We All Lose Because Trump Cannot Understand Win-Win (A Dorf on Law Classic)

by Neil H. Buchanan

Note to readers: The holiday hiatus on Dorf on Law continues.  No need to fear, however, as our Dorf on Law Classic series also continues.


For my final column of 2018, I am re-posting a column that originally ran on December 1, 2017.  There, I discussed the surprising fact that Donald Trump does not understand capitalism, nor does he even like it.  Because his stubborn ignorance in this matter (as in so many others) underlies our current crises, I thought that this would be a good time to have another look.  Enjoy!

"Trump Does Not Believe in Capitalism"

by Neil H. Buchanan

One of the more laughable claims from Trump supporters during the campaign was that he is a great businessman.  Even more absurd was the idea that being a great businessman is all that is necessary for a president to fix the economy.  Donald Trump has no idea how to fix the economy.  In fact, the evidence shows that Trump hates capitalism.

That is not to say that Trump hates making money.  He is not very good at doing so, but he tries very hard to make a buck -- and he clearly does not care whom he hurts to get what he wants.  Yet he clearly hates capitalism.  Actually, plenty of successful businesspeople hate it, too, but Trump's disdain for the underlying genius of capitalism is in a category of its own.

We can start with an obvious, trivial example.  Trump's first foray into economic policy during the transition period was his much-hyped decision to "save" some jobs at a Carrier plant in Indiana.  This was truly a scam.  It was so obviously a scam, in fact, that it immediately became the object of intense ridicule.  For a matter that gained the attention of a president-elect, the number of jobs involved was relatively small, more jobs were exported than were saved, and there is no guarantee that the jobs will not be lost soon, anyway.

More to the point, the lesson that the world learned from that incident was that Trump's threats to punish unpatriotic companies had quickly morphed into rewarding companies with bribes to keep a handful of jobs in the U.S.  The incentives going forward are perverse, to say the least.

Even so, an example like the Carrier deal might merely lend credence to the suspicion that Trump is no different from a lot of politicians -- notwithstanding his supporters' beliefs to the contrary.  He could actually love capitalism yet still reluctantly support a bad economic deal because he sees immediate political gain.  That would make him an opportunist but nothing more.

Yet Trump's evident contempt for capitalism goes much deeper.  He seems genuinely not to understand the basic mechanisms that have made both liberal and conservative economists admire the idea of capitalism for centuries.  It is true that economists across the political spectrum argue about the best rules to guide a capitalist economy, but we all understand what made capitalism so much better than its alternatives.

Before Adam Smith came along, the fundamental goal of each European power was to accumulate piles of wealth.  Being wealthy, however, was understood as a matter of having enough gold and other commodities to be able to pay for armies and navies.  Economic wealth was the means to an end, and that end was military dominance.

Smith is best remembered for his "invisible hand" metaphor, which I will discuss in a moment.  His more important contribution to human progress, however, was to change the definition of wealth.  Wealth was not, Smith argued, represented by piles of gold in the king's treasury.  A country is wealthy when it can produce the goods and services necessary to make its people prosperous.  A monarch with a large national treasury who rules over starving subjects is not the leader of a wealthy nation.

Smith's invisible hand was then merely an observation that self-interested people could (if the other circumstances were right) end up organizing themselves in ways that maximized wealth by Smith's more egalitarian definition.  That is, people who try to make a decent living for themselves can do so by, say, trying to build a better plow, or invent a new way of communicating, or organize their work in more productive ways.

That self-interested people could act in wealth-enhancing ways does not mean that they necessarily will do so.  Organized crime syndicates pursue self-interested ends in ways that lead to death and destruction, giving people no incentive to innovate or be more productive.  At the national level, these are kleptocracies, and they are never wealthy.

Smith's forgotten companion to The Wealth of Nations was his earlier book The Moral Sentiments.  There, he explained that we could count on people pursuing their self-interest in wealth-enhancing ways rather than lapsing into kleptocracy only if they acted morally.  Being a moral philosopher, he hoped that each person would regulate himself; but being a realist, he understood that laws are necessary to prevent people from becoming parasites.

After Ronald Reagan's election in 1980, half-educated conservatives showed up for work in the new administration, just as their British compatriots had done when Margaret Thatcher was elected Prime Minister the year before.  They were sure that Smith's insight was entirely captured by the idea that government regulation is bad, because self-interest always leads to better outcomes.

