Grounded by Government: How Blocking a Merger Helped Sink Spirit Airlines

Last Saturday, Spirit Airlines announced that it is shutting down its doors. Some were treating this bankruptcy as if it came out of nowhere or it were simply an issue of a poor business model. It is true that there are businesses that go under because they made poor life choices. With Spirit, however, the beginning of its demise was made with a key decision well before last Saturday. 

The earlier decision did not happen in Spirit Airlines' boardroom or from the fact that Trump decided not to bail out Spirit (which would have been a terrible idea), but in Washington. Starting in 2022, Spirit Airlines and JetBlue attempted to merge. But Senator Elizabeth Warren (D-MA) wouldn't have any of that. She led the charge that would ultimately block the merger in 2024. The argument used was that Spirit needed to remain independent to maintain a competitive market in what a concentrated market. 

Warren thought she was helping Spirit, but was in fact hurting it. Why? Because she had a static view of how the market worked. She thought the main factor for competition was the number of firms. But in a capital-intensive market like the airline market, there are times when mergers can help make the market more competitive. 

When firms are structurally fragile as was the case with Spirit, consolidation can be a way to stabilize capacity, preserve service networks, and sustain price discipline over time. By focusing on firm count instead of capacity (e.g., routes, seats, financial viability), the policy gave the appearance of preserving competition. In practice, Spirit and JetBlue were less equipped to compete in the market while further solidifying the market concentration of the big four airlines: American, Delta, Southwest, and United.

If Spirit and JetBlue were able to merge, they would have created a larger and more financially resilient airline in the low-cost segment of the market. In industries like aviation, fixed costs are high and margins are thin. Scale can be the difference between restructuring to grow and failure. But Spirit and JetBlue were not given that opportunity to become a strong mid-tier competitor. 

Spirit's employee count went from 11,331 employees in 2024 to 7,482 employees in 2025 before it went under. That decline reflects more than normal business cycles. It signals a firm in financial distress heading toward bankruptcy that could have been saved had it had the chance to merge. As Spirit's revenue weakened and restructuring pressures mounted, the airline reduced capacity, scaled back operations, and cut labor costs to stay afloat. Yet that was not enough to save Spirit. 

While Spirit's ultimate demise is the most visible part of this unnecessary demise, the effects on JetBlue are still important. Without the merger, JetBlue was unable to expand. It remained in a constrained capacity focused on cost constraints and modest route expansion. In a capital-intensive industry, the absence of economies of scale shaped JetBlue's long-term competitiveness. 

These firm-level decisions also made their way downstream. Changes in route activity affect airport activity, especially those who relied on these low-cost routes. Tourism flows are expected to feel a hit, especially those leisure-heavy destinations. This all affects airport revenue, local travel demand, and the availability of affordable travel destinations for travelers. 

There is a broader lesson to be had. Look at Dodd-Frank's "too big to fail" approach. It was supposed preserve competition and market stability. Instead, smaller banks exited at larger rates, the number of new banks declined substantially, and larger banks increased their market share through consolidation. Instead of playing by the regulators' rules, markets adapt in a way that often benefits that largest market players. In retail and tech, the government had similar impulses of "the size of the firm matters" when blocking the Albertsons-Kroger merger and scrutinizing whether Amazon was a monopoly. 

The airline industry was no exception. Spirit and JetBlue had a chance to be a better contender in the airlines market. Instead, the government stepped in to help in the name of "market protection" and ended up making the market less competitive. The deeper question is whether this "government knows best" model can meaningfully help if they misread the dynamic, evolving nature of markets. In case we did not have enough examples, Spirit Airlines is another casualty to remind us that the answer to that question is a resounding "No!"

Hotter Doesn't Always Mean Worse: The Value of Healthy Skepticism Towards Climate Change Activism

A senior fellow from the American Enterprise Institute, Roger Pielke Jr., took aim at climate change economics. It was not enough for Pielke to point to a redacted paper that claimed doing nothing with climate change would cause a whopping $38 trillion in damage. Keep in mind that this paper was quite influential in climate change policy, much like Neil Ferguson's COVID lockdown model was an abject failure. Pielke pointed out a recent study from the University of Wyoming entitled The Empirically Inscrutable Climate-Economy Relationship.

