This accusation that Democrats are the anti-capitalists is particularly bizarre. There is indeed a politician who rejects Adam Smith’s system that replaced the mercantilist structure of colonies, state monopolies, and tariffs with free markets guided by “the invisible hand” and rational self-interest. His name is Donald Trump. And John Joyce and Dave McCormick support his assault on free enterprise.
Until recently, Republicans denounced simply listing “emerging technologies” as “picking winners and losers.” Now, the Pentagon’s “Office of Strategic Capital” (OSC) has authorized billions in loans and other guarantees to “develop, integrate, and implement capital investment strategies” in 31 “selected” key technology areas, including such all-encompassing areas as “advanced manufacturing,” “battery storage,” cybersecurity, solar, space launch, and spacecraft. This replaces private capital with government, selects technology areas for favorable access to capital, pre-empts the military R&D process with the judgment of one “strategic investment office,” and grants some competitors within these selected technology areas favorable access to capital and defense markets. It makes Pete Hegseth the banker, board chair, project manager, and customer for firms pursuing the most advanced technologies across the whole economy.
These market-distorting interventions aren’t confined to high tech. Our warfighters became major players in the international oil business when OSC received a “35% passive equity stake” in a $100 billion investment in the Venezuelan oil fields. Now they have a huge asset that must be protected from competitors, low oil prices, and terrorist attacks.
In September, the government bought a half billion dollar stake in a tungsten mining company and committed to a $2 billion stockpile purchase. It gave more than $1 billion to a Trump brothers-backed tungsten mine in Kazakhstan – creating another Third World “asset” to protect.
Looking even further into the past, the Department of Energy is investing half a billion in coal production and distribution.
The Trump administration has even demanded large ownership stakes in more than 30 companies, including some of the largest: US Steel, Intel, Westinghouse, NVIDIA …. Until recently, government investments were limited to temporary emergency assistance (the auto industry) and “commercial” ventures thought to be economically unprofitable (e.g., TVA). And conservatives denounced even these as unwarranted federal intrusion.
Now, federal ownership determines competitive success and distorts management decisions. Imagine trying to raise startup funds or bid on a government contract if your main competitor is the federal government. Imagine if US Steel wanted to hire the foremost metallurgist in the world, and she just happened to have expressed sympathy for citizens of Gaza. Imagine if Westinghouse developed a wind turbine that was twice as efficient and lasted 40 years. Would the government that is spending billions shutting down wind projects allow them to pursue that?
We’ve also seen thousands of freakishly well-timed stock trades in companies moments away from a government windfall, magnified by Trump’s scheme to sell early access to presidential decisions. Is the government making decisions because of the effect on markets? Are all investors competing on a level playing field?
Finally, tariffs, by definition, sabotage free markets. The entire premise of a tariff regime is to punish (foreign) efficiency and reward (domestic) inefficiency. Unfortunately, Trump’s tariffs create the worst of all worlds. Rather than promoting dominance of world trade, Trump’s erratic tariff policy has forced Canada and other trading partners to look elsewhere. The international economic structure that ensured US dominance and prosperity since the end of WWII is being rewired before our eyes.
But Trump’s version of mercantilism adds something new: whether you’re the Antwerp diamond exchange or an Argentinian beef cartel, everyone knows that relief is available to anyone who hires the right law firm, makes the correct sized donation, or encrusts their “Freedom 250” gift ring with enough diamonds (321) and sapphires (56). This isn’t Elizabethan mercantilism: this is a level of corruption (and economic distortion) worthy of the Ottoman Court.
Adam Smith’s theory of capitalism suggested that competitors in an environment unrestricted by government intervention would labor to produce the best products at the lowest price and that an “invisible hand” would guide resources to their most effective use. Today, Smith’s idealized rational actor would recognize that his efforts to create a better mousetrap are wasted and that economic success will be determined by which law firm he hires or whether the Trump brothers invest in his firm.
The Republicans are correct that we should be alert to the threat of a collectivist totalitarian takeover of our means of production and other civic institutions. That threat is sitting in the Oval Office.
