Five more years of populism would be a disaster

Capitalism isn’t broken, but populism may be on the verge of breaking it. If Democratic Party front-runner Sen. Bernie Sanders, I-Vt., ends up securing the presidential nomination, the Oval Office will be occupied by a populist for the next five years — regardless of who wins in November. This is a chilling prospect.

The United States faces no problem today to which populism offers the best solution. Despite what its adherents claim, hard work still pays off and America is still broadly characterized by upward economic mobility. The game is not rigged. Wages and incomes for typical workers have not been stagnant for decades. The gains of the economy do not flow exclusively to the top.

President Donald Trump’s brand of populism has made the United States worse off. Perhaps the most visible example is his illconceived and poorly executed trade war with China — which he promoted as a fight for American workers but which has instead increased consumer prices, reduced the variety of products available to purchase and dampened U.S. exports.

The 2017 tax cuts provided incentives for businesses to invest. Like many economists, I expected firms to respond with more spending on capital improvements, which would eventually increase workers’ productivity and wages. But that has disappointed. Why? One reason is that the massive uncertainty from the trade war makes it impossible for businesses to plan, so they have frozen investment spending. The president encouraged investment with his left hand while discouraging it with his right.

Many populists argue that free-trade-supporting “elites” have conspired to enrich themselves at the expense of the working class. Trump’s trade war was intended as a remedy, helping the working class even if it hurt the economy as a whole.

But recent research from economists at the Federal Reserve Board finds that the trade war can’t clear even this low bar for success. Protection from import competition does increase manufacturing employment in isolation. But it also increased the costs businesses face for intermediate inputs to production and inspired retaliatory action by China and other countries, hurting our international competitiveness. As a result, manufacturing employment was reduced by 1.4% due to the trade war, and manufacturing output was not increased.

The Sanders agenda would be worse for the country. An analysis by Brian Riedl of the Manhattan Institute concludes that if Sanders had his way with Medicare-forall, free college tuition, and other entitlements and guarantees, the federal government would double in size, half the U.S. workforce would be government employees and the deficit would rise to more than one-third of gross domestic product, despite his many tax increases. This would be a disaster, and the fact that Sanders would never get more than a fraction of his agenda enacted offers little comfort.

Under either Trump or Sanders, five more years of populism would hurt long-term prosperity in more pernicious ways.

Trump’s willingness to stoke racial animosity threatens the foundations of prosperity the way termites threaten a house — by assaulting its core. His attacks on the post-World War II liberal international order threaten longterm prosperity by changing perceptions of our country abroad. His weakening of federal institutions and the rule of law inflicts damage that could take years to undo. His hostility toward immigrants makes the United States less attractive to many of the world’s brightest and most ambitious people. The longer he is in office, the more ingrained these problems become.

A President Sanders, meanwhile, would head an administration that weakened Americans by telling them that they are victims of a rigged game. By normalizing the view that the government is the solution to every problem, Sanders’ presidency would dim aspirations and sap the energy of workers and businesses.

It would send the corrosive message that success should be punished. Sanders is clear: “Billionaires should not exist.” The American president should be rooting for more billionaires, not fewer. Like Trump, Sanders would be a class warrior. And he would push the boundaries of the policy debate — and eventually, policy itself — considerably to the left.

It is no surprise that various streams of populism took hold following the Great Recession. The suffering of millions of workers and households has lingered in the public mind. Better policy is certainly needed to advance economic opportunity to those who need it most — including those who have not yet fully benefited from the recovery.

But the basic social and economic structure of the United States is not broken, and we shouldn’t let a populist scream convince us otherwise.

The American people deserve a better message — one that is true: There is much about which to be optimistic. Aspire. Move forward with assurance, and with gratitude.

And have confidence that the political system will eventually catch up.