By James Pethokoukis and Ryan Streeter

“Since the 1970s, the rise of free-market economics and increased globalization of the American economy have unleashed growth on coastal cities while the rest of the country has stagnated and floundered. The solution is restrictions on trade and immigration, industrial policy, and redistribution to real Americans.” That’s the message of today’s nationalist, populist Republicans. But what do we risk by turning away from economic dynamism? To answer that question, Ryan Streeter has joined me for this episode of “Political Economy.”

Ryan is a senior fellow and director of domestic policy studies here at AEI. Earlier this month, he published the essay “Dynamism as a Public Philosophy” in the winter 2022 issue of National Affairs.

What follows is a lightly edited transcript of our conversation. You can download the episode here, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

Pethokoukis: The piece, again, is called “Dynamism as a Public Philosophy.” When I read the word “dynamism” in economics literature, I always transplace it with the word “churn.”

When I think of dynamism, I think of an economy where
there’s a lot of churn, and by that I mean there are companies going out of
business, there are workers getting hired, workers being fired, new companies
starting up, old companies disappearing — so that’s what I think about
dynamism. Is that what you mean? Is that part of what you mean? Could you
define that word for the context of your excellent essay?

Streeter: Sure. That is largely what I mean, but I think dynamism is a larger concept than that. In fact, that’s part of the reason I wrote this essay in the first place. Dynamism is . . . I think of churn like you do: lots of firms starting, lots of firms shutting down, people getting hired, people moving to new firms, people getting laid off — that sort of thing. That’s a concept in the literature that’s pretty well established.

When you think of
dynamism only that way, you omit other aspects that are important to a dynamic
society which I think are important to mention. There are the rewards to
creativity, for instance, in a dynamic society. So that churn that you’re
talking about is what’s happening because people are coming up with new ideas,
people are capitalizing on those ideas, people are starting new firms, and it’s
that ideas environment that I think is especially important.

As we’ve watched over
the last few years, a lot of people kind of on the political right joined
people on the political left in decrying dynamism. “This churning marketplace
that you’re talking about is a source of instability and insecurity,” and
therefore calls for greater social insurance. Greater remedies to the effects
of dynamism have been sort of in vogue lately kind of across the political
spectrum.

What’s often left out
of those criticisms of dynamism is what a dynamic society actually means that’s
truly positive, and that is when you have a society where people are thinking
up new things and starting them, you get the benefits of those ideas all the
way downstream: better jobs, more
better jobs, jobs that people are happier with, and the like.

So I accept the
definition that you used, but I think it’s a broader concept. And I get into
this a little bit in the essay and some of the origins for why I think this
that are really important to this idea of dynamism as not just an economic concept,
but a cultural and social concept, whereby people are rewarded for being
creative, where the incentives to take chances and take risks, because the
returns are good, are actually real incentives.

I think we’ve gotten
to a point where some of those incentives are at risk of being lost, and that’s
why I thought it was important to lay out some of these ideas.

All that sounds fantastic — ideas, rewards — but most
people are not entrepreneurs. Most people are not creative. Why is it an important
factor overall for the common good?

Yeah. It’s important
for a couple of reasons. First of all, when you have people who are starting
things . . . and these can be small things; I’m not just talking
about Silicon Valley grade. I’m talking about Midwestern grade. I’m talking
about a greater proliferation of dynamism to grassroots, which I think is
important. These could be firms that start out with three people and grow to
10, and that’s all they become. And if you have more of those, you have an
environment that is more fulfilling for the people that are undertaking that
activity.

I get into some of
this in what I write. There’s a decent body of literature showing that
happiness is very much correlated with the fulfillment of potential. Making
your way to something great is just as satisfying as the outcome, the rewards
that come in pecuniary terms, for instance. So it’s an environment where
satisfaction is deeper and richer for those who are starting things.

Secondly, it’s also a
more satisfying environment for people who are employees. As you mentioned, the
majority of people are not entrepreneurs. Mathematically that is true.
Mathematically most people are going to be employees for all of their career. But
what doesn’t really get discussed as much as it probably should is that in
societies where you do have a lot of dynamic activity — and by society I should
be a little more micro and even talk about regions, because I think we have
dynamic regions and places in America and we have places that are more stagnant
— if you go to places where there is more of this churn that you’re talking
about, you actually find the job satisfaction is pretty high among the workers.

