The Trump blame game

Having been wrong about whether Donald Trump would be elected, elite consensus now for some reason thinks it understands why Trump was elected: Freer trade and the costs it imposes on losers.

The truth is nobody knows why 60 million Trump voters voted the way they did, nor why — even more crucially to the outcome — several million likely Clinton supporters stayed home. Careful analysis of as much big data as is available will over the next few years produce a consensus. Unfortunately, politics, the media, the urgency of next, whatever you want to call it, can’t wait years. It needs an answer now.

Elite opinion, myself included, couldn’t imagine anyone voting for someone as far outside the politeness and knowledge boxes as Trump and therefore simply assumed he couldn’t be elected. Now, in explaining the election, elites can’t fathom that ordinary folk might actually vote against elites telling them what to believe and how to behave all the time (which is my own favourite explanation for the election result) so they are leaning hard on trade and economic openness, which many of the same elites have never really bought into in the first place.

But is trade really guilty? The 60 million who voted for Trump aren’t all steel or autoworkers who lost their jobs to China. Former Clinton and Obama economic honcho, Larry Summers, told David Axelrod on his always-interesting The Axe Files podcast the other day that trade wasn’t responsible for the supposed hollowing out of the Midwest. It couldn’t be: Since the Second World War, U.S. tariffs have always been lower than its trading partners’ tariffs. Which is why, in making trade deals, the U.S. has insisted since about 1970 on “behindthe-border” agreements against favouring domestic producers and investors in non-tariff ways, a form of cheating that burgeoned as the tariffs fell. It’s these American-inspired behindthe-border chapters of trade agreements that Trump now opposes — on Brexitlike grounds that they move decision-making to international bodies, which of course they do, though only because national bodies invariably, inevitably discriminate against foreigners.

It’s a good thing that most elites who blame trade for Trump don’t as a result recommend cutting back on trade, as Trump wants to do. Rather, they argue that trade policy needs to treat losers better. (Bizarre, isn’t it, that a candidate who couldn’t abide “loooosers” won by championing them?) Trade does create losers, as good economists have always admitted, though seldom do the politicians they advise. No economic theory says trade doesn’t create losers. What economic theory says is that winners’ gains generally exceed losers’ losses so there can still be net gains after losers are compensated. But they do have to be compensated.

There are two problems with compensation, however. First, as Nobel Prizewinning economist Robert Shiller wrote in a recent Project Syndicate column, people don’t actually want to be compensated. They don’t like being victims. “Redistribution feels demeaning,” he writes. “It feels like being labelled a failure. It feels unstable. It feels like being trapped in a relationship of dependency, one that might collapse at any moment.” What people want instead is “their power back.” Hence the attraction of Trump’s turn-back-theclock, pump-up-the-tariffs and build-high-the-walls policies. Shiller may be wrong, of course. He’s just another elite, a Yale prof with a Nobel Prize. (The Nobel makes you elite by definition, even if you used to write anarchist folk songs.) But if he’s also right, it’s hard to imagine Trump won’t be blowing back against trade, which is bad news for the world in general and us in particular.

The other problem with the elite consensus on compensation is how do you do it, exactly? In September, the U.S. economy generated 156,000 new jobs, which for an economy operating close to full employment most people considered not bad at all. But in that same month fully 1.5 million Americans lost their jobs. It’s just that 156,000 more found new jobs. The economy works like that. The amount of “churn” in the labour market, the gross change, always swamps the net change.

The policy problem is: Which of those 1.5 million job losers lost their jobs because of trade? And which lost them because of shifts in demand patterns or levels, new technology, working for an unimaginative company or an incompetent boss, lousy logistics — or any number of reasons why businesses don’t succeed and let people go? How do you decide person X is a loser from trade and therefore deserves more resources and assistance than the other 1,499,999 job losers in September?

Helping trade’s losers is a good idea in theory, not so easy in practice.

HIS MILLIONS OF VOTERS AREN’T ALL FACTORY WORKERS WHO LOST THEIR JOBS TO CHINA.