This was a complete misreading of Smith, and it predictably translated into cowboy capitalism.  The Reagan/Thatcher acolytes thought that they were saving capitalism from creeping socialism, but in fact they were simply changing the rules of the game to benefit themselves and their political supporters.  They did not succeed, for example, in making industrial production safe and clean, but they did succeed in shifting the costs of dangerous and dirty businesses onto people who lacked political power.

For decades, Republicans have been leaning more and more on the idea that Reagan stood for nothing other than deregulation.  What they have never understood (or at least what they have never admitted out loud) is that they use the word regulation to mean "rules that we do not like, to be replaced by rules that we do like."  They do not want capitalism without rules -- because there is no capitalism without rules.  They want rules that favor themselves.  Smith, meanwhile, spins in his grave.

For example, the Republicans' response to the financial crisis that led to the Great Recession was to resist rules that would change the incentives on Wall Street.  They decried "excessive regulation," saying that capitalism cannot tolerate too many rules, without understanding that finance is entirely a matter of government-defined and government-enforced rules.  All financial products are artificial, and a lack of clear rules and limitations can destroy the economy, as we learned in 2008 and 2009.

This attitude was most obvious in Republicans' opposition to the creation of the Consumer Financial Protection Bureau, which was designed to shift some of the power in financial transactions from the large institutions to their customers.  As I wrote five years ago, Wall Street's attacks on now-Senator Elizabeth Warren showed that she believed in capitalism more than they did.

Warren was not against capitalism.  She wanted to reset the rules to make it more stable, which necessarily involved making it less of a one-sided affair.  Her opponents wanted to protect the rules that had made them rich, no matter the costs and risks to everyone else.

This year, Trump shocked his party by winning on a bluntly anti-trade agenda.  As I argued during the primaries, Hillary Clinton and Bernie Sanders were having an honest argument about the rules of trade, whereas Trump was acting as if trade is inherently bad.

Trump inevitably doubled back to pre-Smithian thinking, overturning not just Smith's insights but also those of David Ricardo, another of the great Enlightenment economists.  Trump does not even bother to pretend that he sees the gains from trade.  It is entirely a matter of viewing all trade as a zero-sum battle of wills.

Trump's business model is similarly based entirely on taking advantage of people and breaking any rules that stand in the way of taking more for himself.  He hires contractors and workers and then changes the terms of the deals on the fly.  Why?  Because he can.  His entire approach to capitalism has always been a matter of saying, "If you win, I lose, so I'm going to win, and you can't do a thing about it."

Trump's mindset is thus incapable of comprehending Smith's greatest insights.  Not only does Trump view economic success as a matter of piling up money, no matter the consequences to the wealth of the nation, but he cannot fathom the idea that capitalism is not a zero-sum game.

The modern version of Smith's invisible hand, after all, is "win win."  Capitalism is, at its most basic level, about making something from what appears to be nothing.  People cooperate and trust each other, under the rules set by their government, not because they necessarily like each other (although that helps), but because they get something out of it that would not be possible alone.

Trump looks around at people who are winning and concludes that this can only mean that he is losing.  Therefore, they must be beaten.  Trump's world is not about figuring out how to get everyone further ahead.  It is about one person being the winner.  That is a bad way of thinking for an individual businessman, but it is terrible for a person who is supposed to set national economic policy.

The translation of this mindset from business dealings to every other aspect of Trump's life is obvious.  He cannot just win primaries.  He has to humiliate his opponents and then brag about it for months on end.  He cannot merely luck into an eye-of-the-needle Electoral College win in the general election, but he has to claim that he would have won the popular vote if he had tried (or if people had not cheated to vote against him).  And he has to claim that his margin in the Electoral College is a landslide rather than an unexceptional margin.

Foreign policy for Trump is similarly not about disparate parties helping each other out in a way that advances everyone's interests.  He keeps score based only on piles of money and would turn foreign alliances into a protection racket.

Ultimately, this crabbed view of life even translates into Trump's approach to dealing with other people.  Everyone who displeases him must be insulted and put down.  Women who are physically attractive can be grabbed, because that is what he wants.  In other words, even sex -- the ultimate example of human interaction where the goal should be win-win -- is merely another area where Trump must dominate.

For most of us, the real-world consequences of Trump's narrow-mindedness will not be personal in that sense.  He will not directly bully us or physically violate us.  Yet his approach to public policy -- economic policy, foreign policy, social policy -- is infused with a rejection of the idea that two parties to a deal can both win.

That is not what how capitalism works best, and it is not how healthy societies thrive.  A world in which everyone tries to dominate everyone else is unhealthy, and it makes us all poorer in every sense of that word.