And that’s what I think gets missed in these debates that we’re having about the instability and insecurity that comes from dynamism: On the ground when people are living in a place where there is a lot of churn, it’s not there’s a big new startup that shuts everything else down — that’s usually the boogieman picture that gets trotted out in the media and the politicians like to use — but the reality on the ground for most people is that if you’re in a firm that’s going to close, there are options elsewhere that you can hop to. Job hopping and moving from firm to firm is actually a pretty common way for people to move up and experience upward mobility in America.

But there’s some
pretty interesting evidence, by combining certain labor market data and other
types of survey data, where you can understand this relationship between living
in a dynamic place and actually being happy with their job. And I think the
evidence is actually more on the side of hourly wage earners are actually
happier when they live in a place where there’s a lot of dynamic activity going
on.

So what’s sort of
implicit, and I should just make explicit, in what I’m saying here is that it’s
not just the things we can measure as a matter of economics, the things we
typically talk about, like people’s incomes growing or stagnating and the like.
That’s obviously important, but there’s this understanding of happiness also
being a function of fulfillment, of satisfaction, moving towards goals. This is
part of Western civilization, and we talk a lot about the debate between
liberty and security in America, and in our equality debates we talk a lot
about income — and we should. But there’s another strand of thought that goes all
the way back to the Greeks — you see it in the Founders, you see it in Abraham
Lincoln, you see it in our history — of the ability to start where you can
build things is a source of fulfillment that’s really fundamental to who we
are.

So this notion of
satisfaction, along with increasing incomes, I think is important, and I think
we should consider it as a matter of policy, just like we consider measures of
income as a matter of policy.

I think to some people this sounds like what they
would call some sort of elite concept. There are a lot of people who want a
steady job and they would like to stay at that job. I think they would say that
dynamism is only about a half step away from disruption.

So isn’t dynamism just a somewhat nicer way of saying
that what we should be pushing for is a public philosophy of constant disruption,
or even creative destruction?

Yes, one could say
that, and I would argue that we should say something different. Will there be
destruction? Will there be disruption any time you have a dynamic society? Yes,
there will be. And there will be if you have a stagnating society in other
types of ways.

I would say two things
to what you just said: First of all, the activity of creating new firms, whether
they stay small or grow large . . . when we have more of those in the share of
overall businesses, it’s better for job creation. It’s better for job
satisfaction, all those things that I was talking about.

So one way of actually
talking about dynamism isn’t disruption, it’s the increase of opportunity for
people to satisfy their vocational ambitions in multiple ways. It’s better to
have 10 firms in my town that I could work for rather than one. And what a
dynamic economy does is it creates more of those sorts of opportunities for
people. So that’s the first thing I would say.

And related to that,
coming back to a point that I made earlier, I think grassroots dynamism is an
important concept. I don’t think that the creation of new firms is just an
elite activity. If we’re getting to the point where it’s requiring fancier
degrees from fancy schools and a lot of lawyers to start firms, that’s part of
the problem, and that’s part of the policy environment that we should fix, so
that you can actually have more people at the grassroots starting things that
they might not otherwise have had the incentives to do in a less dynamic place.

The second thing that
I would say is I think the notion of stability in maintaining a particular job
at a particular firm over time is idealized in ways that don’t necessarily
match with reality.

I’ve lived in Germany
for two years of my adult life. I love Germany. I have friends in Germany.
Germany is a great place. There’s so much about the country that I like, and
when you’re there for a short time you can’t help but admire that phenomenon
that you’re talking about. Germans are particularly well-known for this. Get a
job after school, stay with it your entire career, enjoy the social insurance
program that surrounds you, don’t live far away from home, participate in local
customs. You can see why a pro-worker conservatism might kind of idealize that.

