Can Trump destroy Democracy?

Donald Trump is a not so subtle bully that steamrollers over his opponents with insults and lies. Now that many of those having been gravely insulted declare support for his nomination, can we conclude that the institution called the American Republic and its Constitution are strong enough to weather the insults sure to come from a potential President Trump? For institutions are only as strong as the people that are in charge of its care. Remember Weimar.

Politics and the Constitution

The forced vacancy at the Supreme Court, courtesy of the United States Republican Senators, is a rebuke to Chief Justice Robert’s assertion that the justices are umpires and detached from political opinion. No one believes this but John Roberts. And for good reasons. The Constitution, any constitution of any country, is a political document that codifies the rules of power sharing and the limitations imposed on Government. The nine justices (currently eight that are evenly divided by their political persuasion) are empowered to rule on the limitations of both the legislative and executive branch of Government. Both exercise political power as representatives of the people. The ferocity of the current Republican presidential election, the fight over denying a nomination to the Supreme Court by a sitting President are all evidence that how the court rules determines how the country policies itself. And since the Supreme Court shares the power with the two political branches of Government, which convert politics into law and regulations, the Supreme Court justices are arbiters of these laws and regulations not because they decide if they are good or bad, but if they are constitutional and, alas, reflect the political will of the nation going all the way back to the founding fathers. The fact that in 1776 there were no founding mothers or black founding fathers has been remedied in Amendments to the Constitution as the expression of the political will (at one time forced by a bloody civil war) of later generations.

On Trade and Jobs

The presidential primaries bring free trade and high paying jobs back into focus as economic inequality gets worse, mostly at the expense of blue collar workers’ pay checks, which have barely risen over the last two to three decades. Manufacturing jobs, usually well paying and with pensions attached, have been lost to outsourcing labor and to competition of Made in America with cheaper products from overseas.

Free trade is good. For the country, for the economy as a whole.

Free trade has losers and winners, as Donald J Trump would say, and he is one of the winners exploiting cheap labor both by selling goods manufactured in other countries (including Mexico) as well as hiring visa workers for his various construction and golf course operation (including from Mexico). He is currently exploiting the disaffection of white blue collar workers who are the major victims of manufacturing jobs lost to globalization for his presidential campaign. A Machiavelli he is.

Free trade is good.

And here is the reason. One obviously has to see free trade as a macroeconomic effect, where the benefits of trade benefit both partners. For American workers, the trad-offs are fewer manufacturing jobs, but also cheaper goods and many more newer jobs. The market is shifting and the question is why people feel disenfranchised. It is one thing to enjoy cheap goods, it is another to not have enough money to buy more expensive American made products. Let;s talk about cheap products; Amazon’s success is a veritable text book story of the fact that Americans buy the cheaper products every single time (ordering discounted books rather than supporting local bookstores that create local jobs). Cheap products come with low cost jobs. And in this respect the current political fights for higher paying jobs and increasing minimum wages are interesting, because they aim for the same, but seem to be motivated from opposite sides of the political spectrum. Either approach, the trade barrier approach a-la Trump to create American jobs or regulation to increase minimum wages will have the same effect, higher prices for goods. Yet we know Americans will not pay higher prices for goods, unless they must by products from companies with virtual monopolies on goods no one can live without (cable TV, health care, higher education or flying).

I mostly blame supply side economics and trickle down philosophy of the conservative right, together with the union bashing right-to-work laws (I am looking at your, Wisconsin) that put pressure on wages and lower them in the long term. Inequality, as it stands today, exists for the simple reason that the low taxes on the rich and corporations allow them to profit and stash cash, while there is zero incentive to rise wages and have the workers share in the benefit of globalization. Except for buying the cheap products from overseas.

What’s Ailing the Economy?

According to the theories of macro-economists, the current economy should not be what it is. It should do much better. Larry Summers writing in Foreign Relations calls it secular stagnation and recommends stimulus spending, not for the banks, but via infrastructure rebuilding, aka jobs. But what is secular stagnation? It is a term that captures a growing economy, albeit on unequal terms, with much cash laying around. Too much savings, hording cash, low spending, and stagnant low wages. On one hand, the poor and middle class people do not have enough money to spend, since they need to save for an uncertain future (they depend on the stock market, zero interest accounts and shrinking social security payments). On the other hand, the very rich have too much money they cannot spend on goods that produce jobs. The rich are truly no longer the job creators, the poor are, but they do not earn enough to buy what they want. The rich can keep more and more of their money thanks to historically bottom low taxes, which is money the Government cannot spend on infrastructure, social security, medicare and small business stimulus. In other words, high savings and low spending make sure there is not enough money flowing through the economy. Money in savings accounts and corporate cash-havens does Nada for the economy.

I propose a few solutions.

Lower student loan debt and interest rates on this debt. While banks get money for close to zero, student loans cost 6% and upward. Add insult to injury, this debt is about the only debt that cannot efficiently be unloaded through bankruptcy like a Donald Trump can with his many failed business ventures. An estimated one point three trillion dollars are locked up in student debt and cannot be spent on goods and services. And it appears to me that one reason we have secular stagnation is the shift from pensions to 401k accounts in a time of a demographic shift to larger retiree populations. Now, people have to save or they risk not having money in their retirement. With a pension, you would not worry since it is literally money you will receive for life and a company that pays a pension will create good business and job opportunities rather than give away profit to shareholders, as they can do now. Today, the economic risk in the future lies on the shoulder of the workers, while publicly traded companies chase quarterly returns to keep rising their stock values. But as we all know from the prospectus of a mutual fund, past gains are no guarantee of future earnings. Anxiety all around.