These are difficult times for those of us brought up on free-market economics and global trade. For many years, we thought the ideological war had been not only fought, but won. After all, it is nearly 25 years since Lord Mandelson wrote in The Times that ‘we are all Thatcherite now’. The tide has seemingly turned, however, here in Britain, in Europe and strikingly but incoherently, in the United States.
All may not be lost. We still have reason to say, as Margaret Thatcher did, that we believe in the future. And the free market may be saved by the man who currently seems one of its most immediate threats: Donald Trump.
To make policy effectively, and to preserve our own sanity, we need to stop scratching our heads and arguing that Trump does not understand economics. He doesn’t, but that is not the point: for him, economic policy exists in a parallel universe of his own creation, in which reality bends to his will. His beloved tariffs were the foundation of America’s prosperity (they were not), their cost falls on the manufacturers and importers (it does not) and they are lucrative sources of revenue (they are not).
On one level, Trump seems like a stereotypical 1980s capitalist, red in tooth and claw (and tie). The effects of his beliefs, however, have been to embrace an 18th-century form of mercantilism and to see protectionism as an inherent virtue as well as an advantageous policy platform. His challenge to ‘conventional wisdom’ goes much deeper than that, it is fundamentally shaped by his personality: autocratic, impervious to advice, eternally paranoid and viciously vengeful. The way he approaches the economy and the mechanism of the state reflects this, and if he wants to do something, he cannot grasp why, as President, he should not be able to do it.
This has already led to levels and methods of state intervention which would have been hard to imagine on the far Left 20 years ago, let alone on the Right. Trump wants to set individual prices for pharmaceutical products, to dictate the interest rates traditionally set by the Federal Reserve, even to control how private companies adjust to the costs associated with his tariff régime. Walmart, he said, should ‘EAT THE TARIFFS’ and ‘not charge valued customers ANYTHING’. One wonders from what school of art that kind of deal would come.
The United States is an extreme example of turning away from the principles of the free market, but it is not unique. It has never been necessary to squint very hard to read between the lines of Keir Starmer’s approach to economic policy, business and wealth creation and see an essentially dirigiste foundation which believes that public spending is, by definition, virtuous. It is an ideology which assumes that government is likely to be the most effective tool for solving problems and that the private sector will eventually shape itself to the pieties of a left-leaning Hampstead socialism which disdains competition, entrepreneurship and conspicuous success.
Starmer’s faith that the state both can and should steer private enterprise towards achieving public policy goals was audible in the white noise of last October’s International Investment Summit. The Prime Minister talked about what happened ‘when every community enjoys the fruits of wealth creation’, and argued that his proposed Modern Industrial Strategy was ‘not in the business of individually picking winners’, but did mean ‘building on our strengths, mowing the grass on the pitch, making sure the changing rooms are clean and comfortable, that the training ground is good’. Government would lead and business would follow.
My optimism stems from the estimation that Trump, four months into his second four-year term, will become more extreme, not less; more mercurial and driven by self-belief, not more moderate. As he does, and as the economy staggers more frequently as it did at the first blast of his fantastical tariff régime, he will make voters stop and think sceptically, make them see that his imaginary imperatives and outcomes are not working, and create an opening, however slender, for an alternative prospectus.
At that point, advocates of the free market have two tasks. First, we must tear down the mythology Trump and other populists have built: that the protectionist, commercially-distanced past was better and more prosperous than today; that heavy industry can endure indefinitely by the sheer willpower of government; that changes in employment have been wrought solely by malign actors exploiting free trade.
Second, we need to replace that false narrative by reminding voters of what we have gained over the past 60 or 70 years, and what more is still to be gained. Free-market capitalism, or what the economist Deirdre McCloskey calls ‘innovism‘, has raised living standards, improved medical care and helped to eradicate or vastly reduce the incidence of diseases like smallpox, polio and measles. It has taken us from a world in 1820 in which 90% of the global population lived in extreme poverty, to today’s world, where it is 10%.
Arguments are rarely won by default, and economic arguments even more rarely. There is a titanic fight to win public opinion back to free-market economics, but there is also a good chance that Donald Trump, by his nature, will give us an opportunity to do just that.
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