The Trump Presidency: An Embarrassment for Those Who Believe in the Market

Lambert here: Zingales’s credulous simplicity is charming — the idea that the oligarchs who rule us believe in “markets” as opposed to (their own) “business” — but the article does give “free market conservatives” license to break with Trump on ideological grounds.

By Luigi Zingales is the Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago – Booth School of Business. He is a Research Associate of the National Bureau of Economic Research, a Research Fellow of the Center for Economic Policy Research, and a Fellow of the European Corporate Governance Institute. Cross-posted from Evonomics.

After his election, it was difficult to predict what President Trump would do. In the election campaign he said everything and the opposite of everything: from a 45 percent tariff on Chinese imports to the reintroduction of the separation of commercial and investment banks, from an aggressive use of antitrust authority to the total abolishment of Dodd-Frank, the financial regulation that was enacted after the crisis. After two months, it is clear that the Trump industrial policy will be pro-business, not pro-market.

It may seem to be a nuance, but there is a fundamental difference. A pro-business policy favors existing companies at the expense of future generations. A pro-market policy favors conditions that allow all businesses to thrive without any favoritism. A pro-business policy defends domestic enterprises with favorable rates and treatment. A pro-market policy opens the domestic market to international competition because doing so would not only benefit consumers, but would also benefit the companies themselves in the long term, which will have to learn to be competitive on the market, rather than prosper thanks to protection and state aid. A pro-business policy turns a blind eye (often two) when companies pollute, evade, and defraud consumers. A pro-market policy seeks to reduce the tax and regulatory burden, but ensures that laws are applied equally to all.

Paradoxically, a pro-business policy ends up damaging not only the economy, but also, in the long-run, those companies that it had originally benefited. This matters little to its supporters, because when the chickens come home to roost they will have already grossed billions. Angelo Mozilo, founder of Countrywide, the bank responsible for a large chunk of the toxic mortgages that led to the 2008 crisis, lives happily on the $600 million he accumulated, despite the enormous damage of the financial crisis that he helped to create.

During the presidential campaign Trump used many populist themes. The first signal that his policies will be neither populist nor popular, but strictly pro-business, is his choice of Cabinet members. Trump had promised to “drain the swamp” in Washington of lobbyists. Few realized that he would do that by making intermediaries pointless, as the lobbyists themselves would be in charge of the departments: the CEO of Exxon as head of foreign policy, a former Goldman Sachs partner at the Treasury, the daughter of a ship owner for Transportation, a raider at Commerce, etc.

The second signal was the president-elect’s picks to head the most important government agencies. As the head of the EPA, Trump placed a lawyer who sued the EPA in Oklahoma for the oil industry. As the head of the Securities and Exchange Commission (SEC), Trump has chosen a lawyer experienced in defending companies accused of fraud and international corruption. What’s more, the new chairman of the SEC is married to a partner at Goldman Sachs, a company regulated by the SEC.

The third signal was Trump’s threat to introduce a “border tax,” another name for a tariff on imports. This tax will not only serve the protectionist desires of some parts of U.S. industries, but also provide financial resources to cover the promised reduction in direct taxation. The tax would be contrary to the World Trade Organization’s rules. However, Trump has threatened that the U.S. will leave the WTO.

The worst signal, however, comes from the way Trump has used his tweets to attack and coax American businesses. United Technologies (UT) has been praised for its decision to cancel plans to close its plant in Indianapolis and relocate it to Mexico. Apparently this decision was the result of tax benefits offered by Vice President-elect Pence, who is the governor of Indiana. In truth, the decision seems motivated by fear of reprisals on government contracts, which represent a large sum of UT’s revenues. A fear that appears justified, as Trump attacked Boeing over the cost (which he considered excessive) of the new presidential aircraft and attacked Lockheed Martin over the F-35 aircraft. Trump is probably right on both counts, and this only adds to his popularity, but a president should address these issues by following the rules and not with an execution on the public square of social media.

