The Dismal Gambit

Economics is often called “the dismal science” but “dismal” seems the wrong word. Economics is, to most people, boring and dry as dust – but no one dies or anything. Dismal is when someone dies. In college, in the middle of Ohio in the middle of the sixties, Economics 101, required in the freshman year, was taught by a strange little chubby fellow, fresh out of the University of Chicago and full of Milton Freidman, who talked about the wonders of a totally unregulated free market, with a nod to the importance of regulating the money supply, and something or other about “the acceleration of money” that no one understood. It was supply-side economics before anyone named it that. It was also the first class of the day, at eight in the morning – freshmen get stuck in those – and the guy was always hung over, and he always had his little dachshund with him, who looked as bored as the rest of us. His little dog would growl now and then, but we all got through it.

Then we forgot all about it. That year, Lyndon Johnson, who had brilliantly maneuvered Congress into passing all that amazing civil rights stuff, was suddenly sending hundreds of thousands of us to Vietnam, and the civil rights stuff was still hot as hell. Two years later, Martin Luther King was assassinated. The cities exploded. Bobby Kennedy was assassinated. Chicago exploded – riots in the streets at the Democratic National Convention. And then Nixon was elected on the promise of “law and order” at home and “peace with honor” in Vietnam. We got neither – and at the same time there was a cultural revolution – a Summer of Love in San Francisco and then Woodstock to end the decade. America was tearing itself apart, or had torn itself apart and was trying to rebuild things.

No one was talking about economics. That’s what you talk about when you want to change the subject from what makes people’s blood boil. Turn to the dismal science. Bore them into passive submission. At least change the subject.

That’s what the Trump campaign finally figured out:

Donald Trump’s campaign chairman said the Republican presidential nominee would focus on the economy in the coming week to get his campaign’s narrative back “where it belongs.”

Paul Manafort made the comments Sunday in an interview with Fox News’s Maria Bartiromo. They come after a stormy week in which Mr. Trump tussled with the parents of a Muslim-American soldier killed in Iraq, appeared to call for a crying baby to be ejected from a rally, and drew controversy by declining to endorse Speaker of the House Paul Ryan before later backing him.

This might be called the Dismal Gambit:

Responding to questions about the controversial week, Mr. Manafort emphasized that Mr. Trump was focused and would soon lay out his economic vision, drawing contrasts to President Barack Obama and Democratic nominee Hillary Clinton.

“Starting Monday, we’re going to be announcing our economic plan,” Mr. Manafort said. “When we do that, we’re comfortable we can get the agenda and the narrative of the campaign back on where it belongs, which is comparing the tepid economy under Obama and Clinton, versus the kind of growth economy that Mr. Trump wants to build.”

Trump will now bore America into passive submission with a speech Monday to the Detroit Economic Club. So no one talks about the other stuff:

The campaign manager denied that Mr. Trump’s aides mounted an emergency intervention this week to bring the candidate back on message. Mr. Manafort also cautioned that it was only the beginning of a three-month general-election campaign and said Mr. Trump would start doing “what he needs to do.”

He needs to be boring, because as Five Thirty-Eight reports, being exciting was killing him:

Hillary Clinton’s post-convention polling surge is showing no signs of fading. She leads Donald Trump, on average, by about 7 percentage points in national polls, and is an 83-percent favorite to win on Nov. 8, according to our polls-only model. Our polls-plus model – which accounts for the “fundamentals,” as well as the tendency for a candidate’s numbers to temporarily rise after his or her convention – gives her a 76 percent chance. Those are her largest advantages since we launched our election forecasts back in June.

The New Yorker’s John Cassidy reinforces that:

On Friday, Trump reversed himself and endorsed the reelection efforts of fellow Republicans Paul Ryan, Kelly Ayotte, and John McCain. He admitted that he hadn’t seen a video of a U.S. plane unloading four hundred million dollars in Iran. And he also wished good luck to the U.S. Olympics team in Brazil. This “New Trump” even lasted into the weekend. Appearing at a rally in New Hampshire on Saturday night, he referred extensively to his written notes and restricted his barbs to the media and Hillary Clinton, whom he described as “a dangerous liar.” He didn’t bait any fellow Republicans, query the security guarantees that underpin NATO, or disparage the families of fallen U.S. servicemen.