It turns out that job
satisfaction in Germany is not very high at all. This notion of stability over
time doesn’t necessarily result in greater fulfillment and a greater sense of
what’s possible, and it’s also related to the inability of an economy like
Germany’s to be particularly innovative — great engineers that make great
things. They don’t create a lot of new stuff. They used to, but they’ve grown
more corporatist over time. They’ve become a social insurance state. There are
a lot of things to recommend to someone who really values stability, but at the
end of the day, if what you care about is people’s sense of satisfaction and
their happiness with their life choices, I wouldn’t look to that as a model.

I would look at a
place that has a lot more dynamism, with a lot more options for people to job
hop around. That’s something that our most dynamic places do in this country
and in other parts of the developed world, and there seems to be a lot of job
satisfaction there. So I’m placing a lot of premium on job satisfaction, but I
think that actually matters, and that matters, as we know, for productivity as
well.

You start off the piece talking about how pro-worker
conservatives and national populists emerged on the right. They have a lot in
common with a lot of mainstream progressive policy positions. What caused the
emergence? Is the emergence just that a certain kind of voter flooded into the
Republican party, so the politicians adjusted?

What happened there? Why is that such a huge factor that
is really transforming the Republican party and what it means to be a
conservative?

Great question, and
there’s probably a couple answers to it because it’s a complex question. I
think the roots of this move towards a national conservatism predate the Donald
Trump era, but really got put on steroids during that time. There was a kind of
pre-history to national conservatism after the 2012 election, the “makers” and “takers”
election. Mitt Romney got criticized for using that term, and this notion that
the Republican party had focused too much on CEOs and on the entrepreneur
class, the elite entrepreneur class, at the expense of hourly wage earners took
hold.

And a number of us
were involved in that effort to say we should have policies that actually aim
to boost the overall income and social standing of people that didn’t go to
college, that didn’t get four year degrees. And I think that all had its merit,
so there was a lot of work that was done in the ensuing years on policies along
those lines.

When we came to 2016, we saw this kind of heartland working-class turnout for Donald Trump and that appeal, and then you started to see a lot of justification for what that actually meant in terms of policy agenda items, and it was really after that kind of Trump phenomenon in terms of turnout that I think a lot of people on the right overinterpreted what that meant in terms of what working-class people actually want.

There was kind of a
jump from the observation, this classic Hume is/ought problem: There are a lot
of people voting for Trump, therefore we ought to have more policies that serve
these people along the lines of what we think, which is greater worker
protections, wage subsidies, enhanced funding for child care, supporting
community college in new ways, and the like.

So there’s been this
drift over time to try to come up with a policy agenda that works for
working-class people. And as an overall principle, I support that. I imagine
you support that; a lot of us support that. We want working-class people to be
in the best policy environment.

I’m not sure there’s a
lot of evidence that there’s a lot of support for those types of policies among
the working class. We do quite a bit of survey work at AEI and we’ve written
about this: It seems these sorts of issues appeal more to more affluent and
more college-educated people than the actual working class itself.

The working class
itself in America still idealizes this notion of a starter economy, even if
they’re never going to start a company themselves. They place a pretty high
premium on the ability of their kids to do that one day. They still believe
that America is a place where people can make and build anything that they
dream of. In some of our surveys, they’re more likely than people who are
richer than they are and more highly educated than they are to believe that.

So I actually think
there’s been a misinterpretation over the last five or six years about what
working-class people want. Part of the idea, I think — not to be too
politically cynical about it — is to come up with an agenda that we think will
appeal to those voters. I’ve been arguing that I’m not even sure that’s what
those voters want. In fact, I’m quite sure it doesn’t.

But the effect has
been that a lot of people on the right embrace it. There are a number of people
in Congress who kind of embrace this, and it has certainly become popular in
the kind of world we work in of policy wonks and writers, to have sort of
joined the left in debating what type of social insurance structure we should
have.

Even in the recent
Build Back Better debates, when you actually look at the public record of what
Republicans were saying over the last year, typically they were criticizing the
overall package for being too large — and it was; I share that assessment that
the package was too large — you don’t find as much kind of vociferous
opposition to some of the policies themselves.