With this strategy, Trump cleverly uses the carrot and stick approach. When Ford was publicly commended for deciding not to build a new plant in Mexico, the price of its shares rose 4.5 percent. Softbank did even better (+ 6.2 percent) after being praised by Trump for investing $50 billion in the United States. Softbank’s motive was simple: Softbank owns Sprint, a mobile operator that would like to merge with T-Mobile in order to increase market power. The authority to permit this merger lies with the new head of the Federal Trade Commission, yet to be named by Trump. Trump’s positive tweet feeds Softbank’s hopes that the merger will be approved.

We would expect such behavior from a dictator of a banana republic, not from the President-elect of the oldest democracy in the world. The Trump presidency has begun in the worst possible way for all those who, like me, still believe in the market.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. St Jacques

    I agree with the good professor. It was so different under Obama and the Dems, where c-suites cowered in fear of a relentless president determined to break monopoly and oligopoly power ….oh wait…

    1. MyLessThanPrimeBeef

      His tenure protects existing thoughts.

      Let it be like the market, and if his ideas fail to stay competitive, he should lose that tenure.

      1. Gman

        Great clip.

        ‘Funnily enough’ of the four US Presidents assassinated in office, three, Kennedy, Garfield and Lincoln all attempted to challenge or oppose the Central Banking System, and the fourth, McKinley, raised protective tariffs to promote American industry, and maintained the nation on the gold standard in a rejection of inflationary proposals only to be capped for his trouble in his second term.

        On the campaign trail a fired up, brave or stupid (or both) Trump was fiercely critical of the Fed’s clearly politicised rôle in the US economy, but to be fair it was sh*t or bust time for him, and few expected it was him, instead of the on message Hillary, they’d be giving the ‘little talk’ to anyway.

  2. a different chris

    >Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago

    Ok, so the guy who “believes in the market” has never been part of it in his life – you get to be an academic by making only a handful of “sales”, to a very small group of people at a time, in your whole life. Not really the same as running a bodega.

    >which will have to learn to be competitive on the market

    We know what it takes to be competitive with China – pay employees $3/day and yet still have the government subsidize you and protect you on your home turf. Oh, that’s not real appealing? Well then go back into your ivory tower.

    >a president should address these issues by following the rules

    What rules? Whose rules? I don’t see anything in the Constitution about this… He says what Trump has done has accomplished what Trump wanted to accomplish. I don’t like hardly anything Trump has done, but I’m not sure what our Distinguished Professor is protesting about? He/she likes “markets” because he/she (tenure, 6 fig salary) is a “consumer” and sees things only that way.

  3. RenoDino

    What I love about the new regime is look on the faces of the captains of industry who meet in Trump’s boardroom who can’t believe their good fortune after having opposed him every step of the way.

    He is now giving them everything they want, and they don’t want the dream to stop. They know what he is doing is complete and utter madness based upon everything they’ve had to deal with up until now. He is literally giving them the keys to the Capitol and only asking for some vague promises of American jobs in return. These titans of industry didn’t even mastermind this takeover. It was handed to them after they fought against it by supporting the establishment candidate.

    They are captives of a giant Cheeto from Hell who, like Pedro, will make all of their wildest dreams come true. Acting like everything is normal is the hard part.

  4. oh

    We would expect such behavior from a dictator of a banana republic, not from the President-elect of the oldest democracy in the world.

    We’ve been acting more like a banana republic since 9/11 and yes, we have no more bananas.

  5. JEHR

    “not from the President-elect of the oldest democracy in the world.”

    Well, I see this said so often (by Americans) that I wondered whether or not it is true:

    Which country can claim to be the World’s oldest democracy?