Something had to change. Opining about Trump in the Wall Street Journal on Thursday, Karl Rove, the Republican strategist, issued a warning: “If he has more weeks like the dreadful past two, the gap between him and Mrs. Clinton is likely to widen and never close again.”

He really does need to be boring, and hope for the best:

Given the fundamentals – the state of the economy, the President’s approval ratings, and the fact that the Democrats are seeking to win a third term in the Oval Office – history suggests that this should be a close election. But Trump’s self-destructive antics, coming on top of what was a pretty effective demolition job on him at the Democratic Convention, have, for now at least, taken the pressure off Clinton. While one hesitates to cite Newt Gingrich as an authority on anything other than zoos and his next book contract, there was a good deal of truth in what he said to the Washington Post a few days ago about Trump and Clinton: “The current race is which of these two is the more unacceptable, because right now neither of them is acceptable. Trump is helping her to win the election by proving he is more unacceptable than she is.”

Theoretically, at least, Trump still has time to reboot, embrace self-discipline, and prepare for the television debates, all the while hoping that another Clinton scandal or a ghastly news event helps him out.

In short, he’s stuck:

Trump faces a credibility crisis, which his antics over the past couple of weeks have heightened. On Saturday, Peggy Noonan, a former speechwriter for Ronald Reagan, wrote in the Wall Street Journal, “When you act as if you’re insane, people are liable to think you’re insane. That’s what happened this week. People started to become convinced he was nuts, a total flake.” To dispel this image, it will take more than a couple of days of Trump holding his tongue.

He’ll have to play to his strengths, such as they are, and Ben Rosen covers that effort:

Donald Trump made public his team of economic advisers to “make America great again,” an early indication of the plan the Republican presidential candidate will unveil in a speech Monday to turn around an economy he has said has been hurt by poor trade agreements, immigration, and the loss of American manufacturers.

Among the 13 men on Mr. Trump’s list are hedge-fund managers, bankers, real estate investors, a steel executive, and a fracking tycoon. Absent are the names of any women and well-known policy experts, save for one economist with a doctorate and a tax policy expert.

Trump’s advisers – whose median worth is estimated in the hundreds of millions – embody his anti-establishment pitch that America’s billionaires are the only ones who can save the country.

But this “billionaires are best for you” idea wasn’t self-evident to a lot of people:

Economists from across the political spectrum slammed the list because it lacked academics and previous administrations’ advisers, “usually the bread-and-butter of campaign policy teams,” as The Washington Post’s Jim Tankersley wrote Friday.

Justin Wolfers, a professor of economics and public policy at the University of Michigan, and a New York Times columnist, tweeted a tirade after the list was released.

One of those was this – “I get preferring businessmen over ‘economists’ – but Trump’s team is dominated by vulture sectors of the economy. None of ’em make stuff.”

Justin Wolfers has a point:

One of the most prominent names on it is John Paulson, president and chief executive of the investment firm that bears his name. Mr. Paulson earned himself and his firm billions of dollars when he bet on the 2007 housing market collapse, according to the Times. Paulson’s move on stocks and the economy have been less accurate lately, according to Reuters. His investments have lost about $15 billion in assets in the last five years.

Stephen Moore is Trump’s “anti-tax” tax policy expert. The Heritage Foundation’s chief economist previewed Trump’s speech at the Detroit Economic Club scheduled for Monday. Mr. Moore, in an interview with Fox News’s Maria Bartiromo published in USA Today Sunday said Trump will lower corporate taxes, decrease export tariffs while increasing import tariffs, and renegotiate trade agreements.

Moore said Trump would lower the corporate tax rate from 35 percent to 15 percent. Trump, said Moore, intends to renegotiate the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP), which hasn’t taken effect yet.

