The Perils of Right-Wing Economic Populism: A Conversation with Economist Ryan Bourne

The new right is embracing progressive economics to advance its regressive cultural agenda

(Credit: Amy Lutz, Shutterstock)

Last month, Aaron Ross Powell sat down with Ryan Bourne, who is the R. Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute, to discuss the new right’s adoption of populist economics. The following Q&A has been adapted from their conversation on Aaron’s ReImagining Liberty podcast.

Aaron Ross Powell: Ryan, you’re an expert in the public understanding of economics. I want to ask you about an important shift that’s taken place since Trump’s takeover of the conservative movement. People on the right used to talk about the importance of free enterprise—certainly that was an emphasis of Reagan-era conservatism. Today, the right has a much more populist perspective on economics. What do they misunderstand about markets?

Ryan Bourne: As economists, we tend to think markets are quite valuable for society. They enable people to convey their subjective preferences about goods and services. Suppliers use those signals to try to meet our wants. In this and other ways, markets are incredibly pluralistic.

The new right, by contrast, believes markets deliver suboptimal outcomes. It thinks we should use the power of the state—through tax regulation and subsidies, tools progressivism has traditionally used to advance a particular social design—in pursuit of the national interest or common good. This makes its view more of a social theory of markets than a purely economic one. The new right’s insistence on a much larger manufacturing sector, a heavy industrial base, families that look a bit more traditional (single-income households, wife as homemaker)—these require configuring markets toward a specific set of social goals.

So instead of seeing markets as an economic mechanism that reflects our pluralism and enables us to satisfy our subjective preferences and desires, they conceive of them as vehicles toward a particular social vision. They set out what they perceive to be the national interest or common good and they’re willing to use the powers of the state to impose it.

Powell: What’s the truly concerning element here, though? Is it the way the new right views markets? That is, as mechanisms that can be harnessed toward specific social goals? Or is the main problem their specific social goals—that is, that their particular conception of the national interest or common good is warped and bad?

What I’m asking is, if someone had good social goals—would that eliminate the problem you’re raising or would it still be a wrong stance to take toward markets?

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Right-Wing Populists Are Just as Bad for Business as Left-Wing Ones

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Let me use a different example—one that maybe someone on the left might bring up. Imagine that, as a result of markets working independently of any top-down meddling, one or two people end up with basically all of the wealth. The rest of us have none, and end up as serfs on their land. Since we’re all entirely economically dependent on them, they exercise near total control over us in a domineering way. It would seem that, in this case, we should agree that the markets needed adjustment in order to get us to a different social outcome.

Bourne: That’s a huge question. Let me circle around to an answer. An interesting feature of the new right is they’ve adopted an economic history of the last half-century that is distinctly progressive in that it believes we have been living under a radical libertarian experiment. They certainly believe that the Republican Party has been dominated by libertarian economics. I think this economic history is fundamentally mistaken. When it comes to trade policy, specifically the protectionism versus free trade debate, the U.S. has always had extensive trade protectionism across numerous industries. We haven’t come close to adopting unilateral free trade of the sort libertarians have been asking for. The U.S. also has an extensive welfare state, a big entitlement state for seniors, high levels of occupational licensing across different states. So this notion that we’ve been living through a radical anarcho-capitalist experiment, and that our social economic ills can therefore be attributed to the rapacious presence of free markets, is a misconception.

“One of the outcomes free markets can’t deliver to us is a limitless utopia where every industry, every business, every individual within the larger economy experiences maximalist economic success. … The right question is what’s the best economic system overall. On average, markets have helped us secure significant gains in living standards.” — Ryan Bourne

Articulated abstractly, the idea that we should be steering markets toward specific social outcomes seems innocuous to many people. But what typically ends up happening—both on the progressive side and on the national conservative side—when decisions are made to intervene in a heavy-handed way to steer markets toward certain outcomes is that the role of the state shifts from being neutral among different industries to favoring some, and from being neutral among various companies to turning some of them into lapdogs of government. If a business fulfills the ambitions of the state, represented by the elected leader, they get rewarded. But how certain are we that this top-down intervention is in the best interests, not just of the economy, but the nation as a whole? So, for example, trade protectionism seems to some to be needed to protect certain sectors (manufacturing), so we impose restraints on markets to steer them toward socially desirable outcomes, and the result is a less ideal outcome where one particular sector of the economy is artificially kept vibrant at the expense of other highly-desirable results that freer markets would have delivered to us, such as goods at a lower cost.

Powell: I want to pick up on this manufacturing protectionism angle but combine it with my earlier question about the public’s perception of our economic conditions, because I think this is a fascinating area to explore.

