What Amer­ica’s econ­omy needs from Don­ald Trump

Financial Mirror (Cyprus) - - FRONT PAGE -

Don­ald Trump’s as­ton­ish­ing vic­tory in the United States pres­i­den­tial elec­tion has made one thing abun­dantly clear: too many Amer­i­cans – par­tic­u­larly white male Amer­i­cans – feel left be­hind. It is not just a feel­ing; many Amer­i­cans re­ally have been left be­hind. It can be seen in the data no less clearly than in their anger. And, as I have ar­gued re­peat­edly, an eco­nomic sys­tem that doesn’t “de­liver” for large parts of the pop­u­la­tion is a failed eco­nomic sys­tem. So what should Pres­i­dent-elect Trump do about it?

Over the last third of a cen­tury, the rules of Amer­ica’s eco­nomic sys­tem have been rewrit­ten in ways that serve a few at the top, while harm­ing the econ­omy as a whole, and es­pe­cially the bot­tom 80%. The irony of Trump’s vic­tory is that it was the Repub­li­can Party he now leads that pushed for ex­treme glob­al­i­sa­tion and against the pol­icy frame­works that would have mit­i­gated the trauma as­so­ci­ated it. But his­tory mat­ters: China and In­dia are now in­te­grated into the global econ­omy. Be­sides, tech­nol­ogy has been ad­vanc­ing so fast that the num­ber of jobs glob­ally in man­u­fac­tur­ing is de­clin­ing.

The im­pli­ca­tion is that there is no way Trump can bring a sig­nif­i­cant num­ber of well-pay­ing man­u­fac­tur­ing jobs back to the US. He can bring man­u­fac­tur­ing back, through ad­vanced man­u­fac­tur­ing, but there will be few jobs. And he can bring jobs back, but they will be low-wage jobs, not the high-pay­ing jobs of the 1950s.

If Trump is se­ri­ous about tack­ling in­equal­ity, he must re­write the rules yet again, in a way that serves all of so­ci­ety, not just peo­ple like him.

The first or­der of busi­ness is to boost investment, thereby restor­ing ro­bust long-term growth. Specif­i­cally, Trump should em­pha­sise spend­ing on in­fra­struc­ture and re­search. Shock­ingly for a coun­try whose eco­nomic suc­cess is based on tech­no­log­i­cal in­no­va­tion, the GDP share of investment in ba­sic re­search is lower to­day than it was a half-cen­tury ago.

Im­proved in­fra­struc­ture would en­hance the re­turns from pri­vate investment, which has been lag­ging as well. En­sur­ing greater fi­nan­cial ac­cess for small and medium-size en­ter­prises, in­clud­ing those headed by women, would also stim­u­late pri­vate investment. A car­bon tax would pro­vide a wel­fare tri­fecta: higher growth as firms retro­fit to re­flect the in­creased costs of car­bon diox­ide emis­sions; a cleaner en­vi­ron­ment; and rev­enue that could be used to fi­nance in­fra­struc­ture and di­rect ef­forts to nar­row Amer­ica’s eco­nomic di­vide. But, given Trump’s po­si­tion as a cli­mate change de­nier, he is un­likely to take ad­van­tage of this (which could also in­duce the world to start im­pos­ing tar­iffs against US prod­ucts made in ways that vi­o­late global cli­mate-change rules).

A com­pre­hen­sive ap­proach is also needed to im­prove Amer­ica’s in­come dis­tri­bu­tion, which is one of the worst among ad­vanced economies. While Trump has promised to raise the min­i­mum wage, he is un­likely to un­der­take other crit­i­cal changes, like strength­en­ing work­ers’ col­lec­tive­bar­gain­ing rights and ne­go­ti­at­ing power, and re­strain­ing CEO com­pen­sa­tion and fi­nan­cial­i­sa­tion.

Reg­u­la­tory re­form must move be­yond lim­it­ing the dam­age that the fi­nan­cial sec­tor can do and en­sure that the sec­tor gen­uinely serves so­ci­ety.

In April, Pres­i­dent Barack Obama’s Coun­cil of Eco­nomic Ad­vis­ers re­leased a brief show­ing in­creas­ing mar­ket con­cen­tra­tion in many sec­tors. That means less com­pe­ti­tion and higher prices – as sure a way to lower real in­comes as low­er­ing wages di­rectly. The US needs to tackle th­ese con­cen­tra­tions of mar­ket power, in­clud­ing the new­est man­i­fes­ta­tions in the so-called shar­ing econ­omy.

