The Politics and Policies of Growth

For nearly two decades, economic growth slipped quietly out of American political debate. Not because growth ceased to matter, but because it became unfashionable. After the financial crisis, growth was recast as fragile, technocratic, or morally suspect. Redistribution, protectionism, and industrial favoritism replaced dynamism as governing ideals. The result has been a long period of disappointment: weaker productivity, slower investment, rising public debt, inflation, and a growing sense that effort no longer reliably translates into advancement.

What is striking today is that the political conditions that sidelined growth are weakening. The door is open again for a return to growth-first thinking. On the Democratic side, the abundance movement is spreading. On the Trump administration side, the stage is no longer exclusively dominated by “common good” conservatives who argue that growth should be subordinated to social cohesion, national identity, or a romanticized vision of mid-century industrial life. The goal of rapid economic growth in 2026 is now often shared — from Treasury Secretary Scott Bessent to TV host Larry Kudlow to MAGA-affiliated platforms like the All-In podcast.

Beyond the rhetorical shift, I have another reason for cautious optimism. The slowdown in growth is no longer widely treated as an unknowable fate or the inevitable exhaustion of ideas. Instead, there is a growing recognition that it reflects something more specific and more actionable about how our economic system is organized. Indeed, a common explanation for why U.S. growth began slowing in the early 1970s is that the economy has simply run out of ideas — that the great technological breakthroughs are behind us. This explanation is unconvincing. The more plausible diagnosis is institutional. America’s problem is not a shortage of innovation, but a deterioration in the institutional machinery that translates ideas into output.

This is where the decline in total factor productivity (TFP) becomes illuminating. TFP is often treated as a mysterious residual, a black box labeled “technology.” But it is better understood as a measure of institutional performance: how efficiently a society converts labor, capital, and knowledge into real output. When institutions work — when rules are clear, timelines are predictable, and compliance costs are reasonable — new ideas emerge. When institutions degrade, TFP falls not because people are “so rich they no longer benefit from innovation,” but because society has become worse at enabling innovation.

The work of Eli Dourado, now at the Astera Institute, is particularly clarifying because it is grounded in experience rather than abstraction. His account of technology policy, from aviation to energy, shows how productivity losses accumulate through procedural drag rather than explicit bans. The binding constraint is often not engineering or science, but layers of veto points, open-ended reviews, and regulatory uncertainty that stretch deployment timelines beyond any plausible investment horizon.

The consequence is an economy that looks technologically sophisticated yet struggles to scale. The innovators exist. The capital exists. Even the prototypes exist. What fails is diffusion. Fewer factories are built. Fewer homes are permitted. Fewer energy projects come online. Fewer breakthroughs are commercialized. The result is a steady erosion of TFP and a growing gap between what is technically possible and what actually gets done.

If the growth problem is institutional, then a serious agenda for 2026 must focus less on outcomes and more on process. The question is not what Republicans or Democrats want the economy to look like, but what needs to be done to allow productive activity to scale.

That requires a fundamental shift in institutional design — not deregulation as ideology, but institutions built for dynamism. The prevailing posture relies on exhaustive pre-clearance, demanding near-perfect ex ante permission before projects, technologies, or business models can proceed. This approach systematically favors incumbents, deters experimentation, and delays adoption. A more growth-oriented framework emphasizes accountability instead: clear standards, post-market monitoring, and enforcement after real harm occurs, rather than the wholesale prevention of speculative harms. When the government insists on resolving every hypothetical risk in advance, it does not make society safer; it slows progress and makes it scarcer.

Seen through this institutional lens, Trump’s second term is best understood as deeply conflicted: destructive when it embraces populism, but unexpectedly constructive when it relaxes the constraints that prevent scale.

The populist economic agenda remains actively harmful. Tariffs are justified as a way to revive manufacturing and restore dignity to work. In practice, they raise input costs, invite retaliation, and suppress investment. Empirically, capital formation in tariff-exposed sectors has weakened, while downstream manufacturers—those most sensitive to materials and energy prices—have shed jobs. Manufacturing competitiveness is not restored by making steel, aluminum, or energy more expensive; it is restored by lowering the cost and uncertainty of building, expanding, and adopting new production methods.

The same logic applies to immigration restrictions. High-productivity economies depend on thick labor markets and skill complementarities. Constraining labor inflows reduces firm formation, slows scaling, and weakens innovation clusters. Whatever their political appeal, these policies reduce economic dynamism rather than protecting wages over the long run.

Trump’s industrial policy reflects a familiar category error: the belief that directing firms is equivalent to directing an economy. The Biden-era subsidy regime shifted activity without generating durable productivity gains; Trump’s embrace of state capitalism—through public equity stakes, nationalization rhetoric, and sovereign wealth funds—goes further still. His calls to cap credit-card interest rates, proposals to have Washington influence executive compensation in defense and aerospace firms, and efforts to bar institutional investors from purchasing single-family homes all move in the wrong direction.

