President Trump and the Sin of Populism

Our President has, overall, done a pretty good job.  He’s cut taxes and a wide range of unnecessary regulations, and our economy is responding.  The President is protecting our borders, and is working to reduce the impact government has over our lives.  The President has also shown a willingness to stand up to criticism.  Overall, he’s done immeasurably better than I had expected.

But he is still a populist, as evidenced by the fight he is picking with General Motors.  Here, the President is wrong.

In may areas, such as with trade, Trump’s impulse is populist.  He ran on a policy of ‘winning,’ which assumes that trade is a zero-sum game, and which makes populist promises of turning that game around.  Were it not for Larry Kudlow, even the parts of Trump’s trade wars that may be positive (at least in the long run) could have been disastrous.  Also, though I agree with the concept of protecting our borders, I want more legal immigration (key word – legal), and to the degree that trump is using the border as a political tool, it leaves a bad taste in my mouth.

Of course, there are many on the left who are openly using the border as a political tool too, as shown by Henry Fu, in his article, Fake News: Barefeet, Diapers, and Teargas.  The left does not want to admit it, but this is a form of populism as well, and one based on a particularly insidious form of indoctrination known as virtue signaling.

I want the border debate to be based on the long-term best interests of our nation, and that debate has to be based on legal immigration.  Just opening the borders to anyone who wants to cross is a non-starter, and it should be on both sides of the political divide now that even Hillary Clinton has said that Europe’s open-border policies were a mistake.  If Hillary Clinton can admit that letting people in who have no desire to assimilate, is a mistake; and that letting people in at a rate much faster than the existing culture can absorb, is a mistake; why can’t anyone else on the left admit the same things?

The most current example of populism is Donald Trump’s spat with GM.

The important question nobody is asking is that of why General Motors wants to close plants.  Many assume that it’s because of the trade wars, but though that may affect the timing, it is not really the reason plants are going to close.  The truth is that GM’s market research indicates that in the short term, GM’s profits will be driven by trucks, SUVs, and cross-overs – but not cars.  Ford has made the same determination, going so far as to say that, other than specialty cars (like the Mustang), Ford wants out of the car market entirely, focusing solely on trucks, SUVs, and crossovers.

In the long run, Ford and GM are banking on autonomous vehicles.  Both companies think that in the future, people will buy into car services, where when they need a car, they’ll order one on something like Uber.  Once they get to their destination, the car will drive away.  What this new market will look like is still up in the air.  These automated cars may be gas, or electric, or something else, but the one thing both GM and Ford believe is that, for the most part, people will not buy cars, and whatever profit comes from cars will be limited to replacing older vehicles in automated fleets.

If you are a car manufacturer, and you believe that the car, as we know it, is becoming increasingly obsolete, the smart thing to do is to divest from that market, and to focus on those things that are still viable for the future: trucks, SUVs, crossovers, and (longer term) automated vehicles.  The plants GM is closing make the Volt, the Cruze, the Impala, the Cadillac CT6, the Cadillac XTS, and the Buick Lacrosse, all of which are cars.  GM is doing what any smart business does: divesting from the past, and investing in the future.

Market economies thrive because of two forces: profit, and loss.  When we try to shield companies from loss, or to force them to continue doing things that go against their economic self interest, we may save jobs in the short term, but in the long run we make those companies less competitive, and with dire effects on the overall economy.  We played the same game in the 1980s, when we used populist steel tariffs to protect our steel industry.  Most economists agree that the steel tariffs saved 200,000 jobs in the steel industry, but they also cost 2,000,000 jobs in automotive, and other industries that use steel as an input.  Those companies were suddenly at a competitive disadvantage against foreign competitors who could buy steel at a much lower price.