It’s hard to say who will be impressed by this, but he does have his crew of angry very-rich people:

Dan DiMicco is the former chief executive and executive chairman of Nucor, one of the country’s largest steel producers. Mr. DiMicco has also been an outspoken voice against American trade agreements and how they affect manufacturers. Like Trump, DiMicco has directed much of his disparagement at China.

In DiMicco’s 2015 book, “American Made: Why Making Things Will Return Us to Greatness,” he disparages the Obama administration and Republicans for their “Pollyannaish view of free trade,” as Charles Morris, a fellow at The Century Foundation, writes in a book review for The Wall Street Journal. But DiMicco’s loudest criticism is against China, which he claimed is illegally underpricing its steel, a charge Trump often makes too.

The lone economist with a doctorate on Trump’s team is Peter Navarro, a professor at the University of California, Irvine. Mr. Navarro is also a consistent critic of China and who Trump has praised for his documentary “Death by China.” Professor Navarro, in an op-ed in The Los Angeles Times in late July, backed Trump’s call for a 45-percent tariff against Chinese goods.

And the eyes of the angry base glaze over, or they get angry:

Others critical of Trump’s team said it is incongruous with his message to support the middle class. The team is mostly made up of billionaire investors, not specialists in issues that face the middle class and women.

“Trump could have signaled his commitment to these issues by publicly surrounding himself with people who have expertise on these topics. He chose not to,” Abby McCloskey, an economist who was policy director for former Texas governor Rick Perry’s short-lived campaign for the Republican presidential nomination, told The Washington Post.

But Trump’s pitch has long been that the billionaires of the business world know how to save the middle class.

They do? Why haven’t they done that before? John Paulson could have done something useful with the billions he made buying and selling and shorting absurd debt instruments nine years ago. He was hardly out to save the middle class, but this is even odder:

Donald Trump and his team have upped their game to win the race for the White House by hiring the company that got the Brexit message to millions, resulting in the split of Great Britain from the European Union.

Cambridge Analytica is a marketing film that targets voters (and potential donors) based on their unconscious psychological biases.

The strategic communications company also worked with former GOP candidates Ted Cruz, Ben Carson and the “Leave.EU” campaign in the United Kingdom. According to the Daily Beast, Cambridge Analytica “went after first-time voters and those who felt left out of the political process, the kinds of people that Trump was successful bringing to the polls in primary elections.”

Trump wants to bring Brexit to America:

As of December 2015, Cambridge Analytica collected about 5,000 data points on over 220 million Americans that were originally used during Cruz’s campaign – which according to The Guardian cost $6.7 million.

The London-based company set up approximately ten data scientists within Giles-Parscale, the Texas-based firm that runs Trump’s website. The cost was about $1.6 million.

This is a bit frightening, as Kevin Drum explains:

Here’s the latest grim news from Britain. GfK’s consumer confidence index dropped by 11 points after the Brexit vote – according to GfK, this is the “sharpest month-by-month drop for more than 26 years.”

And that’s not all. In July, the Personal Financial Situation index dropped 7 points. The General Economic Situation index dropped 12 points. And the Major Purchase Index dropped 11 points. The likelihood of a major recession is now very high, and the worst victims are going to be the very people who were demagogued into voting Yes.

We may not want to go that way:

Brexit is going to go down in history as one of the dumbest own-goals ever. It’s unlikely to deliver on any of the promises of the EU-hating crowd, but it will almost certainly damage the British economy and hurt Britain’s working class badly. Donald Trump fans, please take note. Just because someone is loud and politically incorrect doesn’t mean he really has your best interest at heart.

On the other hand, economics is boring and dry as dust, so maybe they won’t notice, but E. J. Dionne suggests something else:

Anyone with confidence in the American people (and I have quite a lot of it) had to believe that Donald Trump’s unpreparedness, instability and just plain meanness would catch up with him eventually. This, as the polls show, is what happened over the past week or so. Simply by revealing who he really is, Trump sent millions of voters fleeing him in disgust.

