A Psychological Explanation For Trump's Appeal To Many Voters

Trump won the GOP primary by mounting a war against political correctness.  In many ways he ignited the resentment than many feel against cultural and social liberalism.  Much of the anti-government sentiment in the US is related to the civil rights movement which has been supported by the federal government.  Trump did not conduct a policy debate during the GOP primary campaign.  Those who focused on policy issues dropped out of the race quickly.  For example, Trump dismissed Jeb Bush as weak and boring. He certainly was in comparison to Trump.  Eventually only "lying" Ted Cruz, who appealed primarily to a narrow segment of the anti-liberal GOP base, and a conventional Republican governor from Ohio remained in the race.  They were unable to stop the Trump steamroller.  Attention is now turning to the November presidential election.  This article attempts to explain why Trump has been immune to rational criticism of his scattered policy proposals.  His supporters don't care whether his policy proposals will do what he claims.  They respond to him because he appears to share their resentments and he is willing to say things that other politicians disguised with code words.  It will be interesting to see whether disclosures about Trump's business practices have any impact on his popularity.

Karl Polanyi For President

Karl Polanyi was a critic of the so called free market society.  He believed that markets were useful in society but that they should not be the primary means for organizing society.  In fact, he argued that markets are determined by the direct intervention of the state.  For example, the state deregulated financial markets and that led to the financial crisis.  The state also saved the financial system by taking dramatic steps to rescue it from the crisis that it created.  The industrial revolution in England could not have taken place without an active state which provided a path from feudalism and the means to source raw materials and sell its products in a global market.  Polanyi regarded the idea of a free market as utopian idea that has never existed and cannot exist in the real world.  Central banks are also a necessary condition for a market economy.  We would have market chaos without the means to provide price stability and to moderate swings in the business cycle.  This article provides a good introduction to the ideas of Karl Polanyi.  It also argues that Bernie Sanders makes an argument that is very close to the social democratic ideas of Polanyi.  Sanders holds that healthcare and education are rights that should be guaranteed by the state.  They should not be subject to the dictates of market forces.  Sanders also takes a position similar to that of Polanyi.  He holds that political decisions were taken that have fostered the rise in inequality in the US.  Those policies can be reversed as easily as they were created in a democratic society.  It is the job of a democratic government to determine the operation of the market system.  The market system is subordinate to the democratic state.

The Politics Of Anger

We have seen a rise in various forms of populism in the US and Europe.  Donald Trump has fueled his rise by appealing to identity politics.  He appeals to nationalism and  ethnic identity against establishment politicians who have failed to deal with immigration and the loss of national identity. They are similar to what see in Europe.  Bernie Sanders has focused on rising income inequality which is universally acknowledged but ignored by mainstream politicians.  Their inertia is based upon the idea that globalization and technological changes are inexorable forces that cannot by affected by government policies. Some even tell us that government is the problem. They fail to realize that policies were developed by governments to accelerate these forces, and that governments are not without the power to manage them better.  The inability of governments to manage the forces that they have enabled have led to a rise in the politics of anger and a distrust of government.  Its easy for politicians to build campaigns based upon anger without offering practical solutions to the problems that they have identified.  Its up to mainstream politicians to offer real solutions to a variety of problems that can no longer be ignored. Otherwise the politics of anger will lead us to new problems that undermine our system of governance.  Hopefully, we will have learned something from such failures in the past but the politics of anger cannot be ignored.

Economists Are Rethinking Their Assumptions About Free Trade

The prevailing wisdom among economists has typically been biased towards the benefits from free trade.  They acknowledged that their were winners and losers from free trade but that the losers would somehow benefit in the long run.  Some would find other employment and governments might redistribute income from the winners to the losers.  The political consequences of free trade are visible in rich countries around the globe.  The losers from free trade are still waiting for the benefits to be shared with them.  Somewhat belatedly,  economists are questioning their assumptions about free trade.  This article describes the shifting sentiment about free trade within economics.  In particular, the loss of manufacturing jobs to China has affected labor outcomes in service sectors which had been dependent upon spending by manufacturing workers.  Other effects were not mentioned in this article but governments have not made much of an effort to redistribute the benefits from free trade.  In fact, there has been an effort to reduce government redistribution programs.  This is often justified by an appeal to fiscal responsibility.  Moreover, one doesn't have to go far to observe the destruction of wealth in cities that were dependent upon manufacturing employment.  Real estate prices have collapsed along with the tax dollars that had supported education and other important public services.  Small businesses which had served these communities have also suffered.  Their customers have disappeared along with the value of their assets.  Globalization has moved much faster than the ability of many states to manage the process. 

