The wrecking ball that President Trump used to take down the global trading system has two other targets: the democratic governing system devised by our Founding Fathers and the market capitalist economy that has produced the greatest material wellbeing the world has ever seen.
We were once a nation in which millions of consumers interacted with millions of producers to set prices for the nation’s and, far less perfectly, the world’s resources. Not every nation was so blessed. Some had rulers that wiped out tens of thousands to establish their control of their nations’ resources and employ them pursuant to a vision of the future that did not include “liberty and justice for all”. Think Robespierre, Lenin and Stalin, Mao and now Xi.
Trump does not rank with those monsters. But neither is he willing to allow markets — the interaction of buyers and sellers — to set prices and allocate resources. Never mind that consumers are sufficiently satisfied with the way that Walmart prices the 120,000 products on its shelves to make it America’s biggest retailer. Now Walmart has to take account of Trump’s warning to “eat the tariffs” rather than raise prices, and he knows where they vend.
• Trump threatens tariffs on big pharma ‘at the end of the month’
The president orders his health regulators to “communicate price targets to pharmaceutical manufacturers”. He warns Mattel that if it raises prices it will face 100 per cent tariffs and “won’t sell one toy in the United States”. Amazon is told that raising prices will be considered a “hostile and political act”. Take that Milton Friedman.
There’s more. In Trump’s America, regulatory policy is set by a man whose personal and family’s pecuniary interests are affected by those policies. Fiscal policy is determined by a man who seems to be tolerant of rising deficits in an already debt-laden economy. This at a time when a growing economy should be paying down debt or, at minimum, reducing deficits. So far, those deficits have resulted in a weaker dollar and a possible threat to its status as a reserve currency. Eventually, they will result in the higher interest rates Trump so abhors.
Combining limitless self-confidence with limited understanding of economics, the president is trying to wrest control of monetary policy from the independent Federal Reserve Board. At a time when the prices of tariffed items such as furniture, clothing, appliances, toys and imported fruits and vegetables are beginning to rise, he would lower interest rates by at least two full percentage points. The Fed chairman, Jerome Powell, is the unfortunate public servant who stands between Trump and his goal of the negative real interest rates that his proposal, combined with inflation, would produce.
• Trump has to deny he was about to fire ‘knucklehead’ Fed chief
The danger of the president’s economic management is matched by what might prove to be a more serious, because more durable, attack on the democratic governing system. Trump can sense ends that will justify his means. Interference with university selection of staff is seen as necessary to force elite institutions to crack down on antisemitism. The constitution reserves law enforcement to state and local government but when those agencies are unwilling, or unable, to contain violent protesters, Federal forces move in. Impinging on states’ rights is necessary to get genetic men out of women’s sports. Dangerous means are accepted in pursuit of desired ends.
And yet, and yet …
Despite the dangers of allowing Trump to replace markets, and to ignore constitutional constraints on his power, there is a discernible bubbling up of optimism. You know the outlook is brightening when Jamie Dimon, the chief executive, says JPMorgan Chase economists have dropped their recession prediction. You know it when chief executives’ confidence rises, and they commit billions to America’s future, to assure it is the leader in AI and other technologies. You know it when 70 countries troop to Washington to negotiate continued access to the world’s largest market.
You know it when share prices repeatedly make new records. You know it when critics who have been crying wolf for years have difficulty getting heard. You know it when bond vigilantes stable their mares. You know it, too, when more Americans are willing to consider the president’s thuggish disregard for constitutional norms and diplomatic niceties as part of an indivisible, acceptable package.
And you can feel it, yes “feel it”, talking to people about their jobs: 74 per cent of workers like or love their jobs. You feel it when airlines say they expect this year’s Labor Day weekend flights to exceed last year’s, and when New York’s theatres and museums attract record numbers of foreign and domestic tourists. You feel it when people say the president is on their side when it comes to important cultural issues.
All life is trade-offs. We are trading future pain for current pleasure by running deficits. We are trading an economic system that has produced enormous wealth for one managed from the White House. We are trading our dependence on adversaries for a more costly self-sufficiency.
Next year’s November midterms will tell us something about what Americans think of these trade-offs.
Irwin Stelzer is a business adviser