Currently, many of our economic indicators look pretty good. Inflation’s declining, the stock market’s doing well, wages are rising. And yet that does not match how a lot of people view our current economy at all. A standard response to this is to trot out the statistics and to say to people, “Look at these numbers. Things are actually great.” I wonder, though, whether for a lot of people, their appraisals of the economy are a lot more tethered to what they see around them, in their particular circumstances, rather than to abstract statistics about the nation as a whole. The U.S. is very large, very diverse. Some have done very well, some have not. Take someone from a western Pennsylvania town where there used to be a sawmill, or a foundry, or a bustling manufacturing sector. With all of that gone, with the town being down and out, and the area’s best and brightest leaving for where the jobs are, what’s supposed to keep someone who is still there from embracing a little market interventionism? What do you say to someone in that position for whom the market—at least from their perspective—has not been good?

Bourne: One of the outcomes free markets can’t deliver to us is a limitless utopia where every industry, every business, every individual within the larger economy experiences maximalist economic success. It is undoubtedly the case that a dynamic economy creates, in the near term, losers as well as winners. As a society comes to have high degrees of automation, and with it, ever-changing wage flows, the economic geography of a country is going to change.

“I think there’s extensive reliance on ESG and DEI stuff in the federal government right now, and a conservative administration would be well within its rights to rescind or repeal some of those executive orders and regulatory agency actions propping them up. That, too, is part of the democratic process. … But a conservative administration should not get to use state power to inculcate conservative values, including through retaliatory regulatory attacks on companies.” — Ryan Bourne

This is not a conversation only happening in the U.S. We’re having the same conversation in the U.K., where I’m from, regarding the balance of economic outcomes in the north and south of England. Wherever this conversation is happening, and it is happening all over the world, the right question to ask isn’t, “How do we get everyone everything they want?”, which is impossible; heavy-handed trade protectionism, which might safeguard domestic manufacturing, isn’t compatible with a robustly free trade policy, which will drive down the prices of goods. The right question is, “What’s the best economic system overall?” On average, markets have helped us secure significant gains in living standards. I understand that that’s cold comfort to someone living in one of those struggling towns. But that doesn’t have to be, and shouldn’t be, the end of the story. As far as possible, we need to remove barriers to both professional adjustment and to mobility. That way people suffering in those towns have access to more opportunities than they presently do.

A big problem in the U.S. at the moment is that in some of the most productive areas of the country, housing costs are incredibly high. Those are driven, in part, by local government zoning and land use regulations. If we had far more rational rules around development, and it was easier to move to places with more opportunity, we wouldn’t have as many people stuck in areas of the country with little prospect of attaining a well-paying job or to lead a productive life in the economic sense of the term.

Powell: Shifting gears a bit, one of my concerns regarding a second Trump term is that, if reelected, he will embrace a full-throated culture war posture toward regulation. For example, he’ll use the power of the state to punish corporations he sees as “woke” and to stop private organizations from having DEI programs or even officially playing up the importance of diversity. Whatever you think of these things, imposing restraints of this sort on private organizations—effectively telling them how they should run their operations—seems problematic. This is where a lot the economic illiberalism is these days—not in the “we’re going to jack up taxes” space but in the “we’re going to use the state to punish ideological opponents” stance.

Bourne: I won’t beat around the bush: I think there’s extensive reliance on ESG and DEI stuff in the federal government right now, and a conservative administration would be well within its rights to rescind or repeal some of those executive orders and regulatory agency actions propping them up. That, too, is part of the democratic process.

But where you’re right, Aaron, is that there’s currently an alarming measure of contempt for the position that says, “We’re going to insist on state neutrality and allow companies to engage in the policies and associations and speech that they want to.” In the recent dust-up between Florida Governor Ron DeSantis and Disney, the governor’s office clearly changed its stance toward a private business due to the business engaging in speech the governor disliked. But a conservative administration should not get to use state power to inculcate conservative values, including through retaliatory regulatory attacks on companies.

“Instead of seeing markets as an economic mechanism that reflects our pluralism and enables us to satisfy our subjective preferences and desires, the new right conceives of them as vehicles toward a particular social vision. They set out what they perceive to be the national interest or common good and they’re willing to use the powers of the state to impose it.” — Ryan Bourne

It’s not just government entities themselves adopting this stance—conservative institutions, such as the Heritage Foundation, have also shown a troubling willingness to shape their policy recommendations around culture war objectives. For example, since Heritage dislikes the content moderation policies of various technology companies, they’ve advocated the harrying of these companies using antitrust laws, even if there’s no consumer harm in play, as a way of pressuring them into changing what types of speech they allow on their platforms. This is one of economic populism’s great dangers: apart from the restrictions on liberties this stance imposes, if businesses are always having to second-guess what will please the administration in charge of regulatory policy, they’re shifting their focus away from what customers want and need and toward what a particular politician or political movement has as a culture war objective.

