Saturday, December 10, 2016

Banana Republic Capitalism: Prudent Businesses Will Make It Their Priority to Curry Favour with Trump

Economist magazine gets it right:
The emerging Trump strategy towards business has some promising elements, but others that are deeply worrying. The promise lies in Mr Trump’s enthusiasm for corporate-tax reform, his embrace of infrastructure investment and in some parts of his deregulatory agenda. The dangers stem, first, from the muddled mercantilism that lies behind his attitude to business, and, second, in the tactics—buying off and attacking individual companies—that he uses to achieve his goals. American capitalism has flourished thanks to the predictable application of rules. If, at the margin, that rules-based system is superseded by an ad hoc approach in which businessmen must take heed and pay homage to the whim of King Donald, the long-term damage to America’s economy will be grave.... 
Start with the confusions in Mr Trump’s philosophy. The president-elect believes that America’s workers are harmed when firms move production to cheaper locations offshore. That is why he wants to impose a 35% tariff on the products of any company that moves its production abroad. Such tariffs would be hugely disruptive. They would make goods more expensive for American consumers. By preventing American firms from maximising their efficiency using complex supply chains, they would reduce their competitiveness, deter new investment and, eventually, hurt workers’ wages across the economy...
Unlike the Depression, when Hoover and then Roosevelt got companies to act in what they (often wrongly) saw as the national interest; or 2009, when Mr Obama corralled the banks and bailed out Detroit, America today is not in crisis. Mr Trump’s meddling is thus likely to be the new normal. Worse, his penchant for unpredictable and often vindictive bullying is likely to be more corrosive than the handouts most politicians favour.

If this is the tone of the Trump presidency, prudent businesses will make it their priority to curry favour with the president and avoid actions that might irk him. Signs of this are already evident in the enthusiasm with which top CEOs—many of them critics of Mr Trump during the campaign—have rushed to join his new advisory board. Helping the Trump Organisation or the Trump family might not go amiss either. The role of lobbyists will grow—an irony given that Mr Trump promised to drain the Washington swamp of special interests.

The costs from this shift may be imperceptible at first, exceeded by the boon from economic stimulus and regulatory reform. And as president of the world’s largest economy, Mr Trump will be able to ride roughshod over firms for longer with impunity than politicians in smaller places ever could. But over time the damage will accumulate: misallocated capital, lower competitiveness and reduced faith in America’s institutions. Those who will suffer most are the very workers Mr Trump is promising to help. That is why, if he really wants to make America great again, Mr Trump should lay off the protectionism and steer clear of the bullying right now.


  1. It's been this way for decades. Trump was on the other side before. This is his experience of how government works. Governments just didn't let his companies build things because they bought the land. He had to make it happen by courting favors. To him this is how government works.

  2. Exactly. Another benefit of Trump. Under Killary, the spirit-cooking pay-to-play would proceed as normal unremarked. Under Trump, every crony move that is standard in government is criticized under a surgeons scalpel. The Anti-freemarket Statists are backed into a corner forced to criticize Trump for not being Free-market enough! Brilliant! E.G. Look at Krugman now railing against fiscal stimulation. Another benefit of the Trump Presidency!

    FanBoys +1

    1. "But over time the damage will accumulate: misallocated capital, lower competitiveness and reduced faith in America’s institutions. "

      Is the Economist complaining about the Federal Reserve? Getting a little bit closer to getting enlightened ...