IS DONALD TRUMP THE FIRST ‘ECONOMIC REALIST’?
When the historians of the future get around to writing up our current era, one of the things likeliest to strike them will be the difference between what is actually happening and what most decision-makers think is happening. Historically, it is fascinating to speculate on how many of the worst decisions of governments have sprung from false interpretation and incorrect information.
From a contemporary perspective, what is evident now is an ever-widening chasm between conventional economic evaluation and the actual trend of events. Where conventional interpretation sees growing prosperity and contained financial risk, you don’t have to step very far outside the box to see a process of economic deterioration, elevated risk and, most seriously of all, a growing threat to the stability of currencies.
For regular readers, of course, this is familiar fare. We know that an economy hampered by a rising trend in the energy cost of energy (ECoE) is being subjected to an ultimately-futile process of denial based on credit and monetary adventurism.
Rather than revisiting this strategic theme, the aim here is to pose a theoretical question, and see where it leads.
Here is the question – what would a government do if it did recognise these realities, and came to understand that prosperity is already declining in the West, and may, before long, turn downwards in the emerging market (EM) economies, too?
It is beyond doubt that such a recognition would bring about drastic changes, both in assumptions and in policy. What follows is an examination of what those changes might be. It’s also safe to assume that these changes would be resented by those still wedded to the conventional, and that their mystification would lead rapidly to anger, suspicion and hostility.
It is suggested here that, if any government anywhere in the world is behaving in ways which are consistent with this pattern, it is the Trump administration. To what extent can Mr Trump be credited with – or, by some, accused of – acting on the basis of ‘new reality’?
What if understanding dawned somewhere?
If a government did discover the processes that are at work in the economy, the first conclusion that such a government would reach is that prosperity has become, at best, a zero-sum game. This would mean that, instead of the world becoming more prosperous in shared progression, the prosperity of one country can only be enhanced at the expense of others.
This, of course, is anathema to conventional economics, which pins its faith in David Ricardo’s “comparative advantage” theory. Essentially, Ricardo argues that we all get richer if we all concentrate on what we’re, so to speak’, ‘most best at’. From this, it follows that maximising trade between nations is to the benefit of all. This has long been an article of faith for economists.
What Ricardo did not have to consider, though, was the concept of a world with finite characteristics. It’s a reasonable hypothesis that constraints on the maximum availability of resources (such as land, water and, above all, energy) might render the law of comparative advantage inoperable. In short, once you postulate limits to potential prosperity, ‘all in it together’ quickly becomes ‘every man for himself’.
Trade, currencies and national advantage
If a government did arrive at the ‘zero-sum prosperity’ conclusion, it would concentrate on pursuing national advantage in trade. Governments already do this, of course, but they are in general influenced sufficiently by the Ricardian calculus to pursue national advantage in a mutual context. Whilst they want to skew trade agreements in their own favour, they do so from an assumption that there are mutual benefits to be accrued from such agreements.
The various trade deals pursued by the Obama administration illustrate this. Though these deals undoubtedly had a pro-American bias, they were nevertheless framed in an ‘internationalist’ way, based on assumptions of potential mutual benefit.
Our imaginary zero-sum prosperity government would differ radically, because its disbelief in mutual advantage would result in an instinctive preference, if not for outright protectionism, then at least for blatantly one-sided arrangements. The result would be a more aggressive stance on trade, characterised by an undisguised pursuit of national benefit, almost heedless of what the consequences for other countries might be.
This government would also want to leverage whatever benefits it might get from the relative strength of its currency. Under normal circumstances, a strong currency is bad for trade, making home-produced goods costlier than foreign alternatives. That matters a lot less, though, if you use tariffs to decide what you do and do not want to buy from overseas. For example, you might decide that a strong currency helps you purchase resources from abroad, but the strength of the currency needn’t suck in more manufactured goods because, if this starts to happen, you simply stick tariffs on them.
It need hardly be stated that the politics and the rhetoric accompanying this stance would be nationalist in tone. Moreover, this nationalist approach towards trade would be certain to show up, too, in other, non-trade aspects of foreign policy, including areas such as diplomacy and the management of alliances. Neither is it at all fanciful to assume that this nationalism would be replicated in domestic policies. Politicians often ‘wave the flag’ in pursuit of votes – the only difference about a government founded on a zero-sum prosperity assumption would be that the nationalism invoked would be the real thing.