Why does this new study come with an inconvenient truth? Most climate change activists do not simply say that global temperatures are increasing. They posit that each increase in global temperature means that it will produce immeasurable harm. It is from this assumption that you get policy suggestions like Net Zero or the Paris Agreement. A lot of climate change modeling translates temperature into dollar losses. The problem, as this new study details, is that it is based on shaky ground. 

There are countries out there that have similar temperatures and affluences. The authors point to El Salvador and Iraq as examples to remind us that there are a number of confounding factors that influence economic growth beyond temperature: institutions, education, technology, trade, and culture. Certain adaptations also change the relationship to heat, including air conditioning, crop switching, migration, and infrastructure changes. It means climate change scientists are trying to estimate a moving target, not a stable law. 

This does not even get into the fact that reliable economic data goes back only a few decades, especially for more developing countries. The problem is not only with imperfect data. It is impossible to isolate temperature as the sole factor, which makes the house of climate change economics built on quicksand. 

Is this to say that climate change is a hoax? No, it does not. To quote Mercatus Center scholar Jack Salmon, "they [the authors of the study] are not claiming that climate change is harmless or that reducing emissions lacks value. The existence of a negative carbon eternality remains well-established. What they are challenging is the confidence with which economists, and especially policymakers, treat specific numerical estimates of climate change."

Good policy is supposed to weigh the costs and benefits. However, if the benefits of avoided damage is highly uncertain, model-dependent, and sensitive to assumptions, as is the case with climate change economics, then you cannot reliably say that a given policy is worthwhile. 

Does it sound familiar? We dealt with this during the COVID pandemic. Lockdown Lovers kept forcing lockdowns down our throats during the pandemic. They claimed that skepticism of the lockdowns meant that you wanted Granny dead. How did that weaponization of kindness turn out? You can read more here, but it meant trillions in economic damage, causing even more health problems than the lockdown solved, and helping society writ large take a nosedive. 

What does that mean for climate policy? If this core relationship between temperature and economic output is fragile, then the foundation for confident, large-scale climate policy like carbon taxes, cap-and-trade, or energy-efficiency mandates is tenuous. 

This does not mean we should do nothing. It means getting off the moral high horse and stopping virtue-signaling the fake certainty. It means injecting a little humility into the conversation. After all, we have seen this movie play out with the COVID pandemic. Uncertain models get translated into certain policy prescriptions, dissent gets quashed, and tradeoffs get shunted to the side because it is too inconvenient to address. 

The sad irony is that the more uncertain the underlying assumptions become, the more confident climate change activists come in with sweeping mandates and regulations. What emerges is not better policy, but simply more confidence where it becomes less and less defensible. But don't worry. We're still told to "follow the science."

Why Trump's $500M Bailout of Spirit Airlines Won't Make Air Travel Great Again

Flying Spirit Airlines has come with the philosophy of "you get the lowest fare possible, and everything else costs extra." That is not merely a pricing model. Apparently, it has been the government's way of doing business lately. The government promises it won't cost that much, it hides the true costs, and when the system fails (as it often does), tack on extra costs in the form of subsidies, tax credits, bailouts, and "emergency" spending. President Trump's proposal to bail out Spirit Airlines is not an anomaly. It would be another line item in a very long balance sheet of the U.S. federal government. 

I think the first point to mention is that we would not be in this mess if the government did not intervene in the first place. Spirit Airlines was looking to merge with Jet Blue in 2024. But guess what happened? The Biden administration led the initiative to ultimately block the merger. American Action Forum President Douglas Holtz-Eakin said that there were already private-sector solutions of mergers or bankruptcy. A bailout is not necessary. 

More than being unnecessary, it harms the airline industry. As Competitive Enterprise Institute Director of Technology & Innovation Jessica Melugin reminds us, blocking the merger of smaller competitors to scale up when the industry is dominated by four major airlines makes little sense. CEI Policy Analyst Steve Swedberg details how the airline industry is suffering from a lack of competition and how competition helps keep the airline industry thriving instead of stagnating. All this bailout would do is have the airline industry flounder while making sure the Big Four (Delta, American, United, and Southwest) maintain their 70-plus-percent market share over the industry. 

