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Big Government, Big Business, and the 2025 Nobel Prize
By Jesse Richman and Howard Richman
Oct. 18, 2025
This year’s Nobel Prize in Economics, awarded Monday, was shared by three economists for their contributions to economic growth theory, arguably the most important topic in economics because persistent long-term growth leads to geometrical advances in people’s living standards.
These economists agreed on the essential concepts of long-term growth theory, as laid out by Austrian economist Joseph Schumpeter in 1942, and they were also all opposed to bigness and in favor of competition. They did, however, differ as to which kinds of bigness they opposed. Joel Mokyr opposed excessive bigness in government while the co-authors Phillipe Aghion and Peter Howitt opposed excessive bigness in business.
Mokyr’s Opposition to Bigness in Government
Mokyr’s economic history research partly focused upon why the industrial revolution took place in Europe, but not in Asia. He concluded that political and religious divisions within Europe during the industrial revolution and “industrial enlightenment” (his term) created a “market for ideas” which prevented any particular government or religion from having the power to repress “useful knowledge.” He held that when governments compete with each other, mankind benefits, but when governments “harmonize” their laws in order to prevent competition, mankind loses.
The invention of the airplane (discussed at 18.00 in this video) is one of Mokyr’s examples of how useful knowledge develops. Before tinkerers (in this case the Wright Brothers) invented their airplane, most scientists had theorized that heavier-than-air flight was impossible. After the Wright Brothers' invention, scientists developed improved theories which led to the development of better aircraft. The main point made by Mokyr again and again is that new technology drives new science, which drives new technology, which drives new science, and so on, and that’s how “useful knowledge” and economic growth occur together.
Aghion and Howitt’s Opposition to Bigness in Business
Aghion and Howitt won the Nobel prize for their joint papers which quantified Joseph Schumpeter’s creative destruction theory which held that economic progress occurs when new technologies replace old technologies causing destruction of some jobs and industries and the creation of other jobs and new more productive industries.
For example, when steam-powered railroads replaced hand-powered canal boats, transportation became more rapid, greatly increasing trade and economic development throughout our country, but those who were building canals and running canal boats lost their jobs. Similarly, when automobiles replaced horses, jobs shoeing horses and building carriages were replaced by much more productive jobs servicing and making automobiles.
Aghion and Howitt’s models suggest that one of the risks for sustained economic growth is that entrenched “Superstar Businesses” may lack incentives to engage in the vigorous innovation needed to further advance economic growth, and that such firms can leverage lobbying and political power to thwart competition. The paradox is that the pursuit of innovation tends to produce such firms, so breaking up such firms can also carry costs, requiring careful balancing. They write:
[M]ore vigorous antitrust could help counteract the power of superstar firms. An antitrust focus on innovation instead of price (see Gilbert 2020) would also help direct policy to the crux of the problem, since it is superstar firms’ suppression of innovation by competitors, not their price increases, that has created the problem. Breaking up large firms that suppress innovation and changing patent laws to disallow purely anticompetitive patent applications would also obviously help. But all these measures would be difficult to implement. Moreover, breaking up large firms risks losing the economies of scale that such firms bring, and preemptive mergers can be an incentive for a lot of start-up innovation. (p.8)
The founder of the long-term growth theory that Aghion and Howitt built upon, Joseph Schumpeter, was well aware of these challenges. He argued in favor of letting capitalism work -- that those businesses which dominate their industries due to their technological leads should not be broken up because those businesses have the funds and the will to invest heavily in new technologies in order to maintain their leads and are, as a result, a propelling force in modern capitalism.
Schumpeter cited Aluminum Company of America as a business whose monopoly was due to technological leadership and therefore should not be broken up even though its original patent had expired long ago. In a footnote on pages 101-2 of his classic 1942 book, he noted that after their patent expired, ALCOA was “successful in cost-reducing research, in the economical development of the productive apparatus, in teaching new uses for the product and in avoiding wasteful breakdowns.”
Even though Aghion and Howitt mathematized Joseph Schumpeter’s theory of Creative Destruction, they object to the part of his argument that businesses with technological leads should not be broken up because they propel the economic growth of modern capitalism. They argue, instead, that such break-ups be conditional upon the means by which such businesses maintain their leads. Anti-competitive and anti-innovation methods, such as lobbying government for protection or suppression of innovation, should be blocked wherever possible.
Conclusion
The prescription to take on the dual challenges of big government and anti-competitive big business articulated by the winners of this year’s Nobel prize in economics aligns well with the approach being pursued by the second Trump administration. Lawyer Logan Breed and coauthors write that:
Both “Big Monopoly” and “Big Government” are areas of focus for the agencies in the second Trump administration. Chair Ferguson and AAG Slater have articulated a guiding antitrust enforcement philosophy that considers the threat that Big Monopoly poses to competition, free markets, and “individual liberty” to be on par with the perceived dangers wrought by Big Government.
We favor Mokyr’s opposition to government that is so big that it can suppress innovation, and sympathize with Aghion and Howitt’s opposition to “Superstar Businesses” which turn from innovation to other means in order to preserve their dominance. Free markets, competition, and the ability of innovators to reap the benefits of their technological innovations are key. And this includes keeping big government from colluding with big business to suppress the next generation of innovation.
The world is currently in the midst of one of the technological “creative-destruction” phases that Schumpeter celebrated. The robotics and artificial intelligence revolution is being driven by the very IT companies that some naïve anti-trust enforcers would have broken up. These “Superstar Businesses” are currently investing huge amounts of money so that they won’t be left behind. Their huge investments will likely bring about a much more prosperous future for the American people and for the world.
The Richmans co-authored the 2014 book Balanced Trade published by Lexington Books, and the 2008 book Trading Away Our Future published by Ideal Taxes Association.
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Source: American Thinker
Link:
https://www.americanthinker.com/arti...bel_prize.html
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