The Trouble with Trumponomics
Dear reader, as you have probably noticed over the past several months, there is an orange man named Donald Trump who was recently elected President of the United States of America. And while his campaign was marred by what might charitably be called “allegations of racism,” or, to put it in more direct language, “bits where he actively called on his supporters to hate and fear others,” one cannot and should not discount the other side of his story: the economic slump of the American countryside, the fact that many in the country are jobless, and the fact that Trump won on “bring back our jobs” as much as he did on “ban the Muslims” or “lock her up.”
While it must be said that the eastern rural sections of America are both lush and beautiful, it cannot be said that all these quiet parcels of the national landscape are experiencing an economic boom. It is no real surprise that most of these areas voted for Trump, neatly handing him several key states in the election. To take West Virginia as an example, as economic forces moved away from coal-based energy, many smaller communities were left without a staple job source — coal mines. Many residents of such areas have begged the President to get their jobs back. Sadly, in West Virginia in particular and many places more generally, this is simply not the economic reality. And since it is not the economic reality, efforts to fulfill this mandate are doomed to failure in ways even more damaging to the nation than the loss of the jobs in the first place.
Let us consider the economic forces that are moving the nation away from coal. They are of a dual nature (roughly speaking), and are as follows: on the one hand people started to notice that coal power plants were a tad too smoggy to really tolerate, resulting in regulations that made coal power more expensive; and on the other hand, the fracking industry discovered how to extract virtually endless amounts of natural gas from the Dakotas. Of the two, the former gets a lot of press, but the latter is more important: it is now simply more economically viable to run a natural-gas-based electricity supply chain.
If that were all there were to it, of course, a solution to the West Virginia issue would be easy and fairly straightforward: simply mandate a switch back to coal! Problem solved, miners back at work, West Virginia… well, “thriving” would be putting it too strongly (coal has never been half as friendly to the miners as it has to the shareholders), but at least not starving and dependent on Welfare. Unfortunately, there is another economic force at work that mitigates against this solution: path dependence. The major utilities have gone on a natural gas power plant building boom over the past few years, and thus many brand new power plants (with thirty to forty year lifespans) use natural gas fuel. It would be ruinously expensive to switch back to coal, on the order of hundreds of billions of dollars that would get passed on to you, dear reader — either through consumer fees or taxation, pick your poison.
And thus we are down the path of natural gas, and we cannot turn back. And why would we? Coal is smokey and major source of pollution, and not just air pollution — coal ash ponds are a staple of the entertainment industry, or at least that portion of it which gleefully covers the regular spills of black sludge that periodically drown bits of towns all over the Appalachian region. Natural gas burns more cleanly and comes with fewer nasty byproducts. And it’s cheap! No, friends, there is no future in coal, and as time goes on the incentives we had to use it will fade away, in the fashion of knapped flint or the Walkman music player.
What this means for West Virginia is that Mr. Trump cannot simply “bring the jobs back.” Those jobs are gone. For good. Attempting to bring them back would result in economic dislocation on a national scale. And thus, those people who relied on coal for their livelihoods are now living in the equivalent of an economic desert.
Similarly, many people in the rural areas of the nation have suffered due to factory losses. In western North Carolina, for example, many communities thrived on the wooden furniture industry and other examples of light manufacturing. It wasn’t NAFTA or the TPP that stole those jobs, not really; it was simply that anyone with a bit of training can work a lathe, and there are many places on Earth that have a lower standard of living than the US and weaker currency than the dollar. Those places naturally attract factory jobs, particularly when there is immense pressure from retailers to lower the cost of basic goods (like furniture). Kind reader, if you truly wish someone to blame for the flight of factory jobs in America, you need look no further than your local Walmart; those low prices have to start at the factory, you see.
It cannot be said that Democrats or Republicans exclusively allowed these jobs to slip away; nor yet that greedy or malicious foreigners stole our jobs with malicious aforethought. No, it’s simply the inevitable result of a modernizing world operating according to Capitalist principles. Those jobs are gone. For good. And the people who relied on them for their livelihoods are now living in the equivalent of an economic desert.
It is said that if all one has is a hammer, everything looks like a nail. Mr. Trump seems to be seeing the world through the lens of trade deals and national import/export policy, which is of course a fine way to view many economic issues, but it isn’t the core problem at play in this particular case. What can he do to bring the jobs back, from this frame of view? Well, he can negotiate directly with individual companies, threatening or bribing them to make it more attractive to stay in the US; and indeed we have seen him try to claim credit for doing so. But that, your humble author is sorry to say, is a waste of time. There are thousands of companies and millions of deals in play; devoting time to them on an individual basis is a major opportunity cost of resources that could be better spent doing things that don’t involve temporary measures (there’s nothing to stop the companies from trying to move again next year) or kowtowing with tax breaks.
