American executives are betting that the president is good for business. Not in the long run
MOST American elites believe that the Trump presidency is hurting their country. Foreign-policy mandarins are terrified that security alliances are being wrecked. Fiscal experts warn that borrowing is spiralling out of control. Scientists deplore the rejection of climate change. And some legal experts warn of a looming constitutional crisis.
.. Bosses reckon that the value of tax cuts, deregulation and potential trade concessions from China outweighs the hazy costs of weaker institutions and trade wars.
.. the investment surge is unlike any before—it is skewed towards tech giants, not firms with factories. When it comes to gauging the full costs of Mr Trump, America Inc is being short-sighted and sloppy.
.. The benefits for business of Mr Trump are clear, then: less tax and red tape, potential trade gains and a 6-8% uplift in earnings.
.. During the Obama years corporate America was convinced it was under siege when in fact, judged by the numbers, it was in a golden era, with average profits 31% above long-term levels.
Now bosses think they have entered a nirvana, when the reality is that the country’s system of commerce is lurching away from rules, openness and multilateral treaties towards arbitrariness, insularity and transient deals.
.. so far this month 200-odd listed American firms have discussed the financial impact of tariffs on their calls with investors. Over time, a mesh of distortions will build up.
.. American firms have $8trn of capital sunk abroad; foreign firms have $7trn in America; and there have been 15,000 inbound deals since 2008. The cost involved in monitoring all this activity could ultimately be vast. As America eschews global co-operation, its firms will also face more duplicative regulation abroad. Europe has already introduced new regimes this year for financial instruments and data.
.. The expense of re-regulating trade could even exceed the benefits of deregulation at home. That might be tolerable, were it not for the other big cost of the Trump era: unpredictability. At home the corporate-tax cuts will partly expire after 2022.
.. Bosses hope that the belligerence on trade is a ploy borrowed from “The Apprentice”, and that stable agreements will emerge. But imagine that America stitches up a deal with China and the bilateral trade deficit then fails to shrink, or Chinese firms cease buying American high-tech components as they become self-sufficient
.. Another reason for the growing unpredictability is Mr Trump’s urge to show off his power with acts of pure political discretion.
- He has just asked the postal service to raise delivery prices for Amazon, his bête noire and the world’s second-most valuable listed firm.
- He could easily strike out in anger at other Silicon Valley firms—after all, they increasingly control the flow of political information.
- He wants the fate of ZTE, a Chinese telecoms firm banned in America for sanctions violations, to turn on his personal whim.
.. When policy becomes a rolling negotiation, lobbying explodes. The less predictable business environment that results will raise the cost of capital.
.. Mr Trump expects wages to rise, but 85% of firms in the S&P 500 are forecast to expand margins by 2019
.. Either shareholders, or workers and Mr Trump, are going to be disappointed.
.. In a downturn, American business may find that its fabled flexibility has been compromised because the politics of firing workers and slashing costs has become toxic.
.. American business may one day conclude that this was the moment when it booked all the benefits of the Trump era, while failing to account properly for the costs.
The continued electoral success of populists in Europe, Africa, Asia, Latin America, and in the United States shows that while their policy proposals may be fanciful, their mode of conducting politics is effective. To win at the ballot box, mainstream politicians should apply three lessons that populists have mastered.
.. Rather than complaining about populist successes, established political parties should take a page from the populist playbook. Three lessons, in particular, cry out for attention.
The first lesson is to connect to the people you wish to represent by learning about them and winning their trust.
.. The complacent assumption that people will always vote along party or class lines is obsolete.
.. After a decade of economic malaise, voters are skeptical of mainstream politicians who offer rote promises of growth and improved standards of living. In the eyes of disenchanted workers, those in power have simply been feathering their own nests. Even in many of the world’s strongest economies, workers are earning less in real terms than they did ten years ago.
.. the twin threats of automation and outsourcing have made employment more precarious, and sapped workers’ bargaining power.
.. Who is to blame for this state of affairs? Those who vote for populists clearly hold establishment politicians responsible
.. Contrary to popular belief, recent research finds that technology is not the primary driver of labor’s declining share of income. Rather, the worsening plight of workers is due to
- lost bargaining power and union density,
- welfare-state retrenchment,
- offshoring, and the
- growth of the financial sector as a share of the economy.
the effective tax rates “paid by the world’s 10 biggest public companies by market capitalization in each of nine sectors” have fallen by nearly one-third since 2000, from 34% to 24%.
since 2008, personal income-tax rates across all countries have increased by 6%, on average.
Against this backdrop, the emergence of populist parties and politicians should come as no surprise. When a majority of people becomes poorer, there will be stark consequences at the ballot box. And yet, in one country after another, the political establishment has been remarkably slow to recognize this.
.. Meanwhile, the populist presidential candidate, Jair Bolsonaro, proposes giving every Brazilian a gun so they can defend themselves. To the elites, this sounds (and is) preposterous. But for Brazilians who worry about their own safety, he is at least showing that he understands their top concern.
.. Before winning the French presidency and a parliamentary majority last year, Emmanuel Macron .. sent volunteers across the country to listen to voters’ concerns.
.. populists is to use simple, intuitive messaging to signal your goals. Yes, slogans like “I’ll protect your jobs” and “Make America great again” sound simplistic. But where are the sophisticated alternatives?
.. In the United Kingdom’s Brexit referendum, the Remain campaign, phlegmatically led by then-Prime Minister David Cameron’s government, argued that leaving the European Union would result in lower GDP, lost trade, and disruption to the financial sector.
