By Peter Morici
Populism is spreading worldwide, but its leaders show little understanding of economic and geopolitical realities
Trump’s economic promises would give Americans a sugar high.
America’s elites have saddled ordinary Americans with inflation and stagnant incomes. Extreme climate solutions and cultural correctness – imposed through regulatory mandates, industrial policies and ineffective border enforcement – are overtaxing local government resources and perceived as eroding prosperity.
Many disaffected U.S. voters have turned to former President Donald Trump, but he is hardly alone in this. In the European Union and the Netherlands, populists scored big victories in recent elections. In France, the hard right and left won enough seats to create a hung parliament. In Germany, the far-right Alternative for Germany party (AfD) won one state election and showed strongly in another.
Grand designs like the EU’s climate action plans and U.S. President Joe Biden’s climate change and industrial policies impose widely distributed costs, but the economic benefits can be particularly and wrongly focused.
For example, Hauts-de-France, a once prosperous steel and mining region, has France’s highest unemployment. With EU funding, a new battery industry is emerging. But it requires 12,000 additional housing units, because too few of the jobs are going to locals. This creates fertile ground for the far-right National Rally party of Marine Le Pen and other populist opponents of French President Emmanuel Macron.
Macron has imposed pro-business reforms, boosted foreign investment and raised the retirement age, but the resulting economic growth is not widely perceived to have lifted all boats.
In the Netherlands, meanwhile, government programs to shut down dairy farmers – cows emit too much nitrogen – helped usher populists into the newly formed national government.
Populism is influencing economic policy in South Asia. India boasts 8% GDP growth, but Prime Minister Narendra Modi’s pro-business reforms have mostly benefited high-tech and manufacturing in India’s southern regions. In the north, Uttar Pradesh, India’s most populous state and a center of Modi’s BJP electoral strength in 2019, swung to his opposition this year.
Back in the U.S. many Americans lack the skills to win jobs at local semiconductor, battery and other green industry factories. Millions of Americans are suffering from historically high food prices and widespread inflation, in part due to the deficit spending necessary to finance Science and Chips Act and Inflation Reduction Act industrial policies and other initiatives.
Trump is what democracy delivers when elites treat people who are disappointed with their policies as morally debased and impose a “cancel culture” on critics. Throughout U.S. history, broad economic and cultural frustrations have forced insular elites to yield with the ascent of Presidents Andrew Jackson, Franklin D. Roosevelt and Ronald Reagan.
But what is most disturbing about contemporary populists like Trump is that they show little understanding of economic and geopolitical realities in the polices they offer.
As a prime example, with the U.S. federal deficit at 7% of GDP, the country simply can’t afford to extend the expiring provisions of the 2017 Tax Cut and Jobs Act. And if we want to protect Social Security and perhaps exempt its benefits from taxation, then Americans need to pay more taxes elsewhere.
Neither Trump nor his advisers have credibly addressed those economic issues.
As for world politics, dependence on Chinese imports is alarming, and Trump’s proposed 60% tariff on Chinese-made goods actually might not damage economic growth if it was returned to consumers as an income tax cut. But declaring a worldwide trade war would be terribly damaging for the U.S.
Trump appears to believe he can threaten free-trade partners and other allies with an across-the-board tariff, perhaps to finance tax cuts, without foreign markets retaliating by closing their doors to U.S. high-tech exports. Consider that in the past year alone, Microsoft and other technology giants poured $357 billion into artificial intelligence. That wouldn’t be possible without the huge profits these businesses generate selling not just in America but around the world.
In addition, America’s recent pace of employment and economic growth wouldn’t be possible without the 80,000 to 100,000 new workers provided monthly by both indigenous population growth and legal immigration.
Undocumented arrivals, meanwhile, are filling holes in the U.S. workforce. If Trump wants to deport them all and seal the border, he should offer a plan for more orderly legal immigration in line with the need to grow the U.S. economy fast enough to pay the nation’s debt.
Trump’s promises would give Americans a sugar high but then hit against the hard constraints imposed by severe labor shortages. Inflation and rising interest rates would follow, limiting rather than enabling lasting prosperity.
U.S. Vice President Kamala Harris, the Democratic presidential candidate, has not presented compelling solutions. She has surged in the polls because the world has changed a great deal since the 2016 presidential election. Despite that, Trump offers the same unsettling barbs, insults and outdated, unworkable policies. Meanwhile, Harris is able to position herself against Trump as a fresher, more moderate face.
Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
More: Kamala Harris’s critics are totally wrong about taxing unrealized gains
Plus: U.S. stock-market rebound faces ‘huge’ jobs reports after Labor Day weekend
-Peter Morici
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09-03-24 0705ET
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