A year ago I drew a metaphor between the stagnation of Europe and the stagnation of the Soviet Union under Leonid Brezhnev. It must have had some validity, since Niall Ferguson recently drew a parallel between the late Soviet Union and the current state of the ‘West’. Sadly, a year on, the metaphor is still alive: Europe is still stagnating, deindustrialising, while still enjoying enviable living standards and relative political calm. … But the signs of trouble are on the front pages of every major newspaper, and even the EU is feeling the pressure of change….
One of the reasons for the sudden urge for change is the dramatic shift in the US.
Following the re-election of Donald Trump, the US has entered a new era that bears an uncanny resemblance to the Khrushchev era.
The Era of Khrushchev
After Stalin’s death, Khrushchev became the supreme leader of the Soviet Union. Stalin left a terrible legacy, despite having won the world war, expanded the Soviet Union and created an empire that included a number of satellite states in Eastern and Central Europe. The Soviet Union was on the brink of collapse. The legitimacy of the terror state depended on the fearsome presence of Stalin. Living standards were very low and shortages made life difficult. Khrushchev, one of Stalin’s henchmen, knew that the empire needed reform to avoid collapse.
Khrushchev knew that reform would not be easy. The Stalinist legacy was guarded by a well-built power machine of party apparatchiks, bureaucrats, secret police cadres and a deep-rooted belief in Stalin’s greatness. Khrushchev’s strategy was to expose some of Stalin’s heinous crimes and their tragic consequences, which cost millions of lives. The great event of Stalin’s defilement was the XXth Congress of the Communist Party in 1956 in a secret speech delivered at the Congress. The secret speech was leaked and soon became known throughout the world. The speech caused quite a shock among communists, while those who hated and feared the communist regime felt that history had vindicated them. But it served Hruscov’s purpose. It fatally weakened the Stalinist faction and allowed a reform programme of the socialist regime to begin.
Khrushchev was not a Rothbardian anarcho-capitalist. He did not want to dismantle the Soviet empire, nor did he want to end state ownership of the means of production and state planning. He was simply looking for a more sustainable and reformed version of socialism, hoping that some limited market-oriented reforms and less terror would allow for more internal dynamism and better living standards at home, along the lines of the New Economic Policy initiated by Lenin after the terrible results of war communism. A second part of his reform was to reduce international tensions in order to cut military spending. But Khrushchev did not want to give up the entire Soviet empire. While seeking an understanding with the West over Austria and making peace with Tito’s Yugoslavia, he crushed the Hungarian Revolution of 1956.
His reforms were quite successful. The Soviet Union avoided collapse, and the reformed empire lasted another thirty years. Nevertheless, Deng Xiaoping’s much deeper pro-market reforms after Mao’s death in China revealed that Khrushchev’s timid reforms were just enough to prolong the life of an impossible construction, but not enough to usher in a dynamic rejuvenation. This was realised by Gorbachev, who launched a new round of reforms in the mid-1980s. Gorbachev’s bolder reform plan aimed copying the pro-market reforms of the successful Chinese model …. But it was too late. The rigid Soviet power structure had rotted so badly in the years of Brezhnevian stagnation that the new reform efforts led to the collapse of the Soviet regime.
Trump 2.0: A Khrushchevian reform era
Trump won the 2024 campaign against all odds. The Biden-led deep state tried to stop him with legal warfare, the Harris campaign had more money and the mainstream press was against him. Despite this, he won both the electoral and popular vote, gaining the legitimacy that eluded him in 2016.
Trump came back after four years of constant warfare with the Biden administration and the machinery it had set in motion. He came back full of anger, hatred and a rock-hard impulse to weaken the Democratic Party-dominated Deep State. His well-documented goal is to return the country to an earlier, non-woke infested state. He also promised an economic reform programme to avoid the economic weakness caused by ballooning debt and deindustrialisation. In terms of foreign policy objectives, Trump campaigned as a peace candidate who would end the era of forever wars initiated by the neo-conservative faction that has dominated US foreign policy at least since the Bush presidency.
Make America Great Again is a signal that there was a time in the past when America was the greatest economic and military power, proud of itself. Trump hopes to lead the country back into the future.
A real Khrushchev era of reform. To return the country to an earlier period of greatness in order to meet the challenges of today.
To achieve his goal, he faces a Khrushchevian task. He must destroy the deep state, dominated by the Democratic Party and the neo-conservative faction, and the complex bureaucratic machinery that feeds the wider circle of NGOs and media that serve their interests.
The revelations about USAID spending not only delegitimise the practices of the democratic machinery, but certainly weaken international respect for the US. As in the case of the Khrushchev defamation campaign launched by his leaked secret speech in 1956.
But Trump is not an anarcho-capitalist Rothbardian radical like Khrushchev. Nor is he a Millei with profound economic knowledge on which to base a clear and well-founded reform programme. While his political reforms, aimed at reversing the extreme woke turn are a welcome change, his economic reform programme is a mixed bag. Cutting taxes, reducing regulation and government bureaucracy, cutting politically motivated or corrupt spending are important to reduce the manipulative role of the state. But economic nationalism could have major negative consequences.
What will end up happening: like Khrushchev, like Deng, like Gorbachev – or like FDR reversed?
Trump began his presidency as a Khrushchev-style reformer who wants to destroy the legacy of his predecessors and build a stronger country by returning to the practices of a better past.
Trump’s memory in history will depend on how bold his reforms are to reduce the role of the state and increase the role of market coordination. Small reforms are just a Khrushchev-like correction to the ballooning US deficit and overbearing state. Only market coordination stimulates entrepreneurial dynamism through competition. The competitive market is the best-known institutional arrangement that forces market participants to innovate and serve the interests of their community through new inventions or better production techniques. To return to earlier, more dynamic and less government-induced growth, Trump needs to embrace deep structural reforms, as Deng Xiaoping did in China in the late 1970s, or as Millei is currently doing in Argentina.
But pro-market reforms in one country are not enough to rebalance the world, and Trump’s economic nationalism could have very dangerous consequences for the world. The global economy operates on a pure dollar standard. Aiming to eliminate the negative trade balance of the US could lead to a dollar shortage and consequent economic crisis around the world. If Trump’s overly nationalistic policies lead to a new global crisis, he may be remembered as Gorbachev, who led with good intentions and caused such an upheaval that destroyed the Soviet world.
Unfortunately, Trump is stuck in a cul-de-sac created by past decisions, which is why, despite his best intentions, he may do more harm than good. Only a return to the pre-1914 gold standard could create a balanced trading relationship between the world’s economies. To return to a more balanced international monetary system requires a major conference of the major nations, such as the Bretton Woods conference of 1944. Only such a conference could design a new international monetary system and ensure the full cooperation of all the world’s major players to provide a roadmap. It must be a reverse FDR, whose legacy is the pure dollar system built at Bretton Woods.
But for such cooperation, it is necessary to put an end to the flaring wars, which are also proxy wars between great powers for influence and issues of national security. One of Trump’s election promises was to end the wars in Ukraine and the Middle East. Once the poisonous wars are over, there may be room for cooperation among the world’s major countries and great powers to create a more balanced international monetary system.