I mean, there’s a lot
of conservative support for expanding child credits and all those things. We can
debate those issues on their merits. But the sum total is that the Overton
window or the policy frame, as political scientists like to talk about it, has
really shifted to this place where when we’re talking about domestic reforms,
we are really preoccupied with getting a social insurance environment right and
spending a lot less time or very little time talking about what a dynamic
economy would actually require in terms of policy reforms.

So part of what I’ve
been arguing, and the reason I wrote this essay, was to try to help shift the
debate back to some of those questions again.

You have a lot of politicians who look at the
political landscape and suddenly they have a certain kind of voter voting for
them that perhaps they didn’t in the past, so they took a bunch of policy ideas
off the shelf which were typically left-of-center, progressive policy ideas. And
now you have this overlap between the two sides.

Are those ideas that you talk about fairly new? Were
they always there but they were ignored? Why do a lot of Republicans latch onto
industrial policy, family leave or childcare spending, family allowances? Why
did they latch onto those ideas rather than a center-right workers agenda?

Yeah. I think that
there’s overlap, and obviously the two sides don’t see things eye-to-eye on
every issue, so there are these issues of overlap. And you mentioned some of
these. One of these is the child tax credit idea, expanding, basically, cash
for families that have children, where there’s been sort of a confluence and
agreement that that’s the way you deal with un-affordability — that life has
gotten expensive for people with kids, so if we give them more cash to pay the
basic bills, it leaves more in the bank account for other sorts of things that
are important and in fact their children need.

That’s been an argument
that a number of conservatives have been making for the last decade of course.
And it comes down to this understanding of how much it costs to raise a family,
where I think there’s some legitimate disagreement and debate even in a place
like AEI.

But you’ve seen a lot
of conservatives get comfortable with the idea that because life has gotten so
expensive for people, we ought to have the federal government actually help fix
that gap a little bit. I think the support for wage subsidies extends from
support for the earned income tax credit, and this idea that we can use federal
policy to boost wages from where they are to a certain desired place.

Then, of course,
there’s been more acceptance on the political right in America over the last
decade or so for ideas about what the China shock has done or what’s happened
to the industrial heartland, where you’ve seen a lot of jobs leave. This
understanding of trade and globalization is something obviously that was a
wedge issue between Democrats and Republicans for years, and it’s been one that
you’ve seen a lot of sympathy on the right for.

Of course the goals
and some of the political rhetoric are very different. The concern about the
intact traditional family on the right is what grounds a lot of support for the
tax credit, whereas on the left that concern is not there. The support for it
is for other reasons.

So I think that a lot
of where we are right now is the result of conservatives and conservative
policy analysts trying to think seriously about some of these issues that
really started to emerge about 10 years ago or so about the future of people in
this country who live in kind of flattening economies in parts of the country
that weren’t really growing all that much — people that didn’t go to college,
people that were not in the right sectors of the economy, and what we should be
doing about that.

Exploring those issues was legitimate. There was a real reason to do it. Charles Murray is one of our own, and when he wrote “Coming Apart” almost 10 years ago a lot of us were persuaded by the arguments that we have a problem here. The goal was to try to figure out what to do about that.

I think where we’ve
ended up, though, is in a situation where we have a group of policies — I call
it the “making work a little less painful” agenda — this idea that we’re just
going to have to endure sort of unstimulating employment if you’re a working-class
worker, and the best we can do is sort of pad that a little bit with extra
money in the bank account. A few dollars an hour on top of your current wage to
make life a little less costly, and that’s about the best we can do. And I’m
not ready to say that’s good enough yet.

Do we have a culture that is as accepting of dynamism and risk as we used to? Or, given your description of Germany, have we become more “German”?

I love this question,
because I ask this question a lot of people that I know and I get these very
different answers.

In the political class
that you and I sort of live in (because we’re unfortunate enough to live in the
DC metro area and these are the people that we have to spend our time with) the
answer is typically “Dynamism is bad” or “We should be really skeptical of
dynamism. We need more security. We’ve had enough of it already. Inequality in
America, stagnation, all these things are the result of it.”