Amer­ica’s re­gres­sive tax sys­tem – which fu­els in­equal­ity by help­ing the rich (but no one else) get richer – must also be re­formed. An ob­vi­ous tar­get should be to elim­i­nate the spe­cial treat­ment of cap­i­tal gains and div­i­dends. An­other is to en­sure that com­pa­nies pay taxes – per­haps by low­er­ing the cor­po­rate-tax rate for com­pa­nies that in­vest and cre­ate jobs in Amer­ica, and rais­ing it for those that do not. As a ma­jor ben­e­fi­ciary of this sys­tem, how­ever, Trump’s pledges to pur­sue re­forms that ben­e­fit or­di­nary Amer­i­cans are not cred­i­ble; as usual with Repub­li­cans, tax changes will largely ben­e­fit the rich.

Trump will prob­a­bly also fall short on en­hanc­ing equal­ity of op­por­tu­nity. En­sur­ing preschool ed­u­ca­tion for all and in­vest­ing more in pub­lic schools is es­sen­tial if the US is to avoid be­com­ing a neo-feu­dal coun­try where ad­van­tages and dis­ad­van­tages are passed on from one gen­er­a­tion to the next. But Trump has been vir­tu­ally silent on this topic.

Restor­ing shared pros­per­ity would re­quire poli­cies that ex­pand ac­cess to af­ford­able hous­ing and med­i­cal care, se­cure re­tire­ment with a mod­icum of dig­nity, and al­low ev­ery Amer­i­can, re­gard­less of fam­ily wealth, to af­ford a post­sec­ondary ed­u­ca­tion com­men­su­rate with his or her abil­i­ties and in­ter­ests. But while I could see Trump, a real-es­tate mag­nate, sup­port­ing a mas­sive hous­ing pro­gramme (with most of the ben­e­fits go­ing to de­vel­op­ers like him­self), his promised re­peal of the Af­ford­able Care Act (Oba­macare) would leave mil­lions of Amer­i­cans with­out health in­sur­ance. (Soon after the elec­tion, he sug­gested he may move cau­tiously in this area.)

The prob­lems posed by the dis­af­fected Amer­i­cans – re­sult­ing from decades of ne­glect – will not be solved quickly or by con­ven­tional tools. An ef­fec­tive strat­egy will need to con­sider more un­con­ven­tional so­lu­tions, which Repub­li­can cor­po­rate in­ter­ests are un­likely to favour. For ex­am­ple, in­di­vid­u­als could be al­lowed to in­crease their re­tire­ment se­cu­rity by putting more money into their So­cial Se­cu­rity ac­counts, with com­men­su­rate in­creases in pen­sion ben­e­fits. And com­pre­hen­sive fam­ily and sick leave poli­cies would help Amer­i­cans achieve a less stress­ful work/life bal­ance.

Like­wise, a pub­lic op­tion for hous­ing fi­nance could en­ti­tle any­one who has paid taxes reg­u­larly to a 20% down-pay­ment mort­gage, com­men­su­rate with their abil­ity to ser­vice the debt, at an in­ter­est rate slightly higher than that at which the govern­ment can bor­row and ser­vice its own debt. Pay­ments would be chan­neled through the in­come-tax sys­tem.

Much has changed since Pres­i­dent Ron­ald Rea­gan be­gan hol­low­ing out the mid­dle class and skew­ing the ben­e­fits of growth to those at the top, and US poli­cies and in­sti­tu­tions have not kept pace. From the role of women in the work­force to the rise of the In­ter­net to in­creas­ing cul­tural di­ver­sity, twenty-first cen­tury Amer­ica is fun­da­men­tally dif­fer­ent from the Amer­ica of the 1980s.

If Trump ac­tu­ally wants to help those who have been left be­hind, he must go be­yond the ide­o­log­i­cal bat­tles of the past. The agenda I have just sketched is not only about the econ­omy: it is about nur­tur­ing a dy­namic, open, and just so­ci­ety that ful­fills the prom­ise of Amer­i­cans’ most cher­ished val­ues. But while it is, in some ways, some­what con­sis­tent with Trump’s cam­paign prom­ises, in many other ways, it is the an­tithe­sis of them.

My very cloudy crys­tal ball shows a rewrit­ing of the rules, but not to cor­rect the grave mis­takes of the Rea­gan rev­o­lu­tion, a mile­stone on the sor­did jour­ney that left so many be­hind. Rather, the new rules will make the sit­u­a­tion worse, ex­clud­ing even more peo­ple from the Amer­i­can dream.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.