Not the trump card Amer­i­cans need to­day

China Daily (Hong Kong) - - VIEWS -

On Jan 20, 2017, Don­ald Trump will be in­au­gu­rated as the 45th pres­i­dent of the United States. I would hate to say “I told you so”, but his elec­tion should not have come as a sur­prise. As I ex­plained in my 2002 book Glob­al­iza­tion and its Discontent, the poli­cies we have used to man­age glob­al­iza­tion have sown the seeds of wide­spread dis­af­fec­tion. Iron­i­cally, a can­di­date from the same party that has pushed the hard­est for in­ter­na­tional fi­nan­cial and trade in­te­gra­tion won by promis­ing to undo both.

Of course, there is no go­ing back. China and In­dia are now in­te­grated into the global econ­omy, and tech­no­log­i­cal in­no­va­tion is re­duc­ing the num­ber of man­u­fac­tur­ing jobs world­wide. Trump can­not recre­ate the well-pay­ing man­u­fac­tur­ing jobs of past decades; he can only push for ad­vanced man­u­fac­tur­ing, which re­quires higher skill sets and em­ploys fewer peo­ple.

Ris­ing in­equal­ity, mean­while, will con­tinue to con­trib­ute to wide­spread de­spair, es­pe­cially among the white vot­ers in Mid­dle Amer­ica who handed Trump his vic­tory. As econ­o­mists Anne Case and Angus Deaton showed in their study pub­lished in De­cem­ber 2015, life ex­pectancy among mid­dle-age white Amer­i­cans is de­clin­ing, as rates of sui­cides, drug use and al­co­holism in­crease. A year later, the Na­tional Cen­ter for Health Statis­tics re­ported that life ex­pectancy for the coun­try as a whole has de­clined for the first time in more than 20 years.

In the first three years of the so-called re­cov­ery af­ter the 2008 fi­nan­cial cri­sis, 91 per­cent of the gains went to the top 1 per­cent of earn­ers. While Wall Street banks were bailed out with bil­lions of dol­lars in tax­payer money, home­own­ers re­ceived only a pit­tance. US Pres­i­dent Barack Obama saved not only the banks, but also the bankers, share­hold­ers and bond­hold­ers. His eco­nomic pol­icy team of Wall Street in­sid­ers broke the rules of cap­i­tal­ism to save the elite, con­firm­ing mil­lions of Amer­i­cans’ sus­pi­cion that the sys­tem is, as Trump would say, “rigged”.

Obama brought “change you can be­lieve in” on cer­tain is­sues, such as cli­mate pol­icy; but with re­spect to the econ­omy, he bol­stered the sta­tus quo — the 30-year ex­per­i­ment with ne­olib­er­al­ism, which promised that the ben­e­fits of glob­al­iza­tion and lib­er­al­iza­tion would “trickle down” to ev­ery­one. In­stead, the ben­e­fits trick­led up, partly owing to a po­lit­i­cal sys­tem that now seems to be based on the prin­ci­ple of “one dol­lar, one vote”, rather than “one per­son, one vote”.

Ris­ing in­equal­ity, an un­fair po­lit­i­cal sys­tem, and a gov­ern­ment that spoke as if it was work­ing for the peo­ple while act­ing for the elites cre­ated ideal con­di­tions for a can­di­date like Trump to ex­ploit. Though wealthy, Trump is clearly not a mem­ber of the tra­di­tional elite, which lent cre­dence to his prom­ise of “real” change. And yet it will be busi­ness as usual un­der Trump, who will ad­here to Repub­li­can or­tho­doxy on tax­a­tion and, by ap­point­ing lob­by­ists and in­dus­try in­sid­ers to his ad­min­is­tra­tion, has al­ready bro­ken his prom­ise to “drain the swamp” in Wash­ing­ton, DC.

The rest of Trump’s eco­nomic agenda will de­pend largely on whether House Speaker Paul Ryan is a true fis­cal con­ser­va­tive. Trump has pro­posed that large tax cuts for the rich be com­bined with mas­sive in­fras­truc­ture­spend­ing pro­grams, which would boost GDP and im­prove the gov­ern­ment’s fis­cal po­si­tion some­what, but not nearly as much as ad­vo­cates of sup­ply-side eco­nomics hope. If Ryan is not as con­cerned about the deficit as he says he is, he will rub­ber­stamp Trump’s agenda, and the econ­omy will re­ceive the Key­ne­sian fis­cal stim­u­lus that it has long needed.