As Holtz-Eakin is right to mention, this is reminiscent of the Soviet Union. Trump is using the power of the state to allocate capital. It does not take much imagination to see how political interference could get in the way of Spirit's management and operational decisions. 

Senior Fellow John Berlau points out, this sort of bailout creates a moral hazard because it incentivizes companies like Spirit Airlines to take excessive risks. Why should the taxpayers have to pay to bail out a failing airline, especially when there are other remedies available? This won't stop at Spirit. As a matter of fact, Frontier and Avelo are already seeking $2.5 billion in bailouts, as well. 

Cato Institute policy scholar Ted DeHaven illustrates how the Defense Production Act (DPA) angle to provide this Spirit bailout borders on the absurd. DPA is aimed at reducing shortfalls in goods essential to national defense. This is the Trump administration pursuing a bailout under the guise of bailouts, much like it has pursued tariffs on trucks and furniture under a flimsy national security argument. At least with other bailouts that I did not agree with, there was at least an argument of systemic risk. There is no such pretext. It is simply a first step towards greater nationalization of the airline industry. 

Strip away the rhetoric and the proposal is hard to justify on any grounds. The government creates the conditions for Spirit's instability, blocks private-sector measures to remedy it, and comes in to "fix" the problem that it caused in the first place. This decision distorts competitive markets, rewards risky behavior, and invites a litany of companies to beg for a handout and corporate welfare in the name of "national security." 

The bailout is not a solution. It merely masks an issue while expecting the taxpayers to clean up the mess. If a company is not doing well, it should be allowed to fail. If it wants to stay alive, that is what bankruptcy, restructuring, and acquisition are there for. The state is blocking voluntary exchange while preventing firms from adapting. It is a sober reminder that it does not matter who is in the White House. The underlying hubristic assumption is the same: the government can outguess the markets and improve upon an economic system that is second to none. 

Spirit Airlines has to earn your business. If it succumbs to incompetence, at least it costs them customers. It is worse with government because Spirit Airlines at least asks for your consent before charging you. Washington just reaches deeper in your wallet, keeps billing you for inane ideas like bailing out Spirit Airlines, and calls it reform. What ever happened to making airlines great again? 

Trump's Tomato Tax: A Tariff With Predictable Outcomes

If your grocery bill is higher than usual, one place to look is tomatoes. The price of tomatoes is up 23 percent compared to last year (see Rutgers data below). Part of that increase can be attributed to higher transportation costs or fluctuations in Florida's weather. But let's not overcomplicate this. 

The biggest change in the tomato market was not meteorological: it was policy. Last year, the U.S. changed its tariff-free policy on Mexican tomatoes and replaced it with a 17 percent tariff. When 90 percent of tomatoes come from Mexico and you tax those tomatoes, it should not be a surprise when the price of tomatoes increases. 

As a matter of fact, there were many that warned about these negative effects, myself included. It is not complicated what happened here. When the U.S. slaps tariffs on Mexican tomatoes, which is the primary source of tomatoes for the U.S., you are going to get more expensive tomatoes. Not maybe or probably. You will get more expensive tomatoes. 

Tariffs are taxes on imports. Like most taxes, they do not sit quietly in the background doing nothing. They change consumer behavior, such as having tomato imports in 2025 declined by $500 million in comparison to the previous year. The tariffs worked their way through the supply chain and made their way to the consumer, which is also not surprising since 95 percent of tariffs are paid by the consumer. 

None of this is unique to tomatoes. This is how tariffs work. When you tax imports with tariffs, you reduce supply, distort markets, and raise prices. The specifics vary by product and tariff amount, but the mechanism does not change. 

Whether it's tomatoes, steel, or washing machines, the pattern is the same: a concentrated benefit for a small group of well-connected domestic producers while everyone else pays the price. Protectionists can call that "saving jobs" all they want, but consumers experience fewer choices and higher prices. Tariffs don't protect markets. They just make them more expensive. 