The fatal flaw of these policies is that they replace decentralized discovery with politicized capital allocation and weaken the feedback mechanisms that discipline investment. This is not a path to growth but to institutional sclerosis. And this is before accounting for the damage done by norm erosion, abuse of executive power, and the pervasive uncertainty created by erratic governance—costs that were already visible in the first year of his term.

And yet, this is not the whole story.

Where the administration has moved in a genuinely pro-growth direction is precisely where institutional drag is most binding: time-to-build. For a long time, across housing, energy, infrastructure, and advanced manufacturing, delays have been the dominant constraint. Large energy projects routinely take a decade or more from proposal to operation. Transmission lines typically last 10 years or more. Major housing developments face approval timelines measured in years, not months. Even factories, once fast to build, now face prolonged environmental review, litigation risk, and sequential permitting across agencies.

Growth is not only constrained by permitting timelines and procedural veto points; it is also constrained by regulatory saturation that saps entrepreneurial energy before projects ever reach the approval stage. Years of accumulating rules, overlapping enforcement, and constantly shifting compliance expectations raise the perceived cost of expansion and discourage firms from moving from idea to execution.

In this context, one underappreciated effect of the administration’s regulatory rollback has been a restoration of forward momentum. As the CEO of Citadel, Ken Griffin, put it recently in Davos, the election of Trump brought to an end what he described as a “regulatory onslaught” that companies experienced during the Biden administration. Immediately, the calculus for entrepreneurs changed: not because any single rule disappeared, but because the constant friction did. When businesses no longer expect to face a new regulatory surprise every week, they are more willing to invest, hire, and build. That shift in expectations matters (and makes the administration’s tariff policy all the more insane). Growth depends not just on formal permissions but on whether firms believe the institutional environment will reward speed, risk-taking, and scale rather than punish them.

This is where the administration’s posture toward AI, energy, and digital financial infrastructure matters immensely. In artificial intelligence, the refusal to impose comprehensive ex-ante regulation reflects an implicit recognition that productivity gains depend on diffusion, experimentation, and organizational adaptation. Premature rulemaking would freeze business models, entrench incumbents, and slow adoption, precisely the failure mode seen elsewhere. In energy, a growing emphasis on permitting reform and faster approvals directly targets the bottlenecks that have delayed capacity additions for years. In crypto and stablecoins, greater regulatory clarity, however incomplete, reduces the uncertainty that has historically pushed innovation offshore rather than containing risk.

The contrast with Europe is instructive. Europe’s stagnation is not the result of an inevitable technological inferiority or weaker human capital. It is the predictable outcome of regulatory systems that prioritize ex ante risk elimination over deployment. Lengthy permitting, precautionary AI rules (before Europe even has many companies), and climate maximalism have produced an economy that remains sophisticated at the frontier but incapable of scale. The result is fewer homes, less energy consumption, fewer energy projects, slower adoption, and persistently weak growth.

That is the warning for the United States. Growth will not be restored through tariffs, subsidies, or industrial planning. It will be restored or lost based on whether institutions allow productive activity to move from idea to deployment on economically meaningful timelines.

The optimism, then, is conditional but real. If Republicans (or future Democrats) want a genuine growth renaissance, they must refocus on the side of the president’s agenda that supports growth.

They must abandon populist policies that directly undermine productivity.  While the Supreme Court may yet save the administration from itself on tariffs, Congress must reclaim its powers to prevent future administrations — on the right and the left — from further trade protectionism.

And, of course, Republicans must put the country back on a credible path to fiscal sustainability. Persistent budget deficits do not merely raise long-run debt levels; when they are not credibly backed by future spending restraint or revenue increases, they undermine growth and contribute to inflation. Unbacked debt increases the risk that fiscal imbalances will ultimately be resolved through higher prices rather than reform, eroding real wages and distorting investment decisions. Fiscal sustainability is therefore not an accounting exercise or a moral gesture; it is a precondition for price stability, capital formation, and durable growth.

If Republicans pursue a pro-growth program relentlessly, they will not only revive economic dynamism but also, almost inevitably, deliver greater affordability because of expanded supply and higher productivity.

The stakes are high. It is tempting to treat economic growth as a technocratic concern, something for economists and budget offices. That is a mistake. Growth is not merely about higher GDP figures. It is about whether societies remain open or turn inward, whether politics is cooperative or zero-sum, and whether the next generation expects progress or prepares for conflict. A society that abandons growth does not become more humane. It becomes harsher. When there is little new wealth to share, politics turns to redistribution, blame shifting, and top-down control. Opportunity narrows. Tolerance erodes. Reform becomes impossible because every change creates visible losers with no compensating gains. Growth is not a luxury or an abstraction. It is a moral obligation to those with the least power, the fewest assets, and the longest futures.

Veronique de Rugy is the George Gibbs Chair in Political Economy and Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. She is a contributing editor to Civitas Outlook.