But understanding what still attracts many voters to Trump is important, not only to those who want to prevent Trump from staging a comeback but also to anyone who wants to make our democracy thrive in the long run. Those of us who are horrified by Trump’s hideous lack of empathy need empathy ourselves.

This requires feeling for the Trump folks, as hard as that might be:

It’s certainly true that Trump appeals to outright racists and nativists. He is, first and foremost, the product of a Republican Party that has exploited extremism since President Obama took office. GOP leaders should be called to account whenever they try to prettify Trump by ignoring his assaults on Mexican Americans and Muslims, or when they disregard his checkered business record that belies his pretensions of being a friend to the working class. …

Nonetheless, there should be no ignoring the real distress Trump voters have experienced. As a practical matter, we will not ease the divisions in our country that his candidacy has underscored if we do not deal with the legitimate grievances of his supporters. As a moral matter, writing off Trump voters as unenlightened and backward-looking is to engage in the very same kind of bigoted behavior that we condemn in other spheres.

This is, after all, about more than economics:

In a timely paper that will be presented at next month’s American Political Science Association meeting, “Trump, Brexit, and the Rise of Populism,” Ronald F. Inglehart of the University of Michigan and Pippa Norris of Harvard’s Kennedy School of Government argue that while there is undeniably an economic element in the ascendancy of the extreme right in the West, the key cause is “an angry and resentful counter-revolutionary backlash” to cultural changes since the 1970s.

They highlight the role of “anti-immigrant attitudes, mistrust of global and national governance,” as well as “support for authoritarian values.” Voters for the European far right look like Trump backers: “the older generation, men, the less educated, the religious, and the ethnic majorities.”

So, yes, the new right-wing populism may not be primarily about inequality. But Inglehart and Norris are careful to note that “structural changes in the workforce” and globalized markets may “heighten economic insecurity” and sharpen the negative reaction of cultural traditionalists.

Being pissed off about trade agreements is a symptom, not a cause, of what’s happening here:

On the ground, says Rep. Elizabeth Esty (D-Conn.), the sense of “disrespect” felt by “people who have lost work to new machines, technology and, in some cases, globalization” is palpable. This is what links cultural unease to economic anguish. Esty – whose district includes ailing industrial cities such as Waterbury and New Britain – has been warning Democrats for months about Trump’s appeal to displaced workers.

“I do not disrespect the people who support him,” Esty said of Trump. “I find him loathsome, but what he has tapped into is real.”

We may not be able to leave the European Union, but many sure want to leave something:

Fred Yang, a Democratic pollster, pointed to NBC News/Wall Street Journal surveys showing that voters who say the Great Recession is still having an impact on them are more likely than other voters to support Trump.

Eric Hauser, strategic adviser at the AFL-CIO, said that both parties need to face the obvious: that “there is a lot of rage in this country.”

“People have been angry for more than a generation about their difficulty in moving ahead despite their best efforts,” he said. Noting that most policy proposals on behalf of workers are too timid, he added: “There has been too much acceptance on the part of elites, including Democrats, that a little bit of trying is good enough.”

And that would explain this:

Hillary Clinton is clearly aware of the fury. Speaking to organizations of African American and Hispanic journalists on Friday, she noted that while some of Trump’s appeal is “xenophobic and racist and misogynistic and offensive,” his foes should “not lose sight of the real pain that many Americans are feeling because the economy has left them behind.” During Saturday night’s Olympic broadcast, her campaign ran a spot with a populist message on taxes, outsourcing and job creation.

That might help her a little, because it is dismal out there:

If the country is lucky, Trump will continue to do an excellent job of defeating himself. His racism and sexism are leading nonwhite voters and women to form a durable front of opposition. But his voters should not be demeaned or ignored, and his rise should shatter the complacency of the comfortable.

