New York Times (Editorial)
By Adam Davidson
March 17, 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.
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