|  | | | | The (Not So) New Conservative Economic Populism |
| On his tallest day, he was exactly five feet. Yet this brilliant economist was an intellectual giant who would attain Yoda-like status among the many world leaders who drew inspiration from his ideas.
Milton Friedman was perhaps the most influential defender of free market capitalism that the world has ever known. For many decades, Friedman’s free market approach—which calls for minimal government interference in the private sector and unrestricted trade among nations—dominated Republican economic policy.
But with the rise of the MAGA movement, this school of thought is being directly challenged. The implications for businesses as well as international relations will likely be significant.
On May 9, 2002, about seven months after ordering the invasion of Afghanistan, George W. Bush hosted a luncheon to pay tribute to Friedman on the occasion of his 90th birthday.
The crowd that convened at the Eisenhower Executive Office Building included a group of Washington fixtures who were lately being referred to as “neoconservatives.” Notable among them were Defense Secretary Don Rumsfeld and his deputy Paul Wolfowitz. The pair would shortly become the key architects of Operation Iraqi Freedom.
Fed Chairman Alan Greenspan was also present to honor Friedman. As a young man in the 1950s and 1960s, Greenspan had a lengthy association with Ayn Rand, the famous philosopher and author of novels like The Fountainhead and Atlas Shrugged. Greenspan was deeply involved in helping Rand promote her “Objectivist” movement, which in her words was based on a social vision of “full, pure, uncontrolled, unregulated laissez-faire capitalism.” |
|  | Bush and Friedman (May 2002) |
| The event was not the first time Republicans honored Friedman, who passed away in 2006. In 1988, President Ronald Reagan awarded Friedman the Presidential Medal of Freedom.
George W. Bush is the only U.S. President who has held an MBA degree. He may have given up booze on his 40th birthday, but he never stopped drinking the free market Kool-Aid. There is no question Bush organized the event to communicate to America and the world his deep fondness for the ideas that Friedman tirelessly championed. |
| | Milton Friedman has shown us that when government attempts to substitute its own judgments for the judgments of free people, the results are usually disastrous. In contrast to the free market's invisible hand, which improves the lives of people, the government's invisible foot tramples on people's hopes and destroys their dreams…. He has taught us that a free market system's main justification is its moral strength. Human freedom serves the cause of human dignity. Freedom rewards creativity and work, and you cannot reduce freedom in our economy without reducing freedom in our lives. - George W. Bush (5/8/2002) |
| | Early in his first term, Bush was keen to signal that an unapologetic free market capitalist now occupied the Oval Office. But anyone who watched the Republican National Convention in July 2024 likely picked up on some sharply different messaging. To be a Republican two decades ago seemed to mean something quite different from what it means today.
Certainly, the convention speech given by Teamsters President Sean O’Brien would have Milton Friedman spinning in his grave. O’Brien, who runs one of the largest private sector unions in the United States, spoke in a thick Boston accent with nothing but contempt for the profit motive. |
| | Elites have no party. Elites have no nation. Their allegiance is to the balance sheet and to the stock price at the expense of the American worker. - Teamsters President Sean O’Brien at the Republican National Convention (7/15/2024) |
|  | Sean O’Brien at the Republican convention |
| It is easy to write off O’Brien’s historic speaking opportunity as a tactical political move to expand the base—an olive branch to labor unions who have historically aligned with the Democrats.
But as O’Brien himself pointed out in his speech, there are many leading figures in the Republican Party now who are sharply critical of the free market orthodoxy of the Bush era. This new generation of Republican leaders is focused on finding ways to improve economic conditions for working Americans beyond blind faith in a rising tide lifting all boats.
Trump’s selection of Ohio Senator JD Vance as a running mate underscores the extent to which the Republican Party is shifting on economic policy. In his acceptance speech for the Vice-Presidential nomination, Vance’s remarks seemed almost specifically directed at the Bush administration. |
| | As always, America’s ruling class wrote the checks; communities like mine paid the price. For decades, that divide between the few, with their power and comfort in Washington, and the rest of us only widened. From Iraq to Afghanistan, from the financial crisis to the Great Recession, from open borders to stagnating wages, the people who govern this country have failed and failed again. - JD Vance (7/17/2024) |
| | Trump could have chosen a running mate with more conventionally Republican economic views, such as North Dakota Governor Doug Burgum, a successful software entrepreneur with a Stanford MBA. But he chose Vance, who has taken positions that seem to be aligned with traditional left-wing critiques of a private sector that is left to its own devices.
