May 24, 2016
Eduardo Porter used his NYT column this week to remind us that we have seen people like Donald Trump before and it didn’t turn out well. Porter is of course right, but it is worth carrying the argument a bit further.
Hitler came to power following the devastating peace terms that the allies imposed on Germany following World War I. This lead to first the hyper-inflation that we will continue to hear about until the end of time, and then austerity and high unemployment that was the immediate economic environment in which Hitler came to power.
The point that we should all take away is that there was nothing natural about the desperate situation that many Germans found themselves in when they turned to Hitler for relief. Their desperation was the result of conscious economic decisions made by both the leaders of the victorious countries as well as the leaders of the Weimar Republic. (It is not as though the latter had any good choices.) Nothing can excuse support for a genocidal maniac, but we should be clear about what prompted the German people to turn in that direction.
When we look at the rise of Trump and other right-wing populists across Western Europe, we see people responding to similar decisions by their leaders. The European Commission has imposed austerity across the euro zone largely at the insistence of Germany. It is not clear what economic theory explains the infatuation with austerity, but nonetheless it is now the golden rule across Europe. The U.K. has gone in the same direction even though it is not bound by the euro rules. Even Denmark has been making cuts to its health care system and other aspects of its welfare state in spite of the fact that its debt to GDP ratio is less than 10.0 percent and it is running a massive trade surplus.
In the United States the Federal Reserve Board is prepared to jack up interest rates to keep more workers from getting jobs and workers from seeing substantial real wage gains. This is in spite of the fact that the employment rate for prime age workers (ages 25–54) is still down by two percentage points from its pre-recession level. Further Fed rate hikes would likely lock in place the redistribution from wages to profits that happened as a result of the downturn.
Of course the austerity gang has also had their way in the United States. Even the Democrats are reluctant to speak of anything that could be called stimulus because they have to pretend to be concerned about the budget deficit.
It is also important to be clear about our trade policy. It is not about openness, it is about putting downward pressure on the wages of less educated workers. We hugely protect our doctors (you can’t practice medicine in the U.S. unless you complete a residency program here) and none of the “free traders” says a word about it. If we got our doctors’ pay down to Western European levels it would save close to $100 billion a year (0.6 percent of GDP) in health care costs. But somehow we are never supposed to notice that doctors, dentists, and other highly paid professionals are protected from international competition.
Also, our trade policy is about making patent and copyright protection longer and stronger. This makes a small number of people very rich at the expense of the rest of us. This is clearest in the case of prescription drugs where we will pay about $430 billion (@2.3 percent of GDP) this year for drugs that would likely cost around one-tenth this amount in a free market.
The people made rich by these policies are everywhere. Just today the NYT had a profile of Patrick Soon-Shiong, a Los Angeles-based billionaire who is making a large investment in the Tribune company. Mr. Soon-Shiong made much of his fortune on a drug company, which of course depended on patent monopolies.
Of course our mis-regulation of the financial sector has also allowed a small number of people to become very rich at the expense of the rest of us. Robert Rubin stands out in notoriety among this group, even if he ranks relatively low in the size of his fortune (hundreds of millions rather than billions).
Anyhow, people would be justified in being somewhat annoyed by elites telling us about the angry simpletons supporting racist and xenophobic populists, when our centrist and even liberal leaders all support policies that are designed to redistribute income upward. Some may favor tossing a few crumbs to help those at the very bottom, but we hear little discussion in mainstream circles of policies that would actually stop and reverse the upward redistribution of the last four decades.
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