I also have a lot of
friends, partly because I’ve moved around a lot and lived in places where I’ve
been surrounded by people who are business owners, small business owners, and
also people that invest in that kind of heartland business, people in private
equity, people that maybe started out owning a company, bought another one, and
eventually kind of moved into private equity, and I get a very different answer
from this crowd.

There’s a lot of optimism.
There’s a view that we have a lot of grassroots self-starters out there in
America, a lot of people starting and building things, and we could have more
if we had a policy environment that was more favorable to them.

And a lot of folks,
because of what they do every day, don’t have policy ideas in their minds. They
just know that there are certain things that have gotten harder to do. It
shouldn’t be as hard to get a permit. It shouldn’t be as hard to get
certifications. It should just be easier to do things. There’s tons of kind of
pent-up potential out there.

So you get very
different answers to that, and part of it may be because we aren’t just one
society in America; we’re many. And there are parts of the country which have
stagnated for a long time and have been in recession in an ongoing way for a
long time. Then there are other places which are truly dynamic. I call it the “construction
crane effect.” I know when I’ve moved around, every time I move into a place where
there are construction cranes, you have a sense that things are getting better,
things are improving, things are moving forward. There are a lot of businesses
and a lot of people engaged, and the reason why those construction cranes are
there in the first place is because they moved there and created a new demand
for housing, or because they’re starting a new company that needs to be built.

But I can take you to
some places that are just an hour from where I grew up in Indiana where there
hasn’t been anything new built in 30 years. And if you live in that community,
you can really feel like things are stagnating. And when we’re analyzing at AEI,
we’re looking at both of these sorts of phenomena.

So I think we have
cultures of dynamism around the country. I tend to think that in these places
that have stagnated it’s been through a waning of dynamism, and not because
dynamism caused those conditions. So the question becomes, how do you recover
some of that in a more localized way around the country? And I think that’s
where policymakers should be focusing their attention more.

The piece does conclude with a whole bunch of policy
ideas, everything from workforce development to making it easier for people to
get licenses and permits and starting a business. The one that jumped out to me
was the summer study abroad program. Why would that be important?

I mean, all of these
by themselves are sort of boring. That’s the interesting thing about a dynamism
agenda. In the Build Back Better agenda, each item — free community college, money
for families with kids — each of them sounds exciting. Then you roll them all
together and most Americans are like, “That’s like too much.”

Ryan, I’m very excited about your agenda. Very
excited.

If you take each
individual one — like making it easier to get technical certifications, the
better use of technology, making it easier for people to move from one town to
another to pursue an opportunity — all of those sound kind of small
individually, but when you roll them together I think they actually make for a
pretty exciting agenda item.

The reason that I
included that one is that there’s quite a bit of evidence that when you are
still in your formative years (I mean especially if you’re in that kind of like
nine- to 12-year age, but even in your teen years) when you are exposed to
something that’s fundamentally different from what you know, it has an outsized
impact on your aspirations, your personality, the kinds of things that you
think about, and maybe even what you want to do with your life, than if you
hadn’t done it at all.

And we experienced
this in our own family, because we have lived overseas and taken our kids over
there. Now my kids both live overseas. That’s the price I’m paying for having
dragged them over there when they were younger.

But aside from my own
personal situation, I think you can see the benefits of these programs when you
talk to people that have been in them or if you read some of the psych literature
on this. It makes a big difference in what people aspire to. It makes them
willing to perhaps pick up and move and pursue something that they wouldn’t
have done before, because if you spent the summer working on a farm in Australia
. . . if your kid does that for a summer, don’t be surprised if they want to
get a job in Australia. They might want to do that, too.

But that experience of
something that’s different than other, going through it and coming out on the
back end — you might have been nervous at the beginning. You come out on the
back end and you say, “That was a fantastic experience.” It actually
kind of whets your appetite for more of that.

So if we want people
that are more adventurous, are willing to take risks, are willing to pick up
and move and to experience something that has an unknown quality to it, I think
one way to start is to help younger people do that — and particularly lower-income
kids whose families don’t have the resources to do that, to help them do that.
So I could get behind even public spending at the school level on something
like that.

My guest has been Ryan Streeter. Ryan, thanks for
coming on the podcast.

Thanks very much, Jim.

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