Of course, Mr. Trump also has a big stick to wield in the form of tariffs. He could, for example, drop a 35% import tariff on Chinese manufacturing products in an effort to shift factories back to the US. But tariffs are a weapon, not a tool; they inspire trade wars and acrimonious fallout with neighboring states. They pass costs on to the consumer and create disruptions in supply chains (and, dear reader, if you don’t think that’s a big deal, you should seriously consider the just-in-time nature of the source of your next meal). Tariffs are, at best, a scalpel used to carve out a cancerous trade partner from the body of economic life. They should never be used as a hammer, which is Mr. Trump’s only real option if he wants to force factories back to America: inflict a tariff on almost every foreign-manufactured product, until it becomes too expensive to build things abroad.
Just imagine this for a moment: what happens to your monthly bottom line if the cost of almost everything you consume on a daily basis increases by, say, ten percent? Twenty percent? Thirty percent? At what point does it become economically non-viable to maintain your standard of living? What would you cut from your budget first? Whatever you chose, that industry will experience a recession under a Trump tariff plan. That means that retailers will stop stocking product, and thereby eat the cost of warehouses full of goods they can’t sell. Transit companies will stop carrying certain goods to market. Merchant shipping will go in search of new cargo. Many Americans will lose their jobs as a result of this sort of attempt to save American jobs. Along these lines, if you apply enough tariffs to enough products, and particularly if you do so too quickly, you shock the system such that it cannot recover, and then, dear reader, we’re back in the Great Recession.
Your author apologies for the various apocalyptic scenarios. Up until a few years ago, you see, it was considered a good thing that we live in a globalized world — you can buy more products for less money than at any other time in human history, after all. But the cost of such progress is that sectors of the US economy have left, will continue to stay away, and are not likely to heed the call of Mom and apple pie to return home. And there are, therefore, places in our great nation that will remain economically blighted until someone figures out something new for them to do; we cannot go back to the old ways.
There are many who would argue this is not a job for government at all; that any effort at intervention will lead to one inefficiency or another, and that the best possible thing the government could do would be to stay away and let the poor rural areas choke themselves to death on the dust of the past. Your author, bleeding-hearted soul that he is, does not hold with such statements. There is, indeed, a role for government to play in this drama: mostly, in funding the change process. It is likely true that any centralized effort to retool every single area of economic blight in the US countryside will fail — it’s far too complex a problem for a federal agency alone. However, it is far from too complex a problem for a federal agency providing retraining or resettlement grants to local state partners.
There are plenty of examples of funding programs that have followed this model; much of federal funding for the arts and humanities follows this pattern, as do many federal grants for land preservation and conservation. On a larger scale, this is how medical grants and transportation grants work as well. Instead of throwing American dollars down the drain via tariffs, would it not be better to provide the opportunity for Americans to move to places that have open jobs, to coordinate retraining for workers, or simply to educate people about the jobs that are available in their states?
Dear reader, is this not something that strikes you as more American than punishing businesses simply because they played the game by the rules of our own economic system? And doesn’t it seem more likely to work than trying to levy a tariff on every single poor country on Earth, one after the other, trying to stem the tide of cheap labor at the cost of American jobs and American access to goods? It’s not even a net loss for the country; yes, the money would have to come from the public coffers, but it would stay in the country, and it would pay dividends in the form of economic prosperity. And isn’t that what we’re talking about in the first place — keeping American money in America? $5,000 or so at a community college might be the difference between a taxpayer making $20,000 per year (to no net tax benefit) or making $50,000 per year (to great tax benefit). This is exactly the sort of program that actually ought to pay for itself.
This, sadly, does not seem to be the strategy of Mr. Trump, perhaps because it takes too long to explain (your humble author has, after all, expended several hundred words and several minutes of your life by this point). People are angry, you know; no coal mining family wants to hear that their jobs are gone forever, not when it’s so terribly convenient to blame the hippies at the Environmental Protection Agency! No factory worker wants to hear that their job is gone forever, not when it’s so terribly convenient to blame foreigners for stealing our jobs! And so Mr. Trump seems to have grasped the anger without thinking through its policy consequences, grasped the desire for change without appreciating the niceties of planning that happen first, and grasped the political advantage without appreciating its implications.
Dear reader, you humble author fears for our nation when such large decisions are made with so little rational thought. It is, indeed, this author’s considered opinion that, should Donald Trump get his way on economic policy, we will be in another Great Recession within a year. At which point we will still have the anger of the countryside, but with an added soupcon of despair on top.