By Adam Davidson (March 19 2016)
Donald
Trump loves the word ‘‘deal.’’ The book he released with a
co-writer in 1987 to summarize his views of the world was called, of course,
‘‘The Art of the Deal.’’ His view of trade with China is summarized in this
quotation from his speech announcing his candidacy for president: ‘‘When was
the last time anybody saw us beating, let’s say, China, in a trade deal? They
kill us. I beat China all the time. All the time.’’ When asked last fall how
he, as president, would guarantee health care for the uninsured, he answered,
‘‘I would make a deal.’’ He plans to make a deal with pharmaceutical companies
to lower prices, make a deal with hospitals to treat the uninsured. On
immigration, of course, he promises the greatest deal of all time, one that
would compel Mexico to pay for a wall along its border with the United States.
I have
spent much of the past few months trying to make sense of Trump’s policy
proposals. His website lists his major priorities as, in order: health care reform, China-United States trade
agreements, Veterans Affairs reform, tax reform, gun rights and immigration
reform. There are no other issues addressed at length. It’s a puzzling mix. Any
serious economic proposal to ‘‘make America great again’’ would surely mention
education, fiscal policy, entrepreneurship and trade with the entire world, not
just China — issues he makes little or no reference to. No doubt Trump’s list
of priorities reflects the issues that he and his advisers perceive, probably
correctly, to be red meat for Republican primary voters. But tellingly, it’s
also a set of issues for which the ‘‘deal’’ — that is, Trump’s unique ability
to make deals — can be presented as his crucial promise.
The
centrality of the ‘‘deal’’ to Trumponomics is especially strange when you
consider how tangential that concept is, or at least should be, to a modern
economy. In Microeconomics 101, deals are an afterthought: Transactions have
the most socially optimal outcome when buyer and seller reach a mutually
beneficial agreement. The very idea of a ‘‘good’’ deal for one party and a
‘‘bad’’ deal for another suggests a suboptimal outcome; an economy built on
tough deal-making, with clear winners and losers, will always be a poorer one.
Meanwhile, in macroeconomics — which covers the big, broad issues that a
president typically worries about — the concept of the ‘‘deal’’ hardly exists
at all. The key issues at play in a national or global economy (inflation,
currency-exchange rates, unemployment, overall growth) are impossible to
control through any sort of deal. They reflect underlying structural forces in
an economy, like the level of education and skill of the population, the
productivity of companies, the amount of government spending and the actions of
the central bank.
It’s
easy to dismiss Trump as a loutish ignoramus who simply doesn’t understand how
modern economies function. But I’ve come to see him as a canny spokesman for a
different sort of economy, one that often goes by the technical name ‘‘rent
seeking.’’ In economics, a ‘‘rent’’ is money you make because you control
something scarce and desirable, whether it’s an oil field or a monopolistic
position in a market. There is a bit of ‘‘rent’’ in nearly every transaction.
When you pay rent on an apartment, some of the money is for the value the
landlord has added to the property, by upgrading the kitchen, say. But much of
the money your landlord makes comes from the fact that he or she controls
property in a desirable location. If you think of the transactions that make
people the most frustrated, they are, most likely, rent-seeking transactions in
which some force is imposing a better ‘‘deal’’ for one party. Your cable
service costs more and is less responsive because local monopoly allows the
company to make a better ‘‘deal’’ for itself. The owner of the local pro-sports
team can make a ‘‘deal’’ with the city for a new stadium, or else the team
packs up and leaves town. Without real competition, one or both sides of a
rent-seeking transaction lack leverage, and so decisions can be hashed out only
by powerful people making deals in back rooms.
I
learned a great deal about rentier economies, as they’re sometimes known, when
I spent a year in Baghdad, covering the American occupation of Iraq between
2003 and 2004. I met many of Iraq’s leading businesspeople, and they always
talked about ‘‘deals.’’ As one explained to me, there would be some business
opportunity — building a hospital, say, or getting a license to import a new
line of cars — and Saddam Hussein’s family would essentially auction off the
opportunity to the handful of wealthy businesspeople whom they deemed
trustworthy. Success came not from being better at building hospitals or more
efficient at importing cars. It came from understanding the internal family
politics of the Husseins and the power of the state bureaucracy.
As an
economic journalist, when trying to explain the idea of rent-seeking, I have
always used one quintessential example from the United States — a sector in
which markets don’t function, in which excess profits are held by a few. That world
is Manhattan real estate development. Twenty-three square miles in area,
Manhattan contains roughly 854,000 housing units. But there are many more
people than that who want to own property there. A Manhattan pied-à-terre has
long been a globally recognized sign of wealth and status — especially in
recent years, as billionaires the world over have come to see a Manhattan
condo, even one rarely visited, as a vessel for laundered wealth or a hedge
against political upheaval at home.
Manhattan
real estate development is about as far as it is possible to get, within the
United States, from that Econ 101 notion of mutually beneficial transactions.
This is not a marketplace characterized by competition and dynamism; instead,
Manhattan real estate looks an awful lot more like a Middle Eastern rentier
economy. It is a hereditary system. We talk about families, not entrepreneurs.
A handful of families have dominated the city’s real estate development for
decades: Speyer, Tishman, Durst, Fisher, Malkin, Milstein, Resnick, LeFrak,
Rose, Zeckendorf. Having grown up in Manhattan myself, I think of these names
the way I heard Middle Easterners speak of the great sheikhs who ran big
families in Jordan, Iraq and Syria. These are people of immense power and
influence, but their actual skills and abilities are opaque. They do, however,
make ‘‘deals.’’
In
recent weeks, hearing Trump talk, I’ve realized that his economic worldview is
entirely coherent. It makes sense. He is not just a rent-seeker himself; his
whole worldview is based on a rent-seeking vision of the economy, in which
there’s a fixed amount of wealth that can only be redistributed, never grow. It
is a worldview that makes perfect sense for the son of a New York real estate
tycoon who grew up to be one, too. Everything he has gotten — as he proudly
brags — came from cutting deals. Accepting the notion of a zero-sum world, he
set out to grab more than his share. And his policies would push the American
economy to conform with that worldview.
Many
economists and political scientists now think that the United States economy
has shifted, over the past few decades, toward one in which a higher proportion
of the economy comes from so-called rents: Wall Street’s maneuvering through
the regulatory process, ‘‘free-trade’’ deals whose thousands of pages of rules
wind up proscribing winners and losers. The left, right and center of the
economics profession all agree that reducing rent-seeking behavior, and
improving overall growth, is essential if we want to ‘‘make America great
again.’’
But
this descent into a rentier economy would only accelerate with a mentality like
Trump’s in the White House. The native-born population of the United States is
aging rapidly; without immigrants the nation would quickly face a disastrous
level of debt. Middle-class workers may be struggling now in a changing
economy, but a clampdown on global trade would only make that worse. Any health
care reform that revolved around the president’s ability to ‘‘deal’’ would
inherently be one more prone to corruption. In a rentier state, every ambitious
person knows that the way to become rich and powerful is to grab the sources of
wealth and hold onto them, by force if necessary. It’s no accident that, around
the world, rentier states tend to be run by unelected dictators — the ultimate
dealmakers in chief.