Another un­cer­tainty re­lates to mone­tary pol­icy. Trump has al­ready spo­ken out against low in­ter­est rates, and there are two va­can­cies on the US Fed­eral Re­serve’s Board of Gov­er­nors. Add to that the large num­bers of Fed of­fi­cials itch­ing to nor­mal­ize rates, and it is fair bet that they will do so — per­haps more than off­set­ting Trump’s Key­ne­sian stim­u­lus. Trump’s pro-growth poli­cies will also be un­der­mined if he ex­ac­er­bates in­equal­ity through his tax pro­pos­als, starts a trade war, or aban­dons Amer­ica’s com­mit­ments to re­duce green­house gas emis­sions (es­pe­cially if oth­ers re­tal­i­ate with a cross-bor­der tax). Now that Repub­li­cans con­trol the White House and both houses of Congress, they will be rel­a­tively free to weaken work­ers’ bar­gain­ing power, dereg­u­late Wall Street and other in­dus­tries, and turn a blind eye to ex­ist­ing an­titrust laws — all of which will cre­ate more in­equal­ity. If Trump fol­lows through on his cam­paign threat to im­pose tar­iffs on Chi­nese im­ports, the US econ­omy would prob­a­bly suf­fer more dam­age than China’s. Un­der the ex­ist­ing World Trade Or­ga­ni­za­tion frame­work, for ev­ery “il­le­gal” tar­iff that the US im­poses, China can re­tal­i­ate any­where it chooses, such as by us­ing trade re­stric­tions to tar­get jobs in the con­gres­sional districts of those who sup­port US tar­iffs.

To be sure, mea­sures against China per­mit­ted un­der the WTO frame­work, such as anti-dump­ing tar­iffs, may be jus­ti­fied in some ar­eas. But Trump has enun­ci­ated no guid­ing prin­ci­ples for trade pol­icy, and the US — which di­rectly sub­si­dizes its au­to­mo­bile and air­craft in­dus­tries, and in­di­rectly sub­si­dizes its banks through ul­tra-low in­ter­est rates — would be throw­ing stones from a glass house. And once this tit-for-tat game be­gins, it could very well end in the destruction of the open in­ter­na­tional or­der cre­ated since World War II.

Sim­i­larly, the in­ter­na­tional rule of law, which is en­forced pri­mar­ily through eco­nomic sanc­tions, could fare poorly un­der Trump. How will the new pres­i­dent re­spond if Rus­sia-aligned troops es­ca­late the con­flict in east­ern Ukraine? Amer­ica’s real power has al­ways de­rived from its stand­ing as an inclusive democ­racy. But peo­ple around the world have now lost con­fi­dence in demo­cratic pro­cesses. As Amer­i­can soft power con­tin­ues to erode, the fu­ture of the in­ter­na­tional or­der will be­come more un­cer­tain.

Mean­while, the Demo­cratic Party will surely be con­duct­ing an elec­tion post mortem. Demo­cratic pres­i­den­tial nom­i­nee Hil­lary Clin­ton lost be­cause she failed to of­fer vot­ers a con­vinc­ing vi­sion that was markedly dif­fer­ent from the ne­olib­eral agenda that her hus­band and for­mer US pres­i­dent Bill Clin­ton em­braced in the 1990s. Hav­ing pur­sued a po­lit­i­cal strat­egy of “tri­an­gu­la­tion” — adopt­ing ver­sions of its op­po­nents’ poli­cies — for more than a gen­er­a­tion, the party of the left could no longer present it­self as a cred­i­ble al­ter­na­tive to the party of the right.

The Democrats will have a fu­ture only if they re­ject ne­olib­er­al­ism, and adopt the pro­gres­sive poli­cies pro­posed by lead­ers such as El­iz­a­beth War­ren, Bernie San­ders and Sher­rod Brown. This will put them in a strong po­si­tion against the Repub­li­cans, who will have to fig­ure out how to man­age a coali­tion of evan­gel­i­cal Chris­tians, cor­po­rate ex­ec­u­tives, na­tivists, pop­ulists and iso­la­tion­ists.

With the ar­rival of Trump, and with both ma­jor par­ties now re­defin­ing them­selves, the com­ing year may well be re­mem­bered as a turn­ing point in US and world his­tory.

The au­thor, a No­bel Prize win­ner in eco­nomics, is univer­sity pro­fes­sor at Columbia Univer­sity and chief econ­o­mist at the Roo­sevelt In­sti­tute. His most re­cent book is The Euro: How a Com­mon Cur­rency Threat­ens the Fu­ture of Europe. Project Syn­di­cate


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