Trump's
economic view is far from neoliberal, but it rides a populist wave
The
Republican candidate’s policies are still a work in progress, but
they shy from free markets, open borders and liberalised trade
Larry Elliott
Economics editor
Sunday 31 July 2016
14.34 BST
The timing could
hardly be better. In six months time, the annual festival of
globalisation takes place in Davos, the small town in Switzerland
where the World Economic Forum holds its annual meeting. The
helicopters and the limos will bring the bigwigs up from Zurich into
the high Alps for four days, when they will talk about the need for
inclusive growth and a capitalism that works for everybody. At the
end of the week, the choppers and the limos will take them back down
the mountain and nothing will change.
Next year might be
different though. By chance, the Friday of Davos week in 2017 falls
on 20 January, the day when the next US president will be sworn in.
It could be Donald Trump.
As a businessman,
Trump would fit in well at Davos. He is a billionaire who likes to
cut a deal, and Davos is full of filthy rich people who hoof it to
Switzerland each January not just for the skiing and the fondue but
to closet themselves in a quiet room well away from the TV cameras to
do some business.
As a president,
though, Davos would have some issues with Trump. The WEF priesthood
adheres to an orthodox creed: a belief in free markets, open borders
and liberalised trade. Its dream is to create a tech-savvy,
barrier-free, global village.
As far as one can
tell from his various and often contradictory policy statements,
Trump is running for office on a completely different ticket. He is a
throwback to a different era, when the US was protectionist and
isolationist, which it was for much of its history. It has only been
since the end of the second world war that it has championed free
markets and taken on the role of global policeman. No question,
Hillary Clinton would be much more to Davos’s taste.
To say Trump’s
economic policies are a work in progress is something of an
understatement. It is not clear how he squares promises of tax cuts
three times bigger than those offered by George W Bush with his
insistence that the US national debt is too high. Like Bush and
Ronald Reagan, he seems to set great store by the idea, popularised
by the economist Arthur Laffer, that tax cuts generate higher levels
of growth and so pay for themselves. This has not, however, worked in
the past.
Trump has also
equivocated about the minimum wage. At one time, he said setting the
rate should be left to individual states. More recently he has
proposed that he would raise the national minimum wage. As far as
Wall Street is concerned, Trump has been more like a traditional
Republican, saying he would repeal the Dodd-Frank Act, which sought
to curb the excesses of the financial sector. This looks curious for
someone trying to surf a tidal wave of populist anger against the
bankers.
According to the
traditional rules of politics, Trump should not have a prayer. He is
loud and obnoxious. He seems to enjoy insulting large sections of the
US electorate, women and the Hispanic community in particular. As
Russell Jones said in a recent note for Llewellyn Consulting, his
inventory of policy proposals are striking for their naivety and
incoherence. “It is a litany of simplistic ideas, with no guiding
principle, little clear direction and no overarching notion of how
these various initiatives might fit together to deliver short-term
macro-economic stability, or improved long-term growth potential and
flexibility.”
The Labour peer,
Meghnad Desai, offered a more positive appraisal in an analysis for
the OMFIF thinktank. If he became president, Trump would be the first
occupant of the White House since Eisenhower not to have held elected
office, although Ike did of course mastermind the invasion of France
in 1944.
Desai envisages
Trump doing what Eisenhower did in the 1950s, with a big programme of
investment in the country’s old and decaying public infrastructure.
With interest rates so low, Desai says a capital spending programme
of 5% of US GDP would raise $900bn (£680bn), draw in private
investment and go a long way to fulfilling Trump’s goals of
boosting growth and raising living standards.
So could he really
win? You only have to look at the way Clinton has been forced to take
a tougher line on trade and promise her own infrastructure package to
receive the answer. Few US political experts gave Trump a prayer of
securing the Republican nomination when he first announced his run.
They take him a lot more seriously now, as well they should, because
if the opinion polls are right he will give Clinton a real run for
her money.
Trump’s core
economic message is simple. If globalisation is such a great idea,
why is it that only 15% of the additional growth the US has generated
since the 1970s has gone to the workers? The other 85% has boosted
corporate income, which helps to explain why the pressure for free
trade deals is coming from the boardroom rather than the factory
floor.
Clearly, there is an
element of nostalgia to this, but Trump’s appeal is not just about
nostalgia. The fact is that the US middle class, which in Britain we
would call the working class, really did enjoy more rapid increases
in living standards and a much higher degree of job security three or
four decades ago. It is also true that the offshoring of production
has brought benefits through cheaper imports, but these gains tend to
seem more nebulous than lost jobs and year after year of flat or
falling pay.
A quick look at what
has been happening to the US economy in recent years sheds light on
the problem. As in Britain, jobs have been created but productivity
has been exceptionally weak. One reason is that companies have not
been investing. Rather executives have been borrowing money cheaply
for share buyback schemes that boost the value of the equity they
hold in their own companies. They have gorged themselves at the
expense of the wider US economy and been able to do so because
organised labour is so weak. There is no chance Trump will be
championing new rights for unions, but he is the beneficiary of a raw
form of populist politics.
Parallels can be
drawn with the great recession of 2008 and 2009, the buildup to which
was a prolonged affair. Asset bubble followed asset bubble. Financial
crisis followed financial crisis. There were opportunities to change
course after the peso crisis in Mexico, after the Asian financial
crisis and after the dotcom bubble collapsed. The warnings were not
heeded and the disease worked its way from the periphery of the
global economy to its American core. Politics is following the same
pattern. Trump could win.
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