US as a source. However, the author’s background makes the piece credible. Robert Bird, a professor of business law and ethics at the University of Connecticut, builds his argument on real world experience of how law affects business decisions, rather than focusing solely on politics or ideology.

Bird’s main point is that capitalism depends on a strict and predictable rule of law, and I found this convincing because he links legal principles directly to economic outcomes. Rather than simply arguing for more or less regulation, he highlights the need for consistency and fair enforcement. He explains that chaotic deregulation, with sudden rule changes and selective enforcement, can damage investor confidence, make long-term planning difficult, and increase business costs. This made me rethink the common belief that less regulation always leads to more growth.

I also found his use of data and global comparisons effective. Bird uses World Justice Project rankings to show that the U.S. now falls behind several other countries in rule-of-law strength. This makes his argument more concrete and shows that legal instability can harm global competitiveness. His discussion of trade agreements, property rights, and contract enforcement shows how legal uncertainty can weaken markets and discourage both domestic and foreign investment.

Another strong part of the article is its link between legal uncertainty and the job market. Bird explains that unpredictable legal and political situations are causing talented people to leave the U.S., showing that the harm goes beyond just companies and affects workers, too. The examples of more job applications abroad and growing interest in foreign citizenship show that instability in the rule of law changes where people want to. Overall, the article argues well that “smart regulation” does not block capitalism but actually helps it. Bird supports his points with business law, data, and real-world examples, showing that weakening the rule of law harms innovation, investment, and economic freedom. Even though I do not usually read this publication, the author’s expertise and clear argument made the article convincing and relevant.

https://theconversation.com/the-rule-of-law-is-key-to-capitalism-eroding-it-is-bad-news-for-american-business-254922

When Economic Metrics Stop Telling the Truth: Goodhart’s Law

When Economic Metrics Stop Telling the Truth: Goodhart’s Law

Author: Inesh Tickoo

Policymakers and firms rely on indicators to guide decisions. Goodhart’s Law identifies a

limitation of this approach, that when measures start being targets, they stop being good measures.

Let me explain that more clearly.

A speedometer tells you how fast you’re going. A speed limit changes how you drive. Once a speed

limit exists, it changes drivers’ behavior to avoid tickets, like slowing down when they see the cops.

When a statistic is used to observe the world and its reality, it behaves like a speedometer. When the

same statistic is used to judge performance or trigger rewards and punishments, it’s like a speed limit.

Inflation statistics like the Consumer Price Index (CPI) track the cost of living. When the Fed

says “we want 2.1% inflation,” businesses start setting prices and wages with that number in mind.

This statistic now affects strategy and sets expectations rather than indicating underlying conditions.

Goodhart’s Law also applies to labor markets and productivity. Firms that focus on per-hour

output or quarterly efficiency targets may boost short-term productivity through moves like cutting

training, delaying maintenance, or increasing employee workloads. Cutting training might save time

and money this quarter, but workers may turn out to be less skilled later. Delaying maintenance

will keep machines running today but they might break down tomorrow. Increasing workloads

might squeeze more output out of workers for now, but it leads to burnout, mistakes, or turnover.

While a few metrics improve, the underlying health of the firm or economy may deteriorate, leading

to weaker long-term growth. At the same time, expansions can sometimes mask fragility. Strong

headline indicators may encourage risk-taking and leverage, even if deeper structural problems are

building beneath the surface. When conditions shift, those hidden weaknesses become visible, often

abruptly.

Overall, Goodhart’s Law says it’s important to use economic indicators for diagnostics rather

than goals. Metrics and statistics are essential for understanding the economy, but overreliance on

any single measure can distort incentives and reduce the reliability of the signals policymakers and

investors depend on.

CPI rising slower than expected

 Consumer inflation showed signs of cooling to start 2026, coming in slightly lower than economists expected. According to the Bureau of Labor Statistics, the consumer price index (CPI) rose 2.4% in January compared to a year earlier. This was down from the previous month and marked the lowest annual inflation rate since May 2025, suggesting price pressures may be gradually easing.

Core inflation, which excludes food and energy, increased 2.5% annually, also meeting expectations and reaching its lowest level since 2021. Every month, overall prices rose just 0.2%, while core prices increased 0.3%. Much of the increase came from housing costs, though even housing inflation has slowed, with annual rent growth dropping to around 3%. Other major categories showed mixed trends. Food prices rose slightly, while energy prices fell 1.5% for the month. Vehicle prices remained relatively stable, and some items, such as eggs, have dropped sharply over the past year after previous spikes. These changes suggest that some of the most important household expenses are beginning to stabilize.