Trump's Tariff Exemptions Are Harmful Protectionism with More Holes than Swiss Cheese

Tariffs have been a staple of Trump's trade policy in both of his presidential terms. When politicians propose a tariff, they make it sound like this simple tax rate because they are presented as universally applied. However, reality intervenes in the form of political discretion. As recent research from the American Action Forum (AAF) shows, that discretion creates exemptions.

AAF found that the "Liberation" Day tariffs had an exemption rate of 38 percent. With the newer Section 122 tariffs, that rate went up to 60 percent. The wider exemptions under Section 122 reduced the effective tariff rate from 14 percent to 10 percent. 

You might be wondering why I think this is a bad thing. After all, tariffs are import taxes. If the effective tax rate is lower, you would think that is better for the economy. Think again! Cato Institute trade scholar Scott Lincicome details the hellish labyrinth that tariffs have become. Tariff rates do not vary only by product. They do so by country, by statutory authority, and how multiple tariff regimes interact. 

Because Trump is trying to use multiple statutory authorities to push his tariff agenda, he has increased the number of tariff regimes in the U.S. tariff code from 3 in 2017 to 17 in 2025. More to the point, the percent of imports being subject to a tariff went from 0.02 percent in 2016 to 49.2 percent in 2025.

This has made tariff compliance a legal and logistical challenge of Herculean proportions. Rates stack inconsistently, exemptions are applied unevenly, and the rules change frequently. Tariffs become a hidden tax because firms have to devote time, hire specialists, and navigate trade uncertainty. A Federal Reserve report last year estimated that the compliance costs are the equivalent of 1.4 to 2.5 percent ad valorem tariff. Given that 95 percent of tariffs on U.S. imports are paid by the everyday American consumer, guess who is ultimately paying the brunt of those compliance costs? 

But those costs are not distributed evenly. Large firms can afford trade lawyers, customs specialists, and representation in Washington to do the rent-seeking and earn the exemptions. Smaller firms generally cannot. The asymmetry creates a divide between those who can navigate the rules and those who cannot. What is even more amusing is that the exemptions are a tacit admission from the Trump administration that tariffs are too blunt and harmful. Plus, they undermine the administration's rationales for the tariffs, particularly the rationale about generating government revenue.

While advocated for as a simple, universal tax rate, tariffs are a complex behemoth that incurs additional costs to businesses. The irony is that a policy that is presented as being straightforward ends up being a convoluted, opaque system that benefits well-connected businesses while screwing over the American people the protectionists claimed to help. 

Trump's Assault on Legal Immigration and Why the "Immigrants Should Come the Right Way" Argument Falls Short

During his 2024 presidential campaign and throughout his second term, President Trump's rhetoric on immigration has been framed around border control and illegal immigration. On the surface, he was about unauthorized entry, strengthening the border, and concerns about crime and lawlessness. In that respect, his response was straightforward: get illegal immigration under control. 

Those who self-identify as anti-illegal immigration have this common story to tell: illegal immigration is the problem, legal immigration is the solution, and anyone willing to "come the right way" has a door open to them. Too bad that the data does not support that narrative! The latest research from the Cato Institute shows that since the beginning of Trump's second term, legal immigration has be cut about 2.5 times more than illegal immigration. 

How is this possible? I thought Trump just wanted to go after the lawbreakers. One complicating factor that Cato points out is that border apprehensions were dropping by 80 percent in Biden's last year. In spite of what some might think, Biden actually tightened up border security at the end of his term. This helps explain why Trump cannot get the big mass deportation numbers that he was hoping for. 