Did you know that sugar costs twice as much in the United States as it does in the rest of the world?  This is because of populist tariffs on sugar imports.  Without those tariffs, we would not have a sugar industry.  We would, however, have sugar in our foods and beverages, rather than high fructose corn syrup.  Our sugar tariffs save a few jobs in the places where sugar is grown, but they also are one of the leading reasons why Americans are the fattest people on Earth. Those tariffs contribute to every obesity-related death in the United States – and there are 300,000 obesity-related deaths per year.

Ethanol in our gasoline is another populist measure, brought on to appease farmers in the corn belt.  Adding ethanol to gasoline makes both corn AND gasoline more expensive, with the added ‘benefit’ of reducing both fuel efficiency, and power.  Adding ethanol to gas also makes livestock more expensive, and by diverting farmland away from other products, ethanol makes non-corn produce more expensive as well.

How many people around the world would benefit from the lower food costs the world would see, were we to stop adding ethanol to our gasoline?  How many millions starve every year to keep our corn farmers happy?

Populism is not a positive force.

There is a reason why the United States’ founders decided that government should be run by a representative democracy rather than a direct one, and that was to shield policy making from populism.  I mean, seriously – what percent of our population knows enough about economics to make a good decision on ethanol production?  We don’t want the public making such decisions.  What we want is to elect people the public can trust to make such decisions for us.  Unfortunately, the public does not always do a good job determining who may be trustworthy.

The founders were so concerned with the possibility of the nation being run by populist measures, rather than measures that work, that they limited the power and scope of government, to keep government, as much as possible, away from such decisions.  Our government was never supposed to have the power to add ethanol to gasoline, or to tell General Motors what kinds of vehicles to make.  Populist measures are generally things that sound good, but what sounds good often differs from what does good, and, as with ethanol, there are often special interests who are willing to spend a great deal of money misinforming the public.

What does the corn lobby tell us about ethanol?  For starters, they say that ethanol is good for the environment.  Let’s look at that…  Did you know that, up until recently, it was illegal to add more than 10% ethanol to gasoline, in the summer months?  Why?  Because ethanol is worse on the environment than gasoline, and particularly in the summer.  The corn lobby is lying to us – we are actually spending more on gasoline to make it pollute more than it otherwise would, but whereas the corn industry can spend billions pushing their lies, the truth reaches a much smaller audience.  As such, ethanol remains popular, in spite of the harm it does, as do sugar tariffs, and as do calls for GM to keep more plants open in the United States.

Being laid off is never in a worker’s immediate interest, and is not always even in the long-term self-interest of specific workers (some of whom may never have as high paying of jobs again), but in the long run, the economy improves, and the country does better overall.

From 1789 (with the ratification of the Constitution) to 1913 (with the creation of the Federal Reserve), our country had the highest rate of growth in the living and working conditions of the lower and middle classes, that has ever been seen, at any time or place in human history.  Of course, the rich did very well too, and though there was a great deal of churn at the top (the saying was ‘three generations from shirtsleeves to shirtsleeves’), it was nevertheless very easy to tell the poor that their lot in life was the fault of the rich.  Today, we are told that the living and working conditions of the poor and middle classes are no longer progressing, and may even be in decline.  Frankly, that’s not true.  Living and working conditions continue to improve, albeit nowhere near as quickly as they once did.

Frankly, living and working conditions should be improving faster than in previous eras, as the pace of change – the pace of productivity gain – has only increased.

It does not take a rocket scientist to see what has changed.  We have allowed our government to have far more control over our lives, creeping in with the passage of the Federal Reserve Act in 1913, and then picking up pace during the Great Depression.  Government took over completely for WWII, and though government retracted a great deal after the war (helping fuel the post-war boom), it has been growing again ever since, and the populist call is always for more, rather than less, government.

When Trump tries to bully GM – or any other company – into doing what Trump wants, rather than leaving the private sector alone so that each company can do whatever is in their long-term interests, he is giving in to the worst possible populist instincts.  We would all be better served if President Trump could mind his own business, and leave GM – as well as the rest of the economy – alone.