The lower-than-expected inflation reading has important implications for monetary policy. Investors increased expectations that the Federal Reserve may begin cutting interest rates later in 2026, with markets anticipating a possible reduction as early as June. Lower interest rates could help support borrowing, investment, and overall economic growth. However, the broader economic picture remains mixed. While GDP growth has been relatively strong, the labor market has shown signs of slowing, and inflation still remains slightly above the Fed’s long-term 2% target. This suggests the economy may be moving toward a more stable phase, but policymakers will likely remain cautious as they balance controlling inflation with supporting economic growth.

https://www.cnbc.com/2026/02/13/cpi-inflation-report-january-2026.html 

Labor Market Expectations Improve Slightly ; Short-Term Inflation Expectations Decline

 In the January 2026 survey by the Federal Reserve Bank of New York, households reported that they expect smaller price increases over the next year compared with last month. The median short-term inflation expectation—the rate consumers think prices will rise over the next 12 months—fell to 3.1%, down from 3.4% in December. Expectations for inflation over the next three and five years stayed steady at 3.0%. This shift suggests that consumers are becoming slightly more confident that inflation will cool in the near future, even if prices overall have been elevated in recent years. 

The survey also showed that people feel a bit better about the job market, with more households expecting wage growth and a lower chance of job loss in the coming year. However, expectations about household income growth were slightly lower, and many respondents reported concerns about future financial conditions and access to credit. Overall, while inflation worries eased in the short term, households still hold mixed views about their personal economic situation. 

Global Week Ahead: Markets Brace for More AI Noise and "Scare Trading"

 Global stock markets have been shaken in recent weeks by fears that rapid advances in agentic AI could disrupt a wide range of industries. Investors have been selling off stock. Particularly in Europe where software firms like Dassault Systems and RELX saw sharp declines. Wealth management companies such as St. James's Place, Aberdeen, and Quilter also experienced these declines. UBS analysts warn that AI-driven disruptions may occur beyond just software and that markets may not yet fully reflect the potential credit risks. 

However not all analysts believe the situation is dire. Dan Ives of Wedbush argues that fears of a "software Armageddon" are exaggerated. Basically suggesting that major firms like Saleforce and ServiceNow are likley to be key beneficiaries of the AI revolution. This highlights further uncertainty about which industries will be harmed or helped as AI adoption accelerates.

Attention is now shifting to focus on a major AI summit in New Delhi, where leaders from companies such as Anthropic, Microsoft, Mistral AI, and Meta are expected to announce partnerships and deals, particularly in cloud computing and AI infrastructure. With India's large tech market and deep engineering talent pool, the event could offer important signals about the next phase of global AI expansion and its impact on markets.

Global Week Ahead: Markets Brace for More AI Noise and "Scare Trading"

US inflation falls more than expected to 2.4% in January

     The CPI dropped lower than expected in as recent data shows the CPI was 2.4% in January 2026. This number of inflation is down from December 2025 which was 2.7%. The recent data coming out below the market forecasts suggests that there has been softer price pressures in the economy and marks one of the lowest CPI readings the economy has seen in awhile. Core inflation which excludes food and energy is also down which suggests underlying price increases are moderating as cost of gas, cars, and housing slow. 

    The cooler inflation number leads many to believe that the FED will be able to cut rates sooner than expected and more aggressively due to price growth moving closer to their target of 2%. Analyst caution this move due to certing sectors like services and tariff related industries continue to see a rise in prices. Policy makers will weeigh the data and compare it to other economic trends like labor markets strength and wage growth when deciding on future rate changes. 

https://www.ft.com/content/ef64fa37-771b-4e41-a879-7f05b42ec6af

Concerning Layoffs in January

 Layoff announcements kicked off 2026 on a concerning note, reaching their highest level for any January since the global financial crisis. According to Challenger, Gray & Christmas, U.S. employers announced 108,435 job cuts during the month. This represents a 118% increase compared to the same time last year and more than triple the total from December, suggesting that many companies are becoming less optimistic about the economic outlook for 2026. At the same time, hiring plans dropped sharply to only 5,306 new positions, marking the lowest January level since 2009.