Antitrust
Vance is, for example, among a handful of MAGA-aligned Republicans who have openly expressed support for Lina Khan, the Biden-appointed Chairperson of the Federal Trade Commission. Dubbed “Khanservatives,” these Republicans like her aggressive posture towards large corporate interests, especially in the tech sector.
At a conference in February, Vance said of Khan: “I guess I look at Lina Khan as one of the few people in the Biden administration who I think is doing a pretty good job.” He added that he believes Trump “does not buy into the old orthodoxy that we can’t do anything about these companies because that would be a violation of some ephemeral free market principle.”
Lina Khan (who earned her degree from Yale Law just a few years after JD and Ucha Vance) has taken many controversial positions since assuming leadership of the FTC. A number of Khan’s attempts to block corporate acquisitions, such as Microsoft’s bid for videogame creator Activision, did not survive a court challenge.
From an investment perspective, it is worth nothing that Khan’s focus has generally been on the very largest technology players. It is conceivable that Khan could stay on as FTC Chair regardless of who becomes President, which can be viewed as a risk factor for the Magnificent Seven mega-cap tech stocks. This is among the reasons we have sought alternatives to Mag 7 stocks in our American Resilience Model Portfolio. (Click here to watch our discussion on the topic.)
While antitrust enforcement can be taken too far, history suggests it can also lead to major industrial reforms that are ultimately positive for the economy and investors. For example, Reagan’s Justice Department pursued the breakup of Ma Bell in the early 1980s. It is difficult to imagine the innovations in telecommunications that we enjoy today if the AT&T monopoly were never touched.
Khan’s unusually aggressive stance towards corporate consolidation has invited substantial criticism from many mainstream Republicans and Democrats. Yet she has developed something of a cult following among members of the MAGA crowd, who are themselves deeply distrustful of corporate power and seem to appreciate her interventionist approach. |
|  | FTC Chair Khan with supporter Rep. Matt Gaetz |
| If you were asleep for twenty years and just woke up, you might be surprised to see so-called “far right” members of the Republican Party going after large corporate interests, while mainstream Democrats defend them. The explanation is that many conservatives today believe Corporate America has become co-opted by the Democrat Party.
On this point, there is an interesting parallel to the recent controversy over the Supreme Court’s ruling on “Chevron deference.” In late June, the court overruled Chevron USA vs. National Resources Defense Council. The decision shifts the power to interpret ambiguous federal laws from administrative agencies to Congress. Many Democrats went apoplectic. |
| | By striking down Chevron, the Supreme Court has eroded the separation of powers, turning an unaccountable judiciary into policymakers and concentrating power in the hands of right-wing judges. - Connecticut Sen. Richard Blumenthal (6/28/2024) |
| | Ironically, it was Democrats who were enraged when Chevron became the law of the land following a unanimous SCOTUS decision in 1984. And it was conservatives who championed the original Chevron decision. Justice Antonin Scalia, a perennial favorite among Republicans, did not join the Supreme Court until 1986 but, in 1989, he offered a full-throated defense of the Chevron decision.
So what has changed? In 1984, when Chevron was decided, Ronald Reagan was President, had control of the administrative agencies and was pursuing his deregulation agenda. Republicans were comfortable with these agencies having greater power, while Democrats were not.
Today, the administrative state, sometimes referred to as the “deep state,” is perceived as being politically aligned with the Democrats. So Republicans are generally pleased that Chevron has been overturned as they tend to welcome any reduction in the power of the administrative state.
Similarly, Corporate America is now viewed by Republicans, especially those associated with the MAGA movement, as an extension of the Democrat party.
In the eyes of many conservatives, Corporate America became highly politicized during the Biden Administration. After Biden was elected, we saw large companies embrace ideological movements like ESG and DEI. They also provided financial support for BLM following George Floyd’s death.