The emphasis on nationalism described here need not, though, result in bellicosity. Indeed, it is likelier to take the form of isolationism or, at least, of a reluctance to expend “blood and treasure” in ways that do not benefit the country’s prosperity.
Thus far, we have envisaged a government determined to use trade to pursue national prosperity – and, implicitly, broader national advantage as well – on the basis of zero-sum world potential. As well as being implicitly inimical to free trade in goods and services, this argues for an equally restrictive attitude towards the movement of capital and labour.
For a start, the government we are envisaging would not want foreign investors acquiring domestic assets. At the same time, it would not want to see its businesses investing overseas rather than at home, something which they might well be inclined to do if costs elsewhere were lower, a differential that would be exaggerated by a strong currency.
Likewise, such a government would be inimical to the free movement of labour. If its preference was for businesses to invest at home – rather than moving their operations to lowest-cost locations – then it would be equally opposed to that cheap labour being imported through immigration. It would see large-scale immigration as the domestic face of a globalist calculus that it wished to disrupt.
What we are envisaging here is a government which – by interfering with the flow of trade, capital and labour – is challenging the most treasured objectives of the ‘globalists’.
In critical ways, some demarcations are being drawn here between our theoretical government and those who, either in principle or in pursuit of profit, work from diametrically opposite assumptions. A nationalist stance, reinforced by opposition to immigration, plays to a domestic audience often branded “populist” by its increasingly unpopulist opponents.
Essentially, then, any government operating on the premise of nationalism founded on a zero-sum prosperity calculus would face fervent opposition, both at home and abroad. Opponents would fall into two main categories – those who benefit from the globalist model, and those who are internationalist out of conviction. Those persuaded by internationalism out of conviction overlap extensively with those whose policies are self-defined as ‘liberal’.
What emerges from this is that the opponents of our theoretical government might be defined as ‘liberal globalists’. Since this essentially defines the long-established political and economic consensus of the Western world’s ruling elites, the government that we are envisaging would, of necessity, be ‘anti-establishment’, challenging both the vested interests and the conventional assumptions which favour globalism.
Donald Trump – theory into practice?
Just to recap, then, a government which became persuaded about zero-sum global prosperity could be expected to ditch huge swathes of what has been the economic consensus for more than three decades.
It would pursue policies of national advantage which would be hostile to free trade, and opposed to the free movement of capital and labour. It would abandon the substance (and, very probably, the rhetoric, too) of mutuality. It would face very stiff, often visceral opposition both from internationalist and from globalist persuasions.
So much for theory – what about practice?
The government which comes closest to our theoretical outline is the Trump administration. Mr Trump’s political platform can be described as ‘populist-nationalist’, and his opposition to globalisation is palpable. If Mr Trump has an identifiable enemy, that enemy resides, not in Beijing or in Moscow, but in Davos.
This interpretation has been influenced by a two-part essay by analyst Thierry Meyssan. His argument is that Mr Trump’s political stance, developed over the fifteen years before he entered the White House, is based on opposition to American ‘imperial’ behaviour and a renewed focus on domestic prosperity alone. As Mr Meyssan puts it, Mr Trump is “a politician who refuse[s] to engage his country in the service of transnational elites”.
It is certainly striking that, unlike his predecessors, Mr Trump shows no appetite for military interventions, in the Middle East or anywhere else. He certainly does not want America to be ‘the world’s policeman’, especially if what is being policed benefits globalist corporates a lot more than it benefits Americans
Ideologically, some of this puts Mr Trump in some positions which, at first sight, can look pretty bizarre. For example, it seems unlikely in the extreme that Lenin was ever one of the President’s favourite authors, but Thierry Meyssan is surely on to something when he cites this passage by the Soviet leader at the start of his second essay:
“Imperialism is capitalism which has arrived at a stage of its development where domination by monopolies and financial capital has been confirmed, where the export of capital has acquired major importance, where the sharing of the world between international trusts has begun, and where the sharing of all the territories of the globe between the greatest capitalist countries has been achieved”
Brought forward into the circumstances of today, references to monopolies, the dominant role of international capital and the free flow of capital between countries are indeed redolent of what Davos likes, and Mr Trump, instinctively and perhaps calculatedly, does not.