The Changing Economics Of Corporate Tax Cuts

Corporate stock ownership has shifted dramatically over the last few decades.  Most of the shares were held US taxpayers in taxable accounts.  Consequently, corporate tax cuts increased the value of stocks in taxable accounts which helped to pay for the corporate tax cuts.  That is no longer true.  A large majority of stock ownership is now held in tax deferred accounts and by foreign investors.  Corporate tax cuts still increase the value of stocks but foreign investors pay taxes on the capital gains in their home countries and taxes are deferred in a variety of US retirement accounts.  Increasing shareholder value by cutting corporate taxes has become more costly in the US.

How Fascism Comes To America

This article describes the Trump phenomenon, and the threat to democracy, very well.  Trump will be nominated to represent the Republican Party in the November presidential election.  Since he will be wearing the banner of the Republican Party in the national election many Republican leaders will support him in the election.  They do so at their own peril.  Trump is not a Republican, in the sense that he shares a common ideology with the Republican Party, he has no ideology.  Trump is a personality who offers an aura of power to those who feel powerless.  He contradicts himself constantly in his speeches.  His followers are not bothered by his contradictions, and neither is Trump.  They are angry at the society which they hardly understand.  Trump fuels their anger, and their hatred, in his attacks on the numerous villains who are responsible for their fears and concerns.  He is a source of power to them and not a source of ideas.  In this sense, he is more like fascist leaders that we have seen in the past.  Fascism is not a set of ideas; it depends upon the projection of power and authority in the leader who offers power to those without power.

The leaders of the Republican Party are primarily concerned about winning elections.  They are preparing to assist Trump in his effort to win the election in November.  If they are successful they will place the formidable powers of the presidency in the hands of an egomaniac who will turn his back on the Republican Party whenever it suits his purposes.  His motivations have little to do with political party that he is in the process of coopting. 

Ease Of Doing Business Index And Conservative Stupidity

John Cochrane is a conservative economist from the University of Chicago.  His name often appears in a list of potential Nobel Prize winners.  One of the features of conservative ideology is that the closer a nation gets to a market free from government regulation the closer it will be be to economic utopia.  Cochrane used an index that measures the ease of doing business to argue that improving the US performance on the DB index would make a substantial contribution to economic growth in the US.  Cochrane's article has been criticized by a number of economists.  I selected this article by an economist who really understands the DB index to show how ideology blinds otherwise smart economists like John Cochrane.  The article goes into a lot of detail about the DB index and its misuses.  Since there is more detail in the article than necessary to illustrate Cochrane's stupidity, I have listed the most salient points below:

The first point is that the DB index measures a nation's closeness to the DB frontier.  I perfect score on the index of 100 would place a nation at the DB frontier.  In other words, it is impossible to go beyond a score of 100.  Cochrane made the mistake of calculating the growth in the US economy if it raised its score on the DB index to 110.  He obviously does not understand the DB index.  It is not possible to go beyond the ease of doing business frontier.

Singapore has the highest score on the DB index.  Consequently, conservative economists who promote deregulation as a panacea for economic growth, frequently cite Singapore as a best in class nation that we should emulate.  One of the problems with this comparison is that Singapore is a city; it is not really a nation.  There are many cities in the US that have a higher DB score than Singapore.  It would make more sense to compare Singapore with US cities than it is to compare it with the US.

We should not conclude that making it easier to do business would not be good for economic growth. The reasonable conclusion is that moving every nation closer the DB frontier will not produce a measurable increase in economic growth.  More importantly,  raising the DB score of a nation like the US on the DB index would not have much of an impact on economic growth.  Conservative politicians, who preach the gospel of deregulation as the road the economic growth, can not take us to an economic utopia.