We can say one thing about Donald Trump and his economic policy--he gets things done. He's still only President-elect and yet he has managed to get Carrier, the air-conditioning people, to keep some half of that plant in Indianapolis rather than production being shifted off to Mexico. And while we can indeed say that he's already got something done we should also note that this is exactly the problem. For this sort of political interference in the economy are the baby steps to the killing of a free market economy in its entirety. As Tyler Cowen points out it still is only baby steps but this is those first few steps on the path to a slightly malfunctioning economy like France or an entirely disastrous one like Venezuela.
Note that it's not that jobs stay in Indiana which is the problem. It's the method by which the company has been browbeaten into doing so which is. This is the start of crony capitalism, an horrendous and pernicious mutation of the capitalist/free market ideal, one that ends up rotting an economy from the inside out. And it's not just me saying this either, this is a much more generalised view than that.
Obviously, we were never going to find Paul Krugman liking anything that Trump did or does:
Meanwhile, as Larry Summers says, the precedent — although tiny — is not good: it’s not just crony capitalism, it’s government as protection racket, where companies shape their strategies to appease politicians who will reward or punish based on how it affects their PR efforts and/or personal fortunes. That is, we’re looking at what may well be the beginning of a descent into banana republic governance.
This is, as Larry says, bad both for the economic and for freedom. And there’s every reason to expect many stories like this in the days ahead.
Larry Summers is deeply unlikely to praise President Trump of course as well. And it's also entirely true that both, both Krugman and Summers, seemed just fine with similar bending of the system when President Obama wanted to cram bond holders down in the GM bankruptcy and privilege the unions. And of course this is one of the reasons why this sort of action is so pernicious. It starts out that we bend the rules in order to safeguard some hundreds of thousands of jobs in the auto industry--and then the same tactics get used to "save" 1,000 in air-conditioning to the detriment of the wider economy:
Yes, presidential politics is not ivory tower economics, and occasionally Presidents have to do something abjectly wrong to garner support for a greater purpose. It's a delicate and dangerous act though -- if this is where we're going, early in an administration is the best time to do some hard things, set in motion policies that actually work, set a high bar against demands for cronyist payouts, and trust that four years of good policy will pay off.
The best hope in this direction is for the President to score some points, and for a loud chorus of serious policy people, from left and right, to denounce any more moves in this direction. This is exactly what has happened. Really, it gives one great hope that just about every commentator left and right says this is not the way to go.
Perhaps we can put up with a bit of Realpolitik but as a general principle this sort of action is just a bad, bad, idea:
But Tyler Cowen, professor of economics at George Mason University who identifies as a libertarian, worries that under a Trump administration, a kind of "crony capitalism" — where companies that are good to a presidency are rewarded — will prevail.
"This to me is scary," Cowen tells Inskeep. "It indicates an environment where business decisions are now about how much you please the president."
When you've got John Cochrane and Tyler Cowen agreeing with Krugman and Summers that this is a bad economic idea then really, there's at least a very serious possibility that it is a bad economic idea:
INSKEEP: David Wessel of the Brookings Institution said on our air the other day that this act reminded him of something that is done from time to time in France - under the socialist government in France. And I'm also thinking of Venezuela, where the late President Hugo Chavez would go on TV and denounce companies and demand that companies do specific things. And of course, the economy there has ended up being a complete mess. Is that - is that a fair comparison at all?
COWEN: Well, we're not close to that point yet, but we're taking baby steps in that direction. And the way you avoid getting to that point is by having people speak out when they see the baby steps.
The real underlying point here is that we don't in fact want an economic manager. Not in the bureaucracy, not as a politician and most certainly not as the President. We do want, and need, an economic rule setter, some system at least which outlines the general rules for the economy. We can also go on and have the most lovely fights about what exactly those rules should be. But they must be general rules, not ones subject to revision because the President says so, or because one specific issue grabs the public limelight.
I may or may not agree with the rules that you decide upon but it's just fine to argue that we must change the rules because manufacturing jobs are leaving America. But as Cowen says the US is a Republic, existing under the rule of law. And that's how it has to remain if it's going to remain a rich nation. Deals cut here and there under political pressure are not that and as such they rot an economy from the inside out. We end up, if we continue with these baby steps, with an economy ruled by what a politician thinks is a good idea at the moment. That is not a free and liberal society and if it goes on too long it will also stop being a rich one too.
Just say no to ad hoc deals--if you want to change the system then fine, let's talk about the new rules. But they have to be universal rules, not deals done under political pressure.