Fine, his voters should not be demeaned or ignored, but Robert Samuelson, who does not vote in any elections as he believes that voting interferes with his impartiality as a journalist, suggests that Trump’s voters might be wrong about a few things:

In the public imagination, no industry better symbolizes the downfall of U.S. manufacturing than steel. Shuttered plants dot the Midwest. Since 1973, steel employment has dropped 76 percent, from 610,700 to 147,300 in 2015. Moreover, the culprit seems clear – trade – and its influence seems pervasive: Manufacturing as a whole lost about 5 million jobs from 2000 to 2015. No wonder both Hillary Clinton and Donald Trump have jumped on the anti-globalization bandwagon.

Globalization seems guilty as charged – except that the popular indictment is wildly misleading.

It’s more complicated than that:

Though trade has helped reshape U.S. manufacturing, it is only one force of many. The appeal of making it the prime villain is political and psychological. We can blame manufacturing’s problems and dislocations on foreigners and disloyal American multinational firms. If they behaved better, the U.S. economy would improve. There is some truth to this, but it is hardly the whole truth – as the case of steel shows.

And that’s the key test case:

Despite plummeting industry employment, U.S. steel production is roughly where it’s been for decades, between 90 million and 120 million tons a year. Imports generally represent 20 percent to 25 percent of domestic consumption. True, dozens of steel plants have closed. But dozens of more efficient plants have opened. Productivity (a.k.a., efficiency) has increased dramatically.

The industry’s largest change of the past half-century is the rise of so-called “mini-mills.” There are now two dominant ways of making steel.

The traditional way is to start from scratch: Iron ore, limestone and coal are melted to form pig iron; then the pig iron is boiled in what’s known as a basic oxygen furnace to make molten steel, which is formed into various finished products (sheet for cars, beams for construction and the like).

Mini-mills are the second way. Their raw material is scrap-steel, which is melted in electric arc furnaces to make molten steel. The mini-mills have a big cost advantage over the older, vertically integrated mills. From 1970 to 2015, their share of total U.S. steel production went from 15 percent to 63 percent, reports the American Iron and Steel Institute, an industry group.

Globalization has nothing to do with anything here:

In a recent study, economists Allan Collard-Wexler of Duke University and Jan De Loecker of Princeton University found that the spread of mini-mills – with their greater efficiency – explained most of the industry’s job loss. Put differently: If there were no foreign trade in steel, most of those jobs would have vanished anyway. The least efficient vertically integrated plants were forced to close. The decisive competition has been domestic, not foreign.

And it’s the same with manufacturing in general:

The standard story about the fate of U.S. manufacturing is incomplete. It blames the loss of U.S. factory jobs mainly on foreign imports and the move of American firms abroad. That’s part of the problem, but a larger cause is – as with steel – “rapid productivity growth,” argues Harvard University economist Robert Lawrence. Better manufacturing methods and technologies mean that fewer workers can produce the same output.

This is a good thing, even if it initially involves fewer jobs, because higher productivity promotes higher living standards. “Compared to other high-income economies” (that is: excluding China), writes economist Marc Levinson of the Congressional Research Service in a report, the “United States has performed well in manufacturing. From 1990 through 2014, the only high-income countries with faster growth [were] a handful of smaller economies, including Finland, Israel and Sweden.”

All of that may be boring and dry as dust, but it matters:

We are being fed a largely false narrative on globalization. It is not the source of most of our problems. All dynamic economies experience constant disruptions from changing technologies, shifting consumer tastes and inevitable business cycles. Some instabilities come from abroad; most – for the United States – originate at home. What matters is the economy’s ability to offset the losses with new jobs and opportunities.

That’s sound economy theory, explained in detail, and far more sensible than Trump’s “clever billionaires will save the middle class” nonsense, but it’s still as boring as that early morning Economics 101 class long ago. Some will take Trump seriously on these things. Others will point out how dangerously foolish his ideas are. But it’s likely few will listen either way. Trump is counting on that. He does need to shut up. Taking about economic theory and practice is pretty much the same thing. The dismal science may save him.