With immigration being such a hot-button issue and Trump being so gung-ho on the matter, he grabbed for whatever policy levers he could. As I explained a couple of years ago in my argument against mass deportation, mass deportation involves detecting, detaining, and deporting individuals. Especially with how resources-strapped the U.S. government is to carry out mass deportation of every illegal immigrant, reducing illegal immigration is more operationally constrained. In contrast, the federal government has many levers on the legal immigration front:

• One I discussed last year was the $100,000 fee for the H-1B visa. That fee contributed to H-1B visas falling by 25 percent. 
• In 2025, the Trump administration eliminated the CBP One scheduling app and banned asylum, which is why asylum seekers entering legally dropped by 99.9 percent.
• With refugees, the Trump administration put a cap on refugees at 7,500. During the Biden administration, the cap was at 125,000 refugees. As a result, the number of admitted refugees declined by 90 percent. 
• Due to a visa ban on 75 countries, immigrant visas for permanent visas fell by about half, and visas for fiancé(e)s and spouses fell by 65 percent.
• As for international student visas, Trump used an executive order to cancel about 1,700 and 4,500 student visas, which contributed to a decline of 40 percent in F-1 visas.

Taken together, this shows that legal immigration is being affected through multiple entry ways simultaneously, whether that is work visas, asylum processing, refugee admissions, family-based visas, and student visas. The tools differ, but the result is the same: fewer legal entries into the United States. 

Sadly, this is not a new development. As I pointed out in 2018, Trump targeted chain migration, the Temporary Protected Status (TPS) program, DACA, low-skilled immigrants, and high-skilled immigrants on the H-1B visa during his first term. The current situation and the past act as a reminder that the U.S. immigration system is not a single, orderly queue, but a patchwork of pathways that each have its own constraints, caps, and eligibility criteria.

I want to bring this to something even more important, which I covered in 2023. Back then, the Cato Institute released a report showing how 99.4 percent of immigrants had no legal realistic legal avenue to do so, in no small part due to the complexity of the immigration system. Remember that 2023 was during the Biden administration, which was relatively more friendly towards immigrants. With all of these bans and caps from the Trump administration, the implication is very difficult to escape: the path to legal immigration to the United States is rapidly vanishing and next to impossible. 

Trump said that he will welcome those who come into the U.S. legally. However, it does not matter what his stated intent is. His policies have considerably restricted legal immigration to the U.S. In practice, telling immigrants to "wait in line" and "come in the right way" rings hollow when the Trump administration's actions actively constrain the queue as much as humanly possible. It makes the American Dream into less of an achievable goal and more of an empty slogan that is detached from reality and borders on the farcical. Meanwhile, would-be immigrants across the world are expected to wait in a line that mostly takes them nowhere except deeper in debt with all the processing fees in an effort towards futility. 

The Fed Finds That Trump's Tariffs Are Propping Up Inflation

In the United States, we have been told a simple story about inflation: the pandemic hit, the government intervened, and prices went up. As I argued before, quantitative easing from the Federal Reserve combined with high levels of government spending set up the U.S. for high levels of inflation in 2022-23. What this does not explain so well is why prices have not come back down. 

According to a recent study from the Federal Reserve, there is a reason why: Trump's tariffs. Even as the pandemic faded in the distant memory, the tariffs kept the inflation hangover lingering beyond the pandemic. This is not a mystery. Tariffs raise consumer prices because they are a tax on imports. Business then pass on the majority of that cost to consumers. As long as the tax remains, the tariffs create a pre-tax and post-tax price, which keeps prices elevated. 

What the Federal Reserve study does is calculate the counterfactual of "what would have happened if there were no tariffs?" The answer is bonkers when you think of the political hoopla about affordability. If Trump's 2025 tariffs were never implemented, consumer prices would be back to pre-pandemic levels (see below). 

As frustrating as this is, this is far from surprising. Last August, I discussed what the economic effects from these tariffs would be. Those costs ranged from a lower GDP and higher unemployment to....you guessed it: higher consumer prices. This is additional evidence to show that it is the everyday American that is paying for Trump's tariffs, not China, Mexico, or any other foreign country. It was lousy government policy that got us into this mess, and it was the tariffs that kept the inflation sticking around much longer than necessary. 

This problem was avoidable as it was predictable. If Congress wants to do something about affordability, it can reclaim its tariff powers enumerated in the Constitution. It turns out that "America First" pricing means that it is the everyday American that first and foremost pays the costs for Trump's tariff folly.