By Matthew Mitchell & Steven Globerman
Friday, September 04, 2026
“It is characteristic of the unlearned,” observed Calvin Coolidge in 1919, “that they are forever
proposing something which is old, and because it has recently come to their own
attention, supposing it to be new.”
“I think what is so unique and refreshing about Donald
Trump’s economic policies,” says Vice President J.D. Vance in 2026, “is that it is not
the same old economic ideas that you would have heard 30, 40 years ago.”
Vance is right to a point. It’s hard to imagine Bill
Clinton directing the federal government to take ownership stakes—totaling $26.7 billion—in 30 private companies. Or Ronald Reagan hiking the average
U.S. tariff rate to Sudanese levels, thereby imposing thousands of dollars of
additional taxes on American families. George H.W. Bush would have never
claimed a “golden share” in U.S. Steel, gaining a say in a private
company’s board membership, factory locations, capital investment, employment,
worker pay, and naming rights. And, it is safe to say that no past president
would direct the Pentagon to go into the oil business with an
accused money launderer and an unelected Venezuelan socialist.
Thirty years ago, the consensus in Washington (they
actually called it the “Washington Consensus”) was that governments should not
direct private economic activity.
But forget about past Washington leaders. Thirty years
ago, Moscow’s leaders like Boris Yeltsin had already rejected state
control of the economy. Having pressed a third of the planet into their
experiment in central planning, public ownership of the means of production,
and suppression of private economic choice, even the socialists had to admit it
didn’t turn out well.
While Trump has positioned himself as an anti-socialist,
he’s perfectly content to use socialist tools—including ownership of the means
of production, price controls, and central planning—to direct the U.S. economy.
But Trump isn’t the only American politician to dust off
socialist central planning and think he has found something shiny and new. In
the Democratic Party, a new crop of self-described socialists, from mayors
Zohran Mamdani in New York and Katie Wilson in Seattle to state representatives
Chris Rabb in Pennsylvania and Donavan McKinney in Michigan, have shown
surprising electoral strength.
At the annual gathering of the Democratic Socialists of
America in Chicago, co-chair Ashik Siddique captured the excitement, declaring: “I never thought this would be possible in my
lifetime.”
The avowed socialists’ plans are in some ways less
radical than Trump’s. Mamdani is trying to freeze rents on New York City’s roughly
960,000 rent-stabilized apartments. He wants a $30-per-hour minimum wage. He
wants five city-owned grocery stores that would be exempt from rent and
property taxes, fare-free city buses, and universal childcare for children up
to 5 years old. And he wants to pay for all of this by raising the city’s
business tax rate, adding a 2 percent surtax on the top 1 percent of income
earners, and imposing an annual luxury property tax targeting wealthy,
part-time residents.
Neither Trump nor his DSA comrades are trying to turn the
U.S. into Mao’s China or Stalin’s USSR. But both seem oblivious to the dangers
of blurring public and private interests.
Mamdani’s grocery stores and Trump’s government-backed
firms will compete with private firms for customers, capital, and labor. They
will enjoy extraordinary advantages, including financial subsidies that draw on
the government’s power to coerce money from taxpayers and preferential
regulations that raise their rivals’ costs and limit honest competition.
The private firms that will compete with these ventures
are understandably unhappy. As Ed Hirs, an energy economist at the University
of Houston told the Wall Street Journal about Trump’s Venezuela
venture: “Why is the U.S. subsidizing and building a major competitor to the
U.S. oil patch?” In New York, hundreds of minority business owners who run
bodegas and grocery stores are suing to stop Mamdani’s city stores. As their lawyer,
Mark Jaffe put it, “You cannot expect hard-working small business
owners to compete with a supermarket that isn’t going to pay rent, won’t have
to pay an electric bill and won’t have to buy their products at full price.”
Unlike truly private firms, government-backed firms profit from their connections to government officials,
rather than by earning customers. With the government having a vested interest
in their survival, they have less incentive to economize on their use of inputs
to improve efficiency.
And like modern bureaucrats, their managers are incentivized to grow the
bureaucracies they oversee. Investors will not have to be convinced that their
plans are sound, since taxpayers will be dragooned into investing whether they
like it or not. Meanwhile, this favoritism will encourage other firms to expend scarce resources to obtain their own favorable
treatment from government.
Unfortunately, the costs of government intervention in
markets are often hidden. Rent control keeps rent low but it also reduces the quantity and quality of rentable units,
exacerbating the housing crisis. Predictably, the public typically blames
landlords rather than politicians for this outcome. Tariffs do little to
eliminate bilateral trade deficits (a non-problem to begin with), but they invariably raise the cost of living. And when they do, tariff men blame the retailers and not their own tariffs.
Government-backed firms can appear to turn a profit for
years, even decades.
They are often aided by private creditors willing to lend to them on good terms
given their government backing. But this apparent success can be deceiving. One
reason is that privileged firms tend to be less productive than non-privileged firms. More subtly,
privileged firms draw resources away from more innovative and productive firms,
making an entire economy more sclerotic over time.
A flourishing economy, as the Nobel Laureate Edmund
Phelps explained in his 2013 book Mass Flourishing, “is an economy with a considerable
degree of dynamism—that is, the will and the capacity and aspiration to
innovate.” It is this dynamic competition that made the U.S. economy the envy
of the world. But as open and competitive markets give way to hand-picked,
taxpayer- and regulator-supported winners, Americans will end up with less
innovation, slower growth, and ultimately a lower standard of living. To see
how this might turn out, Phelps suggests we look to the stagnating corporatist
economies of southern Europe.
There are cultural and political consequences to these
government-granted privileges, too. The more the government picks winners and
losers, the less it can claim to serve the general welfare of all. And the more
firms, industries, and products succeed on the basis of government favor, the
easier it will be for future politicians to say, “You didn’t build that.”
None of what the DSA or Trump is offering is refreshing;
it’s stale. It would be truly refreshing if policymakers recognized the
difference between public and private interests and moved to disentangle them.