.. Such arguments completely missed what concerned most voters. By contrast, the Brexiteers promised to “take back control” of the UK’s borders and claimed – falsely – that the National Health Service would enjoy a windfall of £350 million ($490 million) per week.
.. Academics, pundits, and political, business, and civil-society leaders have been far too slow to articulate new economic and social policies that have broad-based appeal.
.. it takes a commitment of time and energy to understand the plight of the electorate and to frame solutions in a clear, simple way.
.. The third lesson from the populist playbook is to be bold.
.. people are seeking a transformational vision of the future, not slight improvements. After 30 years of pragmatism and incremental change, it is time for a new tone.
.. Recall that in 1945, Winston Churchill, having delivered victory for Britain in World War II, lost the general election.
The winner, Clement Attlee, promised what was effectively a new social contract for war-weary Britons still living under rations. His government went on to provide free universal health care, unemployment insurance, pensions, decent housing, and secure jobs in nationalized industries. And all this was done with the national debt still at 250% of GDP.
Economists generally think of fundamental tax reform as a set of tax changes that reduces tax distortions on productive activities (for example, business investment and work) and broadens the tax base to reduce tax differences among similarly situated businesses and individuals. Fundamental tax reform should also advance the objectives of fairness and simplification.
.. According to one leading model using an alternative framework, the proposal would increase the U.S. capital stock by between 12% and 19%, which would raise the level of GDP in the long run by between 3% and 5%.
.. Robert J. Barro, Paul M. Warburg Professor of Economics, Harvard University
Michael J. Boskin, Tully M. Friedman Professor of Economics, Stanford University; Chairman of the Council of Economic Advisers under President George H.W. Bush
John Cogan, Leonard and Shirley Ely Senior Fellow, Hoover Institution, Stanford University; Deputy Director of the Office of Management and Budget under President Ronald Reagan
Douglas Holtz-Eakin, President, American Action Forum, former director of the Congressional Budget Office
Glenn Hubbard, Dean and Russell L. Carson Professor of Finance and Economics (Graduate School of Business) and Professor of Economics (Arts and Sciences), Columbia University; Chairman of the Council of Economic Advisers under President George W. Bush
Lawrence B. Lindsey, President and Chief Executive Officer, The Lindsey Group; Director of the National Economic Council under President George W. Bush
Harvey S. Rosen, John L. Weinberg Professor of Economics and Business Policy, Princeton University; Chairman of the Council of Economic Advisers under President George W. Bush
George P. Shultz, Thomas W. and Susan B. Ford Distinguished Fellow, Hoover Institution, Stanford University; Secretary of State under President Ronald Reagan; Secretary of the Treasury under President Richard Nixon
John. B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University; Undersecretary of the Treasury for International Affairs under President George W. Bush
If Trump’s attempt to disassociate himself from lawyer Michael Cohen’s hush-money payment proves untenable — and who believes Cohen paid for this out of the goodness of his heart? — will the religious mop-up squad give him a second mulligan for lying? Maybe they should find out how many paid-off women are out there before offering more absolution.
.. The price one pays for defending Trump is self-humiliation, as one aide and ex-aide after another have learned.
.. After Mnuchin whined that Todd was focusing on the “wrong things” instead of the economy, Todd bore down:
TODD: You keep saying that’s what we should be focused on, then why can’t the president be focused on that, sir?
MNUCHIN: I think the president has been very focused on that.
TODD: Would you call last night’s speech a focused speech on that?
MNUCHIN: I wasn’t at the campaign rally, as you know. But again don’t take these campaign rallies and focus them on that’s what it is, okay.
TODD: So should we stop covering the campaign rallies? Do you think it’s a mistake then for us to cover them at all? That it doesn’t matter what he says? If it doesn’t matter what he says there. If we are to dismiss everything he says at a campaign rally as I think you’re trying to imply, then are you saying we should cover these things?
MNUCHIN: No, you’re putting words in my mouth. I wasn’t in any way saying you should dismiss that whatsoever. . . .
TODD: When he uses vulgarity to talk about individuals, what are they supposed to tell their kids?
MNUCHIN: Well again, I’ll be with my kids this morning, and I’ll be focused on them on what the president is doing to protect the United States, it’s citizens, and more importantly it’s economy.
TODD: So he’s not a moral– don’t worry about his values, don’t worry about him as a role model.
MNUCHIN: I never said that whatsoever. So I don’t know why you’re putting these words in what I’m trying to say. Okay. So again, I am very comfortable with what we’re doing, okay? And again I think you’re trying to take this out of perspective, and implying something I’m not saying.
TODD: Fair enough, what do you…what are you supposed to say when he’s using these vulgarities, to kids?
MNUCHIN: Again, I think you should be focused on what the policies are. He’s using these vulgarities in the context of a campaign rally and obviously there were a lot of funny moments on, on, on that rally.
TODD: Yeah, they were hilarious. Anyway, Secretary Mnuchin. I appreciate you coming on, again.
.. His record of normalizing Trump will define his tenure as secretary just as much as his role in passing a tax bill.
.. Evangelical leaders, Mnuchin, the hordes of GOP apologists, Trump’s current and former White House staff — all of them — have chosen to ignore, minimize or even defend Trump’s vulgarities, lies, racism, misogyny and anti-democratic antics. If they think they can escape accountability by peers and by history — not to mention by future employers — because, well, “because Gorsuch” or “because corporate tax cuts,” they may be surprised. Their ongoing buffoonish defense of Trump may turn out to be the most memorable thing they have done in public life.