    Russell Campbell, Dunedin, New Zealand

    Lots of them can. And do. Greece has a pretty good claim having invented the concept in the first place. However, long spells as an Ottoman colony or under military junta might put it out of the running if you’re looking for longest continuously democratic country. Britain has a decent claim but it depends what you mean by democracy. As Rowan Atkinson put it in Blackadder: “take Manchester for instance. Population: 60,000. Electoral roll: 3”. America frequently claims to be but this is because they define democracy so narrowly and in their own image such that on their criteria they’re the worlds only democracy and on any other criteria they still aren’t and never have been.

    Seth, Edinburgh, Scotland

    Perhaps Iceland can – their parliament, the Althing, is the oldest one still in use. It was formed in 930 by Vikings.

    Johan van Slooten, Urk, Netherlands

    1. Tom Bradford

      In the USA half the population – the female half – had no voice in ‘democracy’ before 1920. The first nation to give women generally the vote was New Zealand in 1893 so I’d say theirs is the oldest true democracy.

      But as argued above, it all depends on what you mean by “democracy”.

  6. susan the other

    Maybe the reason why our dear professor didn’t mention jobs is because he knows there aren’t any. If he really wanted to get at Trump, jobs is the only way to do it. Trump made such big promises – a job for everyone stuff. It will be a long time before any significant jobs materialize. Trump’s reasoning seems to be to cut the fat out of government (also cutting so many jobs he might not ever make up for it) to free up the money to do some big PR infra which he can boast as job creation. When it will only be 6s. But if the professor knows there really aren’t any jobs for a variety of market reasons (markets are the culprits), how on earth can he believe in the markets. That’s just nonsense. In order to “believe” in markets, first you must believe in labor. So it is almost safe to say we will never have those old ideal markets ever again. We need to find a new mechanism to create our economies. Labor-less yet equal. Maybe.

  7. shinola

    ” A pro-market policy seeks to reduce the tax and regulatory burden, but ensures that laws are applied equally to all.”

    Just where does this benign, self-correcting market that the good professor rhapsodizes about exist?

    In Camelot? Perhaps it’s just around the corner from El Dorado..

  8. TG

    “A pro-business policy defends domestic enterprises with favorable rates and treatment. A pro-market policy opens the domestic market to international competition because doing so would not only benefit consumers, but would also benefit the companies themselves in the long term,..”

    With respect, what parallel dimension does this person come from? Is that the one where Spock has a beard and is evil?

    The United States was, until relatively recently historically, strongly protectionist. All four presidents carved on Mt. Rushmore were unashamed in-your-face protectionists. They, and those like them, took the United States from being a backwards agricultural colony and turned it into the greatest industrial power the world had ever seen. But now that the United States has turned towards race-to-the-bottom trade policies, it has lost ground to other more mercantilist nations, such as China and South Korea.

    Certainly Trump may well botch things, and there is a difference between intelligent protectionism and crony-capitalism. But overall your thesis lacks even face validity.

  9. Clearpoint

    Correct me if I’m wrong, but isn’t being a true believer in the “free market” a mandatory job requirement of being a tenured professor at the Chicago School of Economics?

    Care to put that little conflict of interest to a “free market” test professor market?

  10. VietnamVet

    This article adds clarity. The oligarchs haven’t changed. A subset led by Donald Trump seized control of the US federal government. They are “nationalists”. Another subset “globalists” lost power. Corporate media; GE, News-Corp, Disney, Viacom, Time Warner and CBS, together with the intelligence community are pushing a soft coup to get back in charge via impeachment or the 25th amendment. Yesterday, Verizon’s Huffington Post headline read “Unglued”. Once the populist rhetoric by western politicians is shown to be a huge con, the collapse of the Atlantic Alliance will be inevitable. The chaos of the Shock Doctrine is engulfing the world.

  11. gonchalabas

    You are so right. I’m deliriously upset to see half the country continue to uphold some masochistic national policies, and along the way, gloat about the victory of divisiveness and misogynistic entrenchment. We are up for a literate reaction, hopefully.

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