Other labor market indicators also point to softening conditions. Job openings fell significantly in December to 6.54 million, their lowest level since September 2020, and have declined by more than 900,000 since October. As a result, the ratio of available jobs to unemployed workers has fallen to 0.87 to 1, a major shift from the very tight labor market in 2022 when there were more than two job openings per unemployed worker.

Some of the increase in layoffs comes from major corporate announcements, which has raised concerns about broader economic weakness. The transportation sector saw the largest cuts, mainly due to UPS planning to reduce its workforce by over 30,000 employees. The technology sector followed, driven largely by Amazon’s plan to eliminate about 16,000 jobs. These large-scale layoffs suggest firms may be preparing for slower demand and tighter economic conditions.

However, official government data has not yet shown a dramatic decline in employment. Initial jobless claims remain relatively low historically, though they increased slightly at the end of January. Private payroll growth was also weak, with employers adding only 22,000 jobs during the month, well below expectations.

Overall, the data suggests the labor market may be shifting away from the extremely strong conditions seen in recent years. Rising layoffs combined with declining hiring plans could signal slower consumer spending and economic growth ahead, since job stability is a key factor supporting household confidence and overall demand.

https://www.cnbc.com/2026/02/05/layoff-and-hiring-announcements-hit-their-worst-january-levels-since-2009-challenger-says.html 

 

US economic growth revised up on strong consumer spending

The US economy grew faster than expected in the 2nd quarter of the last year. This is mainly due to strong consumer spending and a drop in imports. GDP increased at an annual rate of 3.8% from April to June. This shows that consumers continue to play a huge role in keeping the economy strong.

Consumer spending rose more than and expected as well as retail sales showing growth. However, there are some potential concerns, as job growth slowed and the unemployment rate raised slightly. The situation may not be as weak as it appears. There were less jobless claims which is a positive.

Overall, the economy showed steady momentum in the first half of the year. However, economists warn that policy uncertainty and tariffs could haunt growth, as well as cause inflation to rise in the future. Even though the recent data is encouraging, there were still risks that could have affected economic performances in the remaining months.

https://www.bbc.com/news/articles/cjedze7e95lo

December Retail Sales Show Signs of Slowing

 December retail sales had a disappointing ending compared to what was predicted for consumer spending. According to the Commerce Department, retail sales were flat for the month, following a 0.6% increase in November and fell short of economists expectations for a 0.4% gain. Even when excluding purchases related to vehicles, sales showed no growth, reinforcing concerns that holiday spending lost momentum. 

On a yearly basis, retail sales rose 2.4% which was slower than November's 3.3% pace and below December's inflation rate of 2.7%. Therefore, consumer spending failed to keep up with rising prices which is not good as consumer spending accounts for more than two-thirds of the U.S. economic activity.

This slowdown was uneven with furniture, clothing, electronics, and miscellaneous retailers all posted declines and online sales barely increased. Building materials and garden centers had a stronger gain which could mean consumer spending priorities could be shifting. Economists also stated factors such as harsh weather, tariffs, and high prices affected the holiday shopping season.  

Despite the weak December report 2025 was not a poor year for retail. The pattern of spending showed a "k-shaped" economy. Looking ahead consumer spending in early 2026 could slow down more with the growing uncertainty with the labor market and wage growth. This shows the growing pressure on households as inflation and higher costs limit discretionary spending. 

https://www.cnbc.com/2026/02/10/december-retail-sales-were-flat-missing-expectations.html

Falling Inflation Expectations Signal Shifts in the U.S. Business Cycle

 Recent data released by the New York Federal Reserve Survey of Consumer Expectations showed that expectations for inflation over the coming year are falling. This is a clear indication that prices are favorable over time. Americans also seem to have more confidence in their labor market, as few are concerned about losing their jobs. Despite this, many are concerned about their financial well-being.

This has important implications for national income and business cycles. Lower inflation predictions would help encourage consumer spending, which would assist in the expansion of GDP. Additionally, an optimistic job market would help keep the economy as stable as the current income levels. Overall, it seems that the economy may be stabilizing, but mixed consumer sentiment indicates that risks persist.

https://www.reuters.com/business/ny-fed-survey-january-near-term-expected-inflation-lower-amid-better-job-market-2026-02-09/