The Rise of Market Originalism Trump faces substantial economic challenges, including inflation and national debt, and should use America’s early economic history to guide policies focused on decentralization and deregulation. By Stephen Soukup
https://amgreatness.com/2024/11/23/the-rise-of-market-originalism/
Republicans have more than ample cause for celebration at the moment. Their victory in this month’s election was sweeping, and the new president and Congress will take office with a true mandate for change.
At the same time, President Trump finds himself in an awkward position, having promised to improve the nation’s economic trajectory while, at the same time, restraining sticky and discomfiting inflation. As I have noted elsewhere, in many ways, the president’s hands are tied. The condition of the nation’s fisc is perilous, and the reinvigorated Bond Vigilantes stand ready to ensure that the situation does not deteriorate further, exacerbated by either increased spending or reduced revenues. President Trump has promised to restore the nation’s economic vitality, but even his party’s largest donors have warned him that the traditional conservative policy to promote economic growth—income tax cuts—is economically risky under current conditions.
Given all of this, President Trump and his economic advisors will have to be resourceful and creative to find ways to nurture economic growth. They will have to think thoroughly about the existing barriers to widespread economic growth and will have to be thoughtful yet aggressive in dismantling those barriers to “make America great again.”
Fittingly, the answers Trump’s economic brain trust should seek are those that focus on the last of the four words in this longstanding catchphrase: again. In short, the formula for economic growth and prosperity can, in part, be found buried in the nation’s past. We, as a nation, can and should focus on making America economically great by employing that formula again.
At the risk of falling prey to “the Golden Age Myth,” I believe it’s important to understand that the nation’s greatest period of economic growth and expansion took place before the economic and political centralization that accompanied (and defined) the “modern era.” One of the keys to restoring the nation’s economic potential, therefore, is recognizing what originally made the American experiment so politically and economically potent.
For roughly four decades, conservative activists have focused on reinvigorating the nation’s founding political principles through the practice and application of judicial originalism, that is to say, a reading of the Constitution that comports with the original intentions of the Founders. By extension, we can call the restoration of traditional, founding economic principles something like “commercial” or, better yet, “market originalism.”
In 2011, Jeffrey G. Williamson, the Laird Bell Professor of Economics at Harvard University, and Peter Lindert, a Distinguished Professor of Economics at the University of California, Davis, conducted a study of the available economic data in an effort to answer the question: “When did America begin its gallop towards economic supremacy?”
The two economists noted that, over the years, many have speculated about economic growth in America and its start date, but few have done much concrete to quantify the speculation, largely because good economic data from the nation’s first century of independence has been hard to come by.
Using newly uncovered archival data, however, Williamson and Lindert were able to cobble together information to determine total economic growth data and per capita growth data for the period from the Revolutionary War to the Civil War. What they found was paradoxically astounding and yet still unsurprising.
In short, American economic growth and income per capita plummeted from 1774. “The new estimates imply that America’s real income per capita dropped by about 22% over the quarter century 1774-1800, a decline almost as steep as during the Great Depression between 1929 and 1933, and certainly longer.” The primary cause of this collapse was, of course, the Revolution. The same type of collapse took place in France and Russia during their respective revolutions as well.
From 1800 on, however, American growth skyrocketed. In the first four decades in which the American Founders’ vision was put into practice—after the economic shocks of the American and French Revolutions and the Napoleonic Wars—the American economy became the first in the world to achieve modern economic growth rates. According to the authors, two of the most important takeaways from the new archival data were that “Between 1800 and 1840, per capita income in the North grew at a very fast pace….” and that “These [growth] rates are far in excess of Western Europe.”
Additionally, Williamson and Lindert found that “free America had much more equal incomes than did England. The colonists had greater purchasing power than their English counterparts over all of the income ranks except at the top 2%.”
In other words, the economic data from the late 18th and early 19th centuries shows that the “American dream” was anything but. It was, rather, the “American reality.” Incomes grew. The economy grew. And America, compared to the mother country and the other economic giant of the era, Great Britain, was far more equal and egalitarian.
Given what we know about the American polity at the time, augmented by anecdotal information provided by the likes of Alexis de Tocqueville, it is almost inarguable that the economic greatness of the American experiment was related to its political greatness. The American Founders wove together the best of the ancient world and supplemented it with the cautious application of the ideas of the early modern world to create something very special and unique in human history: a decentralized, federal polity that emphasized voluntary virtuous behavior, regardless of creed (or lack thereof), and produced comity, community, liberty, and prosperity.
In turn, then, a restorative economic policy should strive to do the same, focusing especially on decentralization and the practical application of virtue.
Obviously, an essay such as this one is far too short to detail the specifics such an agenda should take. Nevertheless, the incoming president should focus initially on a few acts.
First, he should replace the overly constrictive Securities and Exchange Commission Chairman Gary Gensler with someone who understands and will focus on capital formation rather than the proliferation of rules and regulations designed to stunt growth and that, in practice, serve to centralize market power in fewer, increasingly powerful hands. Hester Peirce, a current commissioner whom Trump nominated during his first stint in Washington, would be an excellent choice. Second, he should encourage his new SEC to focus less on extraneous, social and political matters and more on how best to facilitate outcomes that benefit all shareholders. Third, he should instruct the SEC enforcement division to be more discriminating in its efforts to uncover and punish potential regulatory violations. Address wrongdoing in ways that have equivalent impacts on large and small financial firms and understand the unique challenges and importance of startups.
Fourth, President Trump should encourage and extol financial decentralization from day one. One of the major problems any reforms will face is that there are no easy answers. The regulatory solutions previously proffered to deal with the “bigness” of America’s financial giants and with the passive investment/indexing that amplifies their size and market monopolization would likely harm the investors who utilize those firms, namely average Americans. Consequently, the Trump team should start by discussing the issue openly and encouraging the formation and analyses of new and creative solutions intended to enable entry into the financial marketplace. Reducing existing legal and regulatory barriers to entry would help, although the scale of the current giants in the business makes such entry exceptionally difficult.
Fifth, President Trump should encourage Congress to pass legislation clearly defining the fiduciary responsibilities of fund managers to their clients. Eliminate, where possible, extraneous social and political considerations and focus on pecuniary materiality and shareholder interests. Force the “massive passive” firms to get out of politics, at the very least.
This is just a start, naturally, but that doesn’t mean it’s not important. The problems facing our economy today and going forward are manifold but are all related to “bigness” and centralization. Recognizing this and understanding the importance of reversing the trend of the last 150 years of consolidation will benefit the nation immeasurably.
Comments are closed.
