The chattering and intellectual crowd of conservatives, through conferences, panels, and periodicals, has begun to seriously discuss what conservatism will look like after Donald Trump. For a good example of this phenomenon, see “Capitalism Under Fire” in the May 2019 edition of The Texas Pilgrim. Further in that vein, Oren Cass, Senior Fellow at the Manhattan Institute, has written two provocative pieces lately that challenge traditional aspects of conservative economic philosophy that are sacrosanct in many circles on the right.
One was an essay entitled “Putting Dynamism in Its Place” in the Spring 2019 edition of National Affairs, in which he provides a very interesting analysis of the concept of “creative destruction”, a term I have often used to describe the dynamism of free markets. He never refers to it by this name, nor does he mention Joseph Schumpeter, who ironically developed the concept from a careful reading of Karl Marx. But it is implied by his critique of the dynamism he sees as being overly absolutist in its treatment by conservative economists. It is worth taking time to consider Cass’s take on the evolution of the concept, particularly the need for a more balanced application of it in light of the impact of economic globalization. As he notes, this would involve measures to enhance the skills adaptability qualifications of the workers displaced by the creative destruction, which is a central question of our current middle class jobs and wages dilemma. He writes, “The mistakes of an absolutist approach to free market dynamics have been laid bare by a 40-year stagnation in median wages…No one believes that more disruption is always good or that dynamism automatically equals prosperity, nor should they.”
The second piece by Cass was from his remarks in a debate before the recent National Conservatism Conference in Washington, D. C., which are entitled “Resolved: That America Should Adopt an Industrial Policy”. In it, he bases his argument on three claims: (1) that market economies do not automatically allocate resources across sectors; (2) that policymakers have tools, called “industrial policy”, that can support vital sectors that might otherwise suffer from underinvestment; and (3) that while the policies produced by our political system will be far from ideal, efforts at sensible industrial policy can improve upon our status quo, which is itself far from ideal.
These two papers intersect to some extent, and there is certainly a lot to unpack here. I won’t make an attempt to comprehensively do so; however, I will add a few thoughts.
First, as to the absolutism of dynamism, I am not aware of any analyst who disagrees that dynamism or any other economic policy should be judiciously applied or should be expected to automatically result in added prosperity. But dynamism, or creative destruction, is a principle necessary for free markets to work; it is the organizing principle of free markets, if you will, and they cannot do their job without it. And as to his attribution of absolutist dynamism to the problem of stagnant wages, I submit that it is more of a correlation, but not a cause, because this stagnation has as much or more to do with the lack of skills adaptability and worker mobility and the failure of our education system than any other factor. I wish Cass would focus more on these factors rather than tinker with the dynamics of markets.
As for his resolution on industrial policy, depending how he defines the term, I think we have seen this movie locally as well as observed it from afar in Japan, and it ended badly in both instances. And it’s all about what he identifies as the “tools”. So if he means by industrial policy that government should be involved in “picking winners and losers”, count me out. Government investment in basic research and certain mission critical applied research, such as space and undersea exploration, is good. But there is no connection between trade deficits and the inability to create new jobs. So if he backs Donald Trump’s tariff warfare as a means of mercantilist retaliation and WTO compliance enforcement, I have some sympathy, up to the point of bald protection of selected industry groups, such as manufacturing, which I disapprove, except for the most obvious sectors directly involving national security.
As we continue to discuss what the world of conservatism will look like after Trump, there will be more and more productive discussions like the ones that Oren Cass has sparked here. As this process proceeds, we need to be careful with our definitions going into these discussions and be well-grounded in the principles that have made America exceptional.