During the pandemic, America’s largest companies implemented controversial mask and vaccine mandates. And in the case of technology and social media companies, whose employees overwhelmingly support Democrat candidates, there was an apparent willingness to engage in censorship of conservative political viewpoints.
Is MAGA socialist?
Lina Khan also enjoys strong support from the far left of the Democrat Party, like Rep. Alexandria Ocasio-Cortez, who has praised Khan for “taking on corporate greed & delivering for the working class.” One may be tempted to conclude from this alignment with the likes of AOC that MAGA is demonstrating a socialist drift.
A crucial difference, of course, between the more socialist Democrats and MAGA Republicans is that MAGA politicians generally want lower taxes and a much smaller federal government. By contrast, AOC, Bernie Sanders and their allies seek significantly higher taxes and a large expansion of the welfare state.
MAGA interest in antitrust enforcement is not grounded in the traditional leftist perspective that the private sector is inherently exploitative and needs to be aggressively regulated and managed. Rather, it seems to stem from a desire to find a way to make Corporate America more accountable to American voters.
The overlap between MAGA and the more extreme leftists in American government is perhaps confusing because we have grown accustomed to the idea that there are only two camps when it comes to economic policy. You are either a big government welfare statist (which conservatives might decry as “socialist” or “Marxist”), or you are a free market ideologue who wants the bare minimum of government intervention (which leftists might decry as “anarcho-capitalism.”)
But there is another tradition in American economic policy that may have lost a lot of oxygen in recent decades but is now making a comeback under Trump.
The re-emergence of conservative economic populism
Pat Buchanan, now in his mid-eighties, has receded from the limelight, but his ideas might be as relevant as ever. Buchanan has always articulated an economic vision that is far from socialist but quite differentiated from the laissez faire approach that has dominated Republican politics for much of the 21st century.
“MAGA-nomics” in many ways captures the essence of Buchanan’s “economic nationalism.” Buchanan has for decades claimed that his own vision represents the center of traditional Republican economic policy, whereas Friedman’s free market ideas are a detour. Back in 2016, with Trump just emerging on the scene, the former Nixon speech writer and Republican Presidential candidate argued that an interventionist approach should be the path forward for the Republican Party. |
| | The economic nationalism and protectionism of Hamilton, Madison, Jackson and Henry Clay, and the Party of Lincoln, McKinley, Teddy Roosevelt and Coolidge, of all four presidents on Mount Rushmore, made America the greatest and most self-sufficient republic in history. And the free-trade, one-worldism of Bush I, Clinton, Bush II and Obama enabled Communist China to shoulder us aside and become the world’s No. 1 manufacturing power…. If we look more and more like the British Empire in its twilight years, it is because we were converted to the same free-trade faith that was dismissed as utopian folly by the men who made America. - Pat Buchanan (5/26/2016) |
| | Ronald Reagan certainly championed economic freedom and fiercely opposed communism. But as Buchanan pointed out, he was willing to intervene to protect American industry as the U.S. wrestled with heightened competition from Japan in the 1980s. Buchanan emphasized that Reagan supported quotas and tariffs on Japanese motorcycles, automobiles and machine tools, noting, “[t]hough a free trader, he always put America first.” |
|  | Reagan with Pat Buchanan in 1982 |
| In the 1980s, Americans had a lot of anxiety that Japan would eclipse the U.S. economically. There was less concern, however, that this posed a serious national security threat, since Japan had been de-militarized since World War II and had a significantly smaller population.
By contrast, China, which is America’s chief economic rival today, is also America’s biggest military adversary. This adds a very important non-economic dimension to our trade and industrial policy. With respect to our relationship with China, there is a lot more at stake than jobs. |
| The power of tariffs
While antitrust enforcement remains a critical issue, the defining feature of Trump’s economic agenda is his interest in tariffs as a tool to achieve both economic and political ends.
From the standpoint of free market advocates, tariffs are among the worst things a government can impose. On this topic, Milton Friedman wrote: “Few measures that we could take would do more to promote the cause of freedom at home and abroad than complete free trade.”
The free marketers may have had Friedman, but a young new scholarly voice has emerged to articulate conservative populist economics in the form of Oren Cass. Like Friedman, Cass is bespectacled and unassuming. But through his American Compass think tank, he is arming the new generation of MAGA politicians with intellectual arguments in support of tariffs and other interventionist measures.
