Centrally planned economies always fail.
This was the case made by renowned hedge fund manager and future Donald Trump treasury secretary nominee Scott Bessent in a June speech to the Manhattan Institute.
Bessent disparaged the failed statist economic policies of Joe Biden, who had put central planning at “the heart” of his economic agenda. The resulting “calamity,” he notes, should have been expected.
Trump, on the other hand, is the progeny of Ronald Reagan, according to Bessent. Reaganomics unleashed American dynamism, sparking the biggest expansion of the middle class in world history by rolling back regulatory intrusions foisted on the economy by JFK, LBJ, Richard Nixon, and Jimmy Carter. But then came Barack Obama, who, Bessent notes, resuscitated the intrusive, federal technocracy. The Biden administration aped these policies, and “like all prior attempts at central planning, it failed to deliver prosperity.”
Indeed, Biden bragged about dispensing with “trickle-down economics” and replacing it with “Bidenomics.” Of course, before Reaganomics, the country was crippled by inflation, high energy prices, and stifling interest rates. Democrats kept the president’s promise and brought back all those things.
One of the implicit themes of Bessent’s speech, though no one hoping to work for any administration would put it quite this way, was that presidents don’t create jobs; they create conditions favorable for job growth. And Trump’s first-term success was predicated on minimal intrusions into the economy.
Bessent contends that Trump’s “pursuit of tax reform, deregulation, and fair trade produced noninflationary growth that generated the fastest increases in real wages in a generation.” Now, he offers no evidence new trade policy had anything to do with Trump-era economic success. There is ample evidence of the opposite.
Nevertheless, Bessent has talked about tariffs as nothing more than a tool to procure “fairness” in international trade. This is also often the claim of Trump’s defenders. (Though let’s hope things never get “fair” for us, the dominant economic power in the world.)
The problem is that I’m not sure the man who recently told Joe Rogan that “the most beautiful word” in the dictionary “is the word ‘tariff,’” even more beautiful than the word “love,” agrees with Bessent.
Indeed, the industrial trade policy favored by Trump and advisers like Howard Lutnick or Peter Navarro is, by almost every standard, “central planning.” Those who favor industrial policy promise to “bring back” antiquated low-paying jobs for American workers and bolster sectors of the economy favored by politicians.
So, while Bessent was critical of the Biden administration’s pursuit of “a set of central planning policies aimed at subsidizing supply in favored industries and restricting it in disfavored ones,” it is exactly how Trump has used import taxes.
Trump’s steel tariffs, extended by Biden, weren’t instituted to make things fairer. They are artificial, crony trade barriers that protect domestic steel producers from competition.
Trump’s tariffs on Chinese auto parts didn’t make things fairer for consumers or workers. American carmakers rely on imported components to keep down costs. They simply hire fewer people or pass along the price to consumers (or maybe taxpayers in the next round of bailouts.) According to Bessnet’s own reasoning, these policies are inflationary and undermine wage growth.
Bessnet was also highly critical of Biden’s spending, particularly the historic corporate welfare, “Inflation Reduction Act.” Once Democrats helped spark generational inflation, their primary response, he points out, was “price controls and blaming imaginary “greedflation.”
One hopes that Bessnet will convince Trump not to follow through on his campaign promise to implement a 10% cap on credit card interest rates. That’s also price fixing.
But Bessent also points out that expansion of the regulatory state and debt spending threatens to stifle economic growth because it has become increasingly difficult to manage the “existing debt burden and its commitments to its citizens.”
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We shouldn’t forget that Trump was an all-star spender in his first term, accumulating $7.8 trillion in new debt. Yes, $3.6 trillion came from COVID-19 relief (caused by government shutdowns), but much of his record spending wasn’t. If the Department of Government Efficiency, run by Elon Musk, can help tame the trajectory of debt spending, that would be a massive victory. Obviously, without structural reforms on entitlements, something the new GOP will probably never entertain, that is unlikely. But any effort to make the colossus of federal bureaucracy more efficient and leaner, even if it doesn’t significantly cut spending, is a worthwhile endeavor.
We don’t need to trade one technocratic regime for another. Central planners don’t fail because the strategy is inelegant, or their focus is wrong, or because they need new inputs. Central planning fails because social engineers can’t comprehend how economy grows or technology evolves. And it doesn’t matter what side of the political ledger the they sit.
This article was originally published at www.washingtonexaminer.com
