Tag: Joel Mokyr

Glenn on Adam Smith and the Midterm Elections

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This opinion column was first published on Project Syndicate.

Adam Smith on the U.S. Midterms

The Wealth of Nations offers a useful lens for understanding why US President Donald Trump’s mercantilist agenda has fallen short of its own stated goals. It also points to a better path, combining competitive markets with policies that help workers and communities build skills and keep pace with economic change.

November’s midterm elections pose a serious challenge for US President Donald Trump. Key components of his economic agenda, especially its protectionist measures, have raised concerns about the rising cost of living, prompted a rare rebuke from the Supreme Court, and cast doubt on the legal basis for his tariffs. Fortunately for Trump and the Republicans, they still have time to pivot to a pro-growth agenda that better addresses voter anxieties before the midterms.

Trump’s agenda is rooted in voter concerns about economic disruption driven by technological change and globalization. Breaking with the bipartisan embrace of market-friendly policies, his administration has sought to shield US producers from competition. While Treasury Secretary Scott Bessent has hinted that a pivot to a pro-growth strategy is in the works, reconciling it with the administration’s mercantilist approach will be difficult. 

There is, however, an alternative path that better aligns with Trump’s stated goal of helping people and communities buffeted by economic change. For guidance, it is worth turning to Adam Smith. The Wealth of Nations, published 250 years ago, grappled with many of the same tensions and pointed to a pragmatic middle ground.

At first glance, Smith may seem at odds with Trump’s approach. After all, The Wealth of Nations centers on Smith’s critique of the mercantilist order of his day. Mercantilism prizes trade surpluses and the accumulation of national wealth in the hands of the state. To work, it requires extensive government intervention in commerce, trade, and labor markets. But that expansive role invites rent-seeking and excessive control, a key concern for Smith. 

Smith’s treatise turned this system on its head by posing a radical question: Where does national wealth come from? For Smith, the answer stood in contrast to mercantilism. A competitive economy, with limited government intervention, would be accompanied by openness and specialization, in turn raising living standards. 

While Smith did not develop a formal theory of growth, his intuition about the importance of openness to markets and innovation is consistent with modern growth models and stands in contrast to Trump-era policymaking. As Nobel laureate economist Joel Mokyr has noted, science, practical knowledge, and openness to change are key drivers of long-term prosperity. 

But Trump has also identified an important tension. Modern growth models are like a coin. The “heads” side is growth and its benefits for living standards; the “tails” side is disruption—the upending of existing investments, firms, jobs, and even communities. It is here that Trump’s mercantilism, with its focus on minimizing the effects of disruption on voters’ lives, gains political traction. 

Smith challenges this perspective in two ways. First, he reminds us of the limits mercantilism places on living standards. Second, in The Theory of Moral Sentiments, which he considered his finest work, he emphasizes empathy and what my Columbia colleague Edmund S. Phelps calls “mass flourishing,” which aims to ensure that everyone benefits from economic progress, including those disrupted by its forward march.

Here, then, is the policy alternative to both Trumpian mercantilism and market orthodoxy: augmenting Smith’s concept of “competition” with the “ability to compete.” Such an agenda would center on preparation and reconnection, both vital for participation in—and support for—an open economy. 

One place to begin is workforce development. In the United States, community colleges are well positioned to serve as training grounds for skill development and career transitions, often working closely with local employers to create quality jobs. While support for community colleges has declined in many states, a federal block grant focused on completion and skill development would significantly enhance their impact. 

Similarly, a more generous Earned Income Tax Credit could boost labor-force participation and attachment. Increased funding for basic research, alongside support for applied research centers across the country, could raise productivity by bringing cutting-edge tools to businesses, much as land-grant colleges have historically done in agriculture and manufacturing.

To reconnect displaced workers, personal re-employment accounts—combining funds for training with re-employment bonuses—could help reduce the duration of joblessness. For communities affected by structural economic change, more effective place-based aid could support productivity-enhancing business services in lower-income areas with higher unemployment. 