American Compass states as its mission that it wants “to supplant blind faith in free markets with a focus on workers, their families and communities, and the national interest.”
JD Vance is closely connected to American Compass and has participated in various events they have sponsored, along with other relatively young Republican Senators like Tom Cotton and Marco Rubio.
In October 2023, Cass penned an Op-Ed piece in the The Wall Street Journal titled “Why Trump Is Right About Tariffs.” He laid out several key areas of disagreement with the prevailing wisdom of free market economists. |
| | In the world as it is, the U.S. cannot afford to be indifferent between purchases of goods produced abroad and ones produced by American workers in the American industrial ecosystem…. [V]ital industrial functions like the production of semiconductors, rare-earth minerals and pharmaceuticals, all pioneered in the U.S., are now dominated by overseas operations. Undoing this failure will take a range of policy measures—and time—but a straightforward place to start is a tariff that gives domestic producers an advantage and thus encourages new investment in domestic production. - Oren Cass (10/27/2023) |
|  | Tariff advocate Oren Cass |
| | Conservative populist economics is a far cry from socialism. This school of thought has no interest in expanding government as a percentage of GDP. It respects the private sector and the power of financial incentives, like profits, to drive innovation and positive outcomes.
Where the conservative populists break with the free marketers is in their willingness to use government to create boundaries around free market activity. This is especially true when it comes to international trade, where the populists place significant emphasis on the long-term political and industrial consequences of our policies. The populists are also sensitive to the various impacts these decisions may have on communities around our country. |
| An outcome-oriented deal-maker who played both sides of the aisle before committing to the Republican Party, Donald Trump has a non-ideological leadership style. His signature campaign slogan, Make America Great Again, is fundamentally about results, not how you get them.
Trump is open-minded and practical. When it comes to tariffs, he has found a tool that he believes he can use very effectively. In a recent interview with Bloomberg, Trump shared his affection for President William McKinley, whom he described as our “most underrated President” and whose tariff policies “made this country rich.” |
| | Tariffs do two things. Economically, they’re phenomenal. And a lot of people will say, Oh, that’s terrible…. I can’t believe how many people are negative on tariffs that are actually smart people. It does two things: Economically, it’s great. And man, is it good for negotiation. - Donald Trump (7/16/2024) |
| | A new era?
George W. Bush is alive and well but was nowhere to be found at the Republican National Convention this July. Trump rose to power by eviscerating his brother Jeb in primary debates and discrediting Bush’s decision-making on the Iraq War.
In 2016, Bush gave a speech in Dallas in which he praised the North American Free Trade Agreement (NAFTA) for creating millions of jobs. At the convention, JD Vance blasted Joe Biden for supporting NAFTA (“a bad trade deal that sent countless good jobs to Mexico”) and implied that NAFTA had decimated his hometown of Middletown, Ohio.
Trump of course made waves during his first administration with his tariff policies directed at China. This was before Covid, before Ukraine, before the spike in inflation and before the rise in tensions in the Middle East.
Given the impact of the pandemic on supply chains, disruptions to energy and commodity markets, worsening relations with China, and a generally less stable international landscape, a second Trump administration could make even more aggressive use of tariffs and other forms of economic protectionism.
If Trump is elected, it is reasonable to expect economic policies that promote more onshoring of American industry and production. Investors should be mindful that there will be both winners and losers from these potential policy shifts.
In our previous discussion of Texas Instruments (TXN), we highlighted the company’s substantial investment in domestic manufacturing capacity. A company like Vulcan Materials (VMC), which we have also profiled, likewise stands to benefit from a renaissance in domestic industrial activity, with its leading position as a supplier of construction materials in sunbelt states.
During the Biden years, we saw the evolution of a new interpretation of conservative economic policy. Its advocates seem to relish the opportunity to distance themselves from the free market orthodoxy of prior eras. No one has been closer to the center of this movement than JD Vance.
With Vance as Trump’s running mate and potential successor, we may now find ourselves at the very beginning of a seismic shift in American economic policy. Trump and his allies seem quite prepared to dispense with old dogmas. |
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