Sunday, January 1, 2017

What policies will be pursued by the author of "The Art of the Deal"?

After reading Trump:The Art of the Deal it seems to me that the best way to start thinking about how to answer this question is to ask yourself what Mr Trump could do to further promote his own reputation as a political leader. His policy choices are likely to be determined largely by the potential they offer for the further self-promotion required to enable him to win a second term in office.

Some may wonder why I see a book written about 30 years ago as providing guidance about Mr Trump’s current priorities. Although his co-author, Tony Schwartz, claims that he actually wrote the book, it is clear that Donald Trump strongly endorses the ideology of The Art of the Deal and sees his experience in negotiating business deals as highly relevant to the presidency. In announcing his candidature, he said: “We need a leader that wrote ‘The Art of the Deal’.”

The Art of the Deal conveys the impression that the prime motivating force in Mr Trump’s life is self-promotion. The book is itself a promotional exercise designed to enhance his reputation as a person with the capability of doing deals under difficult circumstances. Trump is the hero, using publicity as a weapon to defeat incompetent and evil opponents. He emphasizes the importance of giving the media a good story. He even views critical stories as providing valuable publicity. Most tellingly, he acknowledges:
The final key to the way I promote is bravado. I play to people’s fantasies. People may not think big themselves, but they can still get excited by those who do. That is why a little hyperbole never hurts”.

If you think that makes Mr Trump sound more like a politician than a business leader, consider the way in which he emphasizes that it is important “to deliver the goods”:
You can’t con people, at least not for long. You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you don’t deliver the goods, people will eventually catch on”.
The quoted passage is followed immediately by reference to two former presidents, Jimmy Carter and Ronald Reagan, as examples of leaders who were good at promotion, but not so good at delivering the goods. This guy obviously thinks like a political leader, but it remains to be seen whether he will be as good as Ronald Reagan at delivering policy outcomes that are worth having.

The new president will recognize that to have any chance at re-election he will have to deliver some of the “goods” expected by the people who voted him into office. There will no doubt be a flurry of activity to take specific actions he has proposed for his first 100 days. Over the next few years there will probably be some real policy change e.g. cuts in corporate tax cuts, increased infrastructure spending and more restrictive immigration policies. In the foreign policy arena, application of the Trump doctrine of doing deals with the big players might end up favouring closer relations with China, as well as Russia, despite recent anti-Chinese rhetoric. That might make life more difficult for China’s neighbours, but is probably preferable to the alternative of deepening tensions between the U.S. and China. In many other policy areas, including trade policy, we are likely to see major re-branding exercises, with little actual policy change. Every policy deal will have Trump’s name written all over it – just like his real estate developments!

When I decided to read The Art of the Deal one of my objectives was to see to what extent he sees deals as involving winners and losers rather than mutually beneficial outcomes. There is some of both.  A substantial component of the “art” endorsed by Trump is actually an entrepreneurial function that will be recognizable to fans of Austrian economics. The entrepreneur sees an opportunity to make a profit that others have not seen, and then proceeds to use his negotiation and management skills in pursuit of that profit. If the entrepreneur succeeds, many others also benefit, including original owners of sites and the air space above them, financiers, contractors, building workers, and the people who own or rent space in the building. Everyone involved can be a winner.

The added complication in the entrepreneurial art practiced by Donald Trump is the prevalence of  government regulation impacting on the property development that he has been involved in. As I was reading The Art of the Deal I began to realize that Donald Trump and Tony Schwartz were writing about the entrepreneurial function in rent-seeking environments – the highly regulated property development market in New York and gambling industry in Atlantic City. For the benefit of readers not familiar with the concept, the idea of a rent-seeking society was developed by Gordon Tullock and Anne Krueger to describe societies where government regulations play a large role in determining the distribution of incomes, and substantial resources are expended by individuals and groups – rent-seekers - lobbying to have the coercive powers of government used to their advantage at the expense of others. The U.S. is not one of the first countries that comes to mind when I think of rent-seeking societies, but rent-seeking is rife in the industries where Donald Trump learned the art of the deal.

I am not the first to recognize that The Art of the Deal is about entrepreneurship in rent-seeking environments:  Adam Davidson made similar observations in an article in the New York Times Magazine in March 2016. However, I don’t think Davidson’s view of Donald Trump was entirely accurate. He suggested that Donald Trump “is not just a rent-seeker himself; his whole worldview is based on a rent-seeking vision of the economy, in which there’s a fixed amount of wealth that can only be redistributed, never grow”. The Art of the Deal portrays Trump’s real estate development activities as being about adding value to sites rather than just obtaining benefit at the expense of others. Even allowing for his hyperbole, Trump seems to see his role as that of a capitalist hero, like a character out of an Ayn Rand novel, who is using his skills in self-promotion and his legal team to fight the rent-seekers who are trying to obstruct economic development.

When he talks about public policy issues Mr Trump sometimes seems to allow his desire to present himself as a person with a kind heart to get in the way of clear thinking:
Unlike most developers, I don’t advocate eliminating rent control. I just think there ought to be a means test for anyone living in a rent-controlled apartment”.
I wonder whether Trump really sees rent-control as a good way to provide economic assistance to poor people. A cynic might suggest that his support for means tested rent control was a rent-seeking ploy to further his own interests in evicting wealthy tenants from the rent-controlled premises that he wanted to re-develop.

Adam Davidson might be close to the mark in suggesting that at an international level Donald Trump’s world view is governed by the idea that what one country gains another loses. Some passages in The Art of the Deal reflect that view. Trump claims that the Japanese “have become wealthier in large measure by screwing the United States with a self-serving trade policy that our political leaders have never been able to fully understand or counteract”. These days he expresses similar views about China.

 From an economic perspective, Donald Trump’s desire to put America’s interests first in trade policy would be desirable for Americans (as well as people elsewhere in the world) if only he knew where America’s interests lie. It is hard to believe that this builder of innovative modern buildings in New York thinks he can make America greater by transforming its manufacturing industry into a museum of mid 20th century technology that can only survive sheltered behind high import barriers. If he sees America’s interests as providing widespread opportunities for Americans to enjoy greater prosperity, he should hire some competent economists to suggest what policies are most likely to contribute to that objective.

If Donald Trump believes his own rhetoric about asking lots of questions, keeping options open and thinking big, perhaps he could even end up as an advocate of unilateral free trade, rather than re-branded bilateral trade deals. In my view the odds are strongly against that, but it could happen! 


A couple of months later, I think I was excessively optimistic in suggesting that we are likely to see major re-branding exercises in trade policy with little actual policy change. There are two reasons for this. First, Trump’s most influential advisers strongly favour protectionism and will not be satisfied with the kind of re-branding that might satisfy the President. Second, as Barry Eichengreen has pointed out, Trump is likely to focus on trade policy because it is “the one set of economic policies a President can pursue without close congressional cooperation”.

It now looks as though the world might be about to enter a new era of trade protectionism. Some suggestions regarding appropriate Australian policy responses are in a later post.


Leah G said...

Thanks for slogging through this and reporting to us! I too am interested in what kind of president Trump will make.

Winton Bates said...

Thanks Leah. "Slogging" describes exactly how I felt while reading the book.