Neo-populism is a philosophy that pretends to be innovative and more economically efficient than free market capitalism. True believers in neo-populism are described as neo-populists. But on economic policy, they are much more akin to traditional progressives. They believe that they know how best to most efficiently allocate capital in an economy that approaches $30 trillion in annual output.
Neo-populists, by their own literature, tell us that they, the policy elites, know what we want. Neo-populists say that we the people don’t know what we want. Their direct implication is that we need to be guided like sheep. But neo-populists are statists at best and socialists at worst. Their policy prescriptions are an economic dead end, just like the economies of Western Europe.
Oren Cass, one of the principal voices of neo-populism, argues that he knows how to direct the economy to empower workers so that they are able to support their families and live in flourishing communities. Cass is an obviously smart man who wants to make the nation better. Unfortunately, by interfering in the market, Cass and his supporters would create massive economic frictions. Frictions reduce growth, reduce investment, and reduce long-term productivity gains.
The market reflects the collective wisdom of 330 million Americans who, through their consumption and investment choices, allocate capital as they freely choose. Capitalism is dynamic; capitalism innovates. Capitalism enables creative destruction, which is necessary for long-run productivity growth. By their free choices, Americans choose to lead the world in technology and healthcare innovation, not making shoes or children’s toys. Capital is, by definition, finite. Economic supremacy in artificial intelligence and in lifesaving healthcare technologies are the direct consequences of free market capitalism.
Cass and neo-populists support tariffs and believe that increasing taxes on corporations is good policy. Neo-populists are also strong supporters of trade unions. Neo-populists would raise taxes on the most productive members of society who have a propensity to save; thus lowering the cost of capital. Save for tariffs against China, a country engaged in a covert war against the United States and the West, tariffs benefit the few and harm the many. Tariffs provoke retaliation and protect economically inefficient businesses that, under the iron law of creative destruction, should be forced out of business by competition. The U.S. does not want to support zombie businesses.
Trade unions with economic power raise wages above the market clearing price. Fewer jobs are created. Unions contribute to inflation. The United Auto Workers union heavily contributes to the slow death of the domestic auto industry. Similarly, corporate taxes are among the most economically inefficient forms of taxation. Corporations invest. Investment drives productivity. The corporate tax cuts of the 2017 Tax Cuts and Jobs Act resulted in higher investment, reduced the flow of capital to other lower-tax countries, and increased capital in the U.S. More capital is critical to a vibrant economy.
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Tariffs, trade unions, and high corporate taxes create a Potemkin economy. Wages are high, but prices are high too. Workers at McDonald’s might make $30 an hour, but a Big Mac would cost a lot more. Is that individual worker’s $30/hour paycheck more important than the ability of consumers to buy a Big Mac affordably? And if so, what further implications follow for the rest of the economy? Business will protect margins. High taxes reduce investment. Productivity growth slows. The economy stagnates.
Neo-populism is a dead end and should be rejected as such.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note.