Trump's inefficiency revolution: Don Pittis
The U.S. president is leading the charge against a well-established economic principle
Even as U.S. President Donald Trump crowed last week about an economic growth rate above four per cent, he continued to butt heads with a widely held principle of economics — that success springs from greater and greater efficiency.
"I am thrilled to announce that in the second quarter of this year, the U.S. economy grew at the amazing rate of 4.1 per cent," he said Friday.
"I will say this right now, and I will say it strongly, as the trade deals come in one by one, we are going to go a lot higher than these numbers."
The conventional economic view is that the current wave of strong economic growth is due to tax cuts, government spending and high debt and low interest rates that are charging up the economy with stimulus — borrowing from the future to create what will likely turn out to be a short-term sugar high.
And when it comes to Trump's attacks on the global trade system, conventional economics says his construction of a tariff wall around the U.S. is dead wrong.
But as he presides over an economic boom, Trump has helped launch what you might call an inefficiency revolution — whether he intended to or not — that goes well beyond his base. And traditional economists don't like the trend.
"Protectionism is one of those things where economic knowledge, and what people commonly believe to be true and obvious, don't actually line up," says Rosalie Wyonch, an economist who works as a policy analyst at the C.D. Howe Institute, an Ottawa-based think-tank.
"Free trade is more efficient," she says. "It is better for everyone."
Popular but inefficient
Wyonch remains convinced that's true, even if it means some jobs go overseas or are lost to automation. But as Trump supporters have made clear at the ballot box, they're sick of losing jobs.
Trump's approach can be very popular politically, Wyonch says, "but no one thinks it's efficient."
But the question now being raised in many places — not just the U.S. — is whether efficiency as it is currently understood is everything it was cracked up to be.
From conservative-leaning dairy farmers who believe small family farms are better for rural economies than giant corporate farms, to people who have lost well-paying industrial jobs and now subsist in low-wage precarious work, there are many who are convinced maximizing efficiency is not the best solution.
In economics, the principles of efficiency are well established. The idea is that in a free market system, the so-called factors of production — land, labour and money — go where they are most productive.
But Stephen McBride, author of the book Working? Employment Policy in Canada, says the efficiency model seems to be broken, as figures continually show the vast majority of the world's wealth flowing to the richest one per cent.
"Most would look at those figures — if they look at them at all — and say, 'This isn't driven by merit or efficiency. It's driven by something else," says McBride, who holds the Canada Research Chair in public policy and globalization.
He says that leads to resentment.
McBride was reminded of that resentment during a recent trip to northern England. He met a man who used to support his family with a good industrial job, but after the factory closed he had to drive a cab at night while his wife held three cleaning jobs during the day.
"They hardly see each other. His life had deteriorated dramatically," McBride says. "That's why he voted for Brexit."
In both Britain and among Trump supporters in the U.S., this resentment has created a widespread feeling that "Globalization may work for some people but it doesn't work for people like me," McBride says.
Perhaps, as Wyonch suggests, they are merely impatient. Certainly in the past, democratic capitalism typically left most people better off.
Jordan Brennan, an economist with the trade union Unifor, says classical economics celebrated the power of capitalism to improve the human condition. Historically, each time people have lost their jobs because one sector of the economy collapsed, they found new jobs with shorter hours and better pay.
But he, like many others, fears this time is different.
"Capitalism was the first form of social organization in which it was possible to have a crisis that's linked with overproduction," he says. "Every other crisis in history has been linked to scarcity."
'The low end'
Brennan is currently preparing a report for his union's rail division. He says efficiency in the form of employee cuts at both Canadian Pacific Railway and CN have been lucrative for shareholders and have left remaining employees with higher-than-average wage increases.
But those workers whose jobs disappear due to efficiency are no longer finding better jobs.
"The people who are losing their jobs in the steel industry are not going to become software engineers," Brennan says.
Instead, they are getting jobs in the service sector.
"But on the low end," he says. "It's working at Home Depot, three-hour shifts at minimum wage."
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That has led to calls for inefficient solutions: Government make-work schemes that guarantee everyone a job to replace those that disappear. A basic income to top up those who aren't earning enough.
Both schemes would require governments to step in and use taxes to redistribute wealth.
But, according to Wyonch, none are as inefficient as Trump's plan to build tariff walls to keep cheap imports out.
Follow Don on Twitter @don_pittis