What do capitalism, socialism and democracy all have in common? According to Joseph Schumpeter, one of the most prominent 20th century Austrian economists of his time, they all benefitted to a degree from what he termed “creative destruction” – a theory that is based on the belief that economic progress is accomplished through disjointed and often abrupt, disruptive occurences. Schumpeter’s ideas were frequently and fundamentally in contrast with those of John Maynard Keynes his English colleague.
Despite their differences, both men respected each other, something our present day economists would do well to emulate. Respect for differences stimulates conversations and debates and in turn produce understanding if not broad agreement. One of the major differences between them lay in their attitudes to government intervention in a capitalist system. Keynes was a supporter of targeted government involvement while Schumpeter decried any form of government intervention.
When it came to politics, Schumpeter was considered to be a “conservative” while Keynes was often referred to as the “radical.”
Today, Keynes would probably fall into the neo-conservative column.
While Schumpeter had serious doubts about the free market, he did manage to stay far away from socialism even when he was Minister of Finance in Austria’s only socialist government between the two world wars.
To Schumpeter, Marx was uniformly wrong in all his answers to the big economic questions and dead wrong about how to implement them, but he still considered himself a “son of Marx.”
Apart from life’s big question about the origin of man, the next big question for economists is bound to be which is the best course to take for our modern world’s economies: “Should we allow innovation and change to be the prime movers of our economies to the point that they end up disrupting established systems which lead to growth and development OR should we rely on government intervention to direct our energies and our investments to gradually (if at all) change the status quo and thereby replace by edict and not by attrition outdated and ineffective systems?”
When it comes to politicians, most “pure” economic theories are thrown overboard from the ship that carries them to the shores of the Potomac after their election.
They learn quite quickly which constituencies matter most to them and which economic theories they support and how influential those constituencies are to their reelection. Granted, there are a few on the Left that separate themselves from the pack, Like Bernie Sanders and Elizabeth Warren, but the vast majority play a very transparent game of pragmatic politics when it comes to economic issues. In short, they react more to the demands of political donors than to ideology. If that is true, and there is no reason not to believe it isn’t given our political history of the last hundred years, where does someone like Donald Trump fit in in this first part of the 21st century?
A pragmatic populist?
There is no question in this writer’s mind that Donald Trump believes more in the less (government involvement) is more approach to economics than the more is better philosophy, especially when it comes to mandated government intervention in the American economy. But that does not translate to a devotion to a strictly “arm’s length” economic political attitude. His first term was characterized by tax cuts for corporations and individuals and widespread government de-regulation, but also implementation of significant tariffs on imported goods. Trump has borrowed a little from the Schumpeter and Keynes playbooks, and I would argue that that makes him more of an economic pragmatist than a devotee to one single economic theory. I am aware that some would classify him as an agnostic on matters economic, but that would be ignoring his views on what powers the American economic machine, like energy, for example.
Trump understands that the cost of energy influences the price of everything whether the goods are American made or imported and that certain American industries must be protected against foreign domination or ownership. This is something all politicians, economists and captains of industry have known since the beginning of the industrial revolution, and only during the last half-century has the energy sector become the target for economic and environmental purists who were willing to sacrifice less GDP growth, higher prices and higher unemployment in order to satisfy their economic beliefs.
One must give environmental groups, alternative energy companies and some politicians their due as they succeeded in sensitizing Americans to the need to preserve and protect the environment against any attempts to abuse our lands and water.
But, as is often the case, many wanted government to use only the stick of regulations and bloated bureaucracy to carry out reforms that would end up unduly disadvantaging the American economy. Trump is a proponent of both stick and carrot, and I am convinced that he will not want to go down in history as the president that surrendured American lands to overly-ambitious developers or to energy companies that would shirk their duty to explore, responsibly. Reducing energy costs is an important aspect of any “creative destruction” that must take place before America can find it’s true north on the economic compass.
The next target for a Schumpeter-like makeover is the federal bureaucracy.
Donald Trump will not be the first president that has identified the federal government as a nesting place for feather-bedding.
According to Statista.com there were 2.93 million civilian federal workers in 2023.
While this number pales in comparison to the 19.58 million state and local government employees, it is substantial.
On a federal level, the Federal Register lists 438 agencies and sub-agencies.
Each has a budget, and it is probably safe to say, that those budgets reflect the relative importance placed on them by each administration.
In my agency, the U.S. and Foreign Commercial Service which was founded in 1980 and part of the U.S. Department of Commerce, our budgets were human resource heavy with 80%-85% allocated for personnel. Many U.S. government agencies have the same ratios of people to programs.
So, cutting programs will not be the solution that will substantially impact the government bottom line.
President-elect Donald Trump has indicated that he will ask the world’s richest man to head up an effort to reduce and streamline government spending. Many presidents, vice-presidents and Congressional Representatives have tried their hand at making government smaller and more responsive.
In March of 1993, then President Bill Clinton said that he wanted to “reinvent government.” The National Partnership for Reinventing Government (NPR) was a U.S. government reform initiative that was later launched with then VP Al Gore as its head. The goal was to make the federal government “work better, cost less, and get results Americans care about.” Its aim was to cut the bureaucracy and implement innovative solutions.
During its five-year life, it helped make changes in the way the federal government operates. The result was the elimination of over 100 programs. Over 250,000 federal jobs were cut and 800 agencies were consolidated. Much of government was outsourced to contractors. Subsequent administrations have benefitted from many of the decisions that NPR made.
Now it is Donald Trump’s turn. Can he exercise “creative destruction” to do away with government waste and take a broom to the “deep state” of entrenched bureaucrats that have traditionally pushed back at Republican administrations?
Will the coming years be the litmus test for proving (or disproving) Schumpeter’s theory like it did during the Great Depression and is the American system resilient enough to handle the kind of disruptive change that is bound to come? Finally, can Donald Trump Make America Great Again without weakening its ability to deliver the services every American wants and needs? We have four years to find out.
Stephen Helgesen is a retired career U.S. diplomat who lived and worked in 30 countries for 25 years during the Reagan, G.H.W. Bush, Clinton, and G.W. Bush Administrations. He is the author of fourteen books, seven of which are on American politics and has written over 1,400 articles on politics, economics and social trends. He can be reached at: [email protected]
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