Such measures, along with a growth-oriented agenda, could reshape the electoral landscape. Investments in AI and electricity generation could be accelerated through regulatory reform, particularly by easing permitting rules under the National Environmental Policy Act. To increase the housing supply, a prerequisite for mobility and growth, the administration could propose incentives for state and local governments to scale back restrictive construction regulations. 

Going further, the administration would need to abandon its nativist immigration policies. Increasing the number of high-skilled immigrants, particularly in STEM fields, would boost growth, as immigrants have been shown to drive technological innovation, leading to more patents, higher productivity, and rising incomes.

Likewise, expanding federal support for research and development would yield high returns. Some estimates suggest that the returns are so large that the net cost to taxpayers may be zero or even negative, as higher productivity generates enough additional tax revenue to offset the cost. Combined with a stable macroeconomic environment and pro-investment policies of the kind Trump has championed, these changes could significantly accelerate growth. 

A more constructive approach to economic disruption would shift away from broad tariffs and protectionism, which tend to raise consumer prices and erode the competitiveness of US manufacturing by increasing input costs. The Supreme Court’s recent reversal of many tariffs imposed by Trump under the International Emergency Economic Powers Act has created an opportunity—and underscored the need—for a course correction. 

Trump has rightly raised questions about the economic consequences of technological change and globalization. Two and a half centuries after its publication, The Wealth of Nations points toward a necessary pivot away from mercantilism and toward a more balanced, pro-growth framework.

Mokyr, Aghion, and Howitt Win 2025 Nobel Prize in Economics

Joel Mokyr (photo from news.northwestern. edu)

Philippe Aghion (photo from philippeaghion.com)

Peter Howitt (photo from brown.edu)

For most of human history there was little to no economic growth. Until the nineteenth century, the average person everywhere in the world lived at a subsistence level. For example, although the Roman Empire controlled most of Southern and Western Europe, the Near East, and North Africa for more than 400 years, the living standard of the average citizen of the Empire was no higher at the end of the Empire than it had been at the beginning.

Economists typically measure economic growth by the rate of increase in real GDP per capita. The following figure, updated from Chapter 11 of Macroeconomics (Chapter 21 of Economics), shows the slow pace of growth in real GDP per capita in the world economy from the year 1 to the year 1820 and the much faster rates of growth over the following periods. As discussed in Chapter 11, the figure relies on data compiled by Angus Maddison of University of Groningen in the Netherlands and—for recent years—data from the World Bank.

This year’s three Nobelists have contributed to understanding why economic growth accelerated sharply in the nineteenth century and why England was the first country to experienced sustained increases in real GDP per capita—an event labeled the Industrial Revolution. Joel Mokyr of Northwestern University has conducted decades of research into which innovations were crucial to economic growth and the institutional and economic advantages that allowed entrepreneurs in England to use those innovations to expand production much more rapidly than had happened before. Philippe Aghion of Collège de France and INSEAD and Peter Howitt of Brown University have focused on formally modeling the process of creative destruction that underlies sustained economic growth. The classic discussion of creative destruction appears in Joseph Schumpeter’s book Capitalism, Socialism, and Democracy, published in 1942.

In Macroeconomics Chapter 21, we discuss the process of creative destruction in the context of economic growth. Creative destruction occurs as technological change results in new products that drive firms producing older products out of business. Examples are automobiles driving out of business producers of horse-drawn carriages in the early twentieth century. Or Netflix and other movie streaming sites driving video rental stores out of business in more recent years.

The Nobel Committee’s announcement of the prize can be found here. A longer discussion of the Nobelists’ work can be found here. The scope of their research can be seen by reviewing their curricula vitae, which can be found here, here, and here. The amount of the prize this years is 11 million Swedish kronor (about $1.2 million). Mokyr receives half and Aghion and Howitt receive the other half.