According to Mr Meyssan, the President’s election was based on a “promise to return to the earlier state of Capitalism, that of the ‘American dream’, by free market competition”. Thus interpreted, Mr Trump opposes the small number of “multinational companies [which] gave birth to a global ruling class which gathers every year to congratulate itself, as we watch, in Davos, Switzerland. These people do not serve the interests of the US population, and in fact are not necessarily United States citizens themselves, but use the means of the US Federal State to maximise their profits”.
Thus far, we have been examining two distinct issues.
The first is an interpretation of what a government might do, if it became persuaded that the scope for growth in global prosperity has been exhausted.
The second is Thierry Meyssan’s acute interpretation of Donald Trump as a nationalist opponent of globalisation and its attendant ideologies and policies.
What is surely very striking is how these two strands intersect. It’s doubtful if Mr Trump and his advisors are familiar with the energy-based interpretation of economics, certainly as discussed here, and modelled by SEEDS. But it’s by no means improbable that he has arrived at similar conclusions by different routes.
It certainly seems apparent that the consensus symbolised by Davos is vehemently opposed to Mr Trump’s apparent agenda. Moreover, if he has indeed picked a fight with “Davos man”, he could hardly have chosen a more formidable opponent. What we do know is that he has already thrown some big spokes into the wheel of a model which favours the global flow of goods, capital and labour on a basis geared towards the maximisation of the share of GDP which goes into corporate profits rather than labour.
If this interpretation is correct, we should anticipate efforts to break up some of the most powerful global corporations with large shares in their respective markets. Mr Trump might not have read Lenin, but he certainly seems to understand Adam Smith’s emphasis on the primary importance of competition, free, fair, and unfettered by excessive concentration. Once that is understood, trust-busting becomes logical.
Fascinating though the politics of all this undoubtedly are, the decisive issue is likely to be economic. Essentially, can nationalism deliver more for American voters than globalisation has achieved?
The reality is that, in pure economic terms, globalisation isn’t a hard act to follow. The essential premise of globalisation is that profits can be increased by locating production in the cheapest places, whilst continuing to sell goods and services in the (relatively) wealthy West.
There was always a huge contradiction at the heart of this philosophy – essentially, if well-paid jobs are shipped out of Western markets, how are Western wage-earners supposed to carry on with high levels of consumption? Thus far, the answer has been to make credit cheaper, and more readily accessible, than it has ever been before. This strategy has landed us with extraordinary levels of debt, unprecedentedly cheap money, and all of the risks associated with financial adventurism.
According to SEEDS, the United States has not bucked the trend towards lower prosperity in the West. Whilst not as badly affected as, say, Britain or Italy, SEEDS indicates that the average American is 7.7% ($3,380) poorer than he or she was back in 2005.
Though GDP data appears to contradict this calculation, two factors can be cited to support it. First, an overwhelming majority (93%) of all growth in American GDP in recent years has come from internally-consumed services (ICS) – such as finance, real estate and government – whilst the aggregate contribution to growth of hard-priced, globally marketable output (GMO), such as manufacturing, construction, agriculture and the extractive industries, has been zero. (The other 7% came from increased exports of services).
Second, growth in GDP has been far exceeded by an ongoing escalation in debt. Comparing 2017 with 2005, GDP has grown by $3.25tn, but debt has expanded by $14tn, a ratio of $4.30 of new debt for each $1 of reported growth. By definition – and, latterly, based on experience as well – pouring cheap credit into the system to sustain consumption in the face of deteriorating wages is not a sustainable way of running the economy.
In short, there is a compelling case to be made that Americans are significantly poorer now than they were twelve years ago – and, were this not the case, there has to be a strong possibility that Mr Trump would not have become President.
The first conclusion we can reach seems to be that, in linking prosperity with nationalism, Mr Trump has been pushing at an open door. We cannot know whether his policies can deliver more for Americans than globalisation, but it won’t be all that long before we find out. Obviously, nobody should underestimate the opposition that Mr Trump will go on encountering from those whose economic interests he threatens.