The Economist has an interesting journalistic twist. Several of its opinion columns like Schumpeter, Buttonwood and Bagehot are named for inflexion point economists, political theorists or iconic events. For example, Schumpeter is named for Joseph Schumpeter who published a 1942 best-seller called “Capitalism, Socialism and Democracy”. Mr. Schumpeter was not bullish on the capitalist model preferring the socialist model advocated by Karl Marx. He saw the end of capitalism coming when the intellectual class overpowered the “creative destruction” of entrepreneurs and capital risk takers. Buttonwood is a column that explores the dynamics of financial markets. It is named for the buttonwood tree on Wall Street where brokerage activity was once conducted. Bagehot is named for the man who was the editor of The Economist from 1861 to 1877 and it explores politics in Britain. In all three cases the reigning journalist is anonymous.
I normally don’t pay any attention to Schumpeter or Bagehot and often just surf through Buttonwood but the December 24, 2016 copy of The Economist drew me to the Schumpeter column because its anonymous author had announced he was delivering his last thoughts as Schumpeter. He would be reincarnated as Bagehot in April. Figuring his last would be his best, I read with interest a pretty gloomy outlook for capitalism and democracy. The Economist must agree because they announced that “the Schumpeter column will return in 2017 with a new (and possibly more optimistic) author”. So here are the cliff notes in the form of excerpts from the column and the thesis for his sour outlook.
Schumpeter’s Doom Loop
- “His biggest worry (the real Schumpeter) was that capitalism was producing its own gravediggers in the form of anti-capitalist intelligentsia. Today, that very elite, snug in Los Angeles canyons and University departments, has expanded… The liberal sort of academic (meaning the type that favors big government) far outnumbers the conservative kind by five to one according to one recent study.”
- Government, regulations and big business are all growing and they force out entrepreneurs by creating “red tape” that favors incumbent big bureaucracies.
- Business is now owned by institutions who hire safe managers “whose chief aim is to search for safe returns, not risky opportunities.”
- Democracy is becoming more dysfunctional and endlessly content to allow governments to overspend their means.
- Populism is ascendant “As economic stagnation breeds populism, so excessive regard for the popular will reinforce stagnation.”
I can find great examples of each of these elements that Schumpeter sees as creating a death spiral: “The result of this toxic brew is a wave of populism that is rapidly destroying the foundations of the post-war international order and producing a far more unstable world.” Without suggesting any remedy The Economist then signs off. “These comforting thoughts are the last this columnist will offer you as Schumpeter.”
Smart, Compelling, But Anonymous
This guy is pretty smart and maybe he should not retire to write about Brexit. He is right about the smug elites, big bureaucracies, safe managers, dysfunctional politics and Trumpeteers. They are indeed a toxic brew and Trump is proving badly matched to more polished opponents. The more he blusters and attacks the more he creates uncertainty and polarization. That leads to status quo. While it is exciting to think the populist agenda can rally change, the new regime is quickly discovering that kind of dramatic, entrepreneurial, and permanent reordering may be stymied by incumbents that will deflect and distract; as Peggy Noonan has recited in her weekly column on Friday February 17, 2016 “a government within the government that hates the elected government”.
The two forces that may be able to break the doom loop are external threats/war and unbridled prosperity. These forces rarely co-exist. The stock market is signaling great confidence in the latter while North Korea, Iran and Russia are tilting the answer towards the former. In any event I simply can’t respect a genius journalist like Schumpeter who anonymously describes the American future as a toilet bowl and then quits his janitorial job to report on an even larger looming vortex in Britain.
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February 23, 2017
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