Powell: Let me ask about inflation, because that’s been the central economic issue of the last couple of years, and it’s an issue that seems to impact where a non-insignificant portion of people land on the Biden vs. Trump question.

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The New Right's Attack on Markets Is as Ignorant as the Old Left's

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On a kind of naive “greedflation” argument, everybody suddenly decided to be more greedy than they were before, leading to inflation, but now with prices going down, it’s because they’ve basically said, “Okay, we’ve been greedy enough for a while, time to dial it back.”

Bourne: One of the complexities with this spell of inflation in particular is that there was both a demand and a supply component to it at the same time. As a result of the reverberations from the war in Ukraine, and the difficulties the pandemic imposed on us, it was inevitable that we were going to see a spike of inflation, irrespective of government policy, because of our supply restraints, i.e., our restrictions on the amount of goods and services the economy could produce. Layered on top of that was an extraordinary increase in the money supply coupled with extensive fiscal stimulus through the American Rescue Plan in 2021—when lots of economists were warning that this was a huge stimulus relative to how far the economy was below its potential. While economists agree that the supply component likely would have pushed up prices for a while, you can only really explain the level of inflation we’ve seen by taking into consideration this big demand component as well.

Regarding the greedflation argument—I had this exact question put to me by Democratic Congressman Jim Himes of Connecticut in a congressional committee when he essentially asked, “Companies don’t have to put their prices up, do they?” The underlying assumption is that firms can simply set prices at whatever figure they like. In reality, they’re disciplined by two different forces: how many competitors there are and what they are able to charge, and what consumers are willing and able to pay. The idea that business capitalized on the supply shocks from the Ukraine war and the pandemic, that they used the fog of all of that going on, to raise prices higher than they otherwise needed to … that doesn’t explain how consumers are able to pay these prices. So the greedflation argument fails.

“Articulated abstractly, the idea that we should be steering markets toward specific social outcomes seems innocuous to many people. But what typically ends up happening—both on the progressive side and on the national conservative side—when decisions are made to intervene in a heavy-handed way to steer markets toward certain outcomes is that the role of the state shifts from being neutral among different industries to favoring some, and from being neutral among various companies to turning some of them into lapdogs of government.” — Ryan Bourne

Imagine a world in which a few companies jacked up their prices to try to make a quick buck. These are essential goods, and consumers are continuing to buy them, and as a consequence consumers have less money left over to spend on other goods and services. This doesn’t get you to inflation, which is a general rise in prices, that is, a rise in prices across the economy. You get inflation of the sort we’ve faced when there’s a big increase in overall money supply relative to economic production, which leads to high levels of total spending, which in the short term pushes up profits because certain prices go up much more quickly than wages. Inflation as a macroeconomic phenomenon is an increase in the general level of all prices in the economy. Now, in the short term, certain product prices go up before wage costs—and, as a result, you can get periods in which certain firms make big profits. But in the longer term, firms are not charities, and eventually those wages and other costs will increase because of general inflation as well. So greedflation, or profit-led inflation, is a kind of observed consequence of the disruptive effects of inflation, rather than a cause of inflation itself. The long and short of our situation was that there was too much money—money that was moving around too quickly, chasing goods and services whose production was severely impaired by several supply shocks at the same time.

Powell: 2024 is an election year, and the candidates are set. Does it strike you that the talking points, from either side, will be favorable to an advocate for free markets? Or do things look rather grim for those of us who are pro-free markets?

Bourne: I think the near-term outlook is relatively poor, but I also think there are potential seeds of improvement in the longer term.

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Within the conservative movement, we’re seeing the beginnings of intellectual pushback against the ascendancy of national conservatism and its hostility to free markets. On the progressive side, there’s an interesting recognition among supply-side progressives that there are lots of state policies in place that act as barriers to achieving aims like decarbonization or providing more opportunities for disadvantaged people. Although we might be tempted to adopt a disillusioned and disenchanted outlook, over the longer term, the prospects of a sensible pro-market perspective, one committed to enhancing the potential of the U.S. economy, are not in danger of fading away.

This interview has been adapted from a prior conversation on Aaron Ross Powell's ReImagining Liberty podcast. Please consider subscribing to Aaron’s newsletter.