Can Radical Change Cure a Declining Nation?

Countries, indeed empires, grow old and decline because they become sick with demosclerosis.

Demosclerosis is the accretion of laws and rules over time, and the accumulation of interest groups who benefit from and lobby for keeping existing subsidies and protections and adding more. As more groups secure benefits, it becomes increasingly difficult to reform policies or cut spending, leading to gridlock, inefficiency, stagnation, and eventually paralysis.

For example, President Trump recently signed an executive order directing the Mint to stop producing pennies, and already the penny lobby is on red alert, campaigning against the move.

This explanation for why nations have an old age was laid out by Mancur Olson in “The Rise and Decline of Nations,” which we discussed on the podcast last year. He also explains how some declining and stagnant nations have been reinvigorated.

Olson points us to the natural experiment of England, Germany, and Japan after World War II. Germany and Japan experienced rapid post-war growth, while England, which was not defeated and occupied, entered decades of decline and ultimately the end of its empire. What was the difference?

The war was a cleansing fire that destroyed Germany and Japan’s built-up mounds of laws and rules and bureaucracy and, more importantly, their entrenched rent-seeking interest groups. They were reset to zero, allowing for more efficient markets and economic dynamism—at least for a while until demosclerosis could set in again. England, on the other hand, retained its entrenched interest groups, and the rest is history.

The point is that the only way to reset is through a cleansing fire.

I, for one, would rather avoid being decimated in a war. However, I’ve also come to the conclusion that public choice precludes the kind of incrementalist reform that could reinvigorate the United States. So if we want to end stagnation, the best we can hope for is a great political upheaval that does us more good than harm.

Is Trump II this upheaval?

I don’t know, but I hope so. I see a lot that I don’t like, but there’s no need for me to offer a catalogue. You can just flip over to CNN or the NYT. I also see a lot I like.

It’s amazing to me that for all of the (often warranted) outrage over the twisted norms, petty corruption, and uncloaked bullying, and other DOGE-like things of this administration, Trump’s opposition (at least in the media) is largely missing the real upheaval.

For example, in his first day in office, Trump rescinded President Johnson’s Executive Order 11246, thus ending affirmative action and all its tributary workplace regulations, and also undid Jimmy Carter’s 1977 executive order that allows development projects to be mired in years of “environmental impact statement” red tape.

Talk about cleansing fire. These have been two of the biggest wet blankets over the economy. Gone just like that. There are caveats, to be sure, but it’s more than any Republican administration (including his first one) has ever done. And maybe it’s a topic for a different post why Trump is today seemingly immune to traditional interest group pressures.

Will it work? If I had to bet everything I had, I’d say no. But do I think it’s worth the gamble? Well, we don’t have much choice at this point, so I prefer to be optimistic.

The proof of the pudding will be in the eating, as they say. In an interview before he took office, Treasury Secretary Scott Bessent put forward what I think is a fair standard to judge the success of this administration:

He has advised Trump to pursue a policy he calls 3-3-3, inspired by former Japanese Prime Minister Shinzo Abe, who revitalized the Japanese economy in the 2010s with his “three-arrow” economic policy. Bessent’s “three arrows” include cutting the budget deficit to 3% of gross domestic product by 2028, spurring GDP growth of 3% through deregulation and producing an additional 3 million barrels of oil or its equivalent a day.

Let’s check back here in three years.