How J.D. Vance's economic philosophy departs from conservative tradition

The big picture: Vance believes that decades of liberalized global trade and immigration to the United States have been damaging for U.S. workers, and that reversing those trends will generate higher wages, more productivity-enhancing innovation and greater labor force participation by native-born men.

• "The main thrust of the postwar American order of globalization has involved relying more and more on cheaper labor. The trade issue and the immigration issue are two sides of the same coin," Vance told New York Times columnist Ross Douthat in an extensive interview published last month.
• "The populist vision, at least as it exists in my head, is an inversion of that: applying as much upward pressure on wages," Vance said.
• "Yes, tariffs can apply upward pricing pressure on various things — though I think it's massively overstated — but when you are forced to do more with your domestic labor force, you have all of these positive dynamic effects," he said, by incentivizing companies to find ways to squeeze more economic output from their workers — and pay them accordingly.

If McDonald's replaces some of its workers with kiosks, he said, "That's a good thing, because then the workers who are still there are going to make higher wages; the kiosks will perform a useful function; and that's the kind of rising tide that actually lifts all boats."

• "What is not good is you replace the McDonald's worker from Middletown, Ohio, who makes $17 an hour with an immigrant who makes $15 an hour."
• "If you cannot hire illegal migrants to staff your hotels, then you have to go to one of the seven million prime-age American men who are out of the labor force and find some way to re-engage them."

Between the lines: There is overlap between Vance's views that labor scarcity can fuel productivity growth and the notion of endogenous productivity that some left-of-center economists embrace — the idea that a tight labor market will fuel business innovation and thus generate higher real wages for workers.

Vance's framing differs from decades of conservative economic philosophy, which is built around a different theory of how to achieve robust growth.

• The core of Republican economic policy since the Reagan era has been an emphasis on tax policy encouraging businesses to invest and expand the stock of capital — machines, software and the like.
• Expanded capital stock, goes the theory, will enhance economywide productivity and result in higher pay and wealth.
• International trade, meanwhile, ensures that goods and services are produced in the places with the greatest comparative advantage, making all parties richer than they would be otherwise.

Zoom out: Douglas Holtz-Eakin, president of the American Action Forum and a more traditional conservative, sees Vance and other Republican populists as seeking similar economic outcomes — through very different means.

• "Both [Vance], by making labor super expensive and forcing managers to bring in kiosks and other capital and raise their productivity, and traditional people like me, who want low taxes on the return to saving and investment and innovation are trying to get the capital ratio up and productivity up and real wages up," he tells Axios.
• "So the endpoints are the same at some level, but, [Republican populists] don't seem to recognize that," said Holtz-Eakin, who advised Sen. John McCain in his 2008 presidential run.

Moreover, the Vance approach risks fueling inflation, as it implies higher prices for imported goods and employers facing higher payrolls.

• The U.S. had an experiment of a super-tight labor market in 2021 and 2022 when labor shortages were widespread, and consumers and business leaders alike didn't much care for it.
• The Vance approach de-emphasizes peoples' roles as consumers, as opposed to workers.
• In his playbook, "There's never any thought for consumer sovereignty, consumer taste, producing goods and services consumers want," said Holtz-Eakin, arguing that consumer choice is important "both as a political issue, for personal freedom and economic freedom."

Yes, but: Vance also embraces deregulation as a tool for achieving supply-side gains in the economy — and potentially helping the U.S. fiscal situation — which fits squarely with conservative orthodoxy.

• "I also think there's a lot you can do on the regulatory side — make building nuclear facilities easier, make building natural gas pipelines easier, make building housing easier — that doesn't cost money and in fact brings in money," he said in the interview with Douthat.

The bottom line: If Trump wins back the White House, Vance may emerge as a voice within the administration with whom business interests and traditional Reaganites clash.