Is Brian Domitrovic Right About Donald Trump, or Has He Misread the Voting Market?
“The President doesn't run GM. He runs the country's economy and that's why the confidence and optimism numbers are up, the growth numbers are up, the unemployment is way down."
Those are the words of White House counselor Kellyanne Conway. While she plainly uttered them in rushed fashion, they’re very telling. This isn’t a knock on Conway. It’s a knock on accepted wisdom from both sides about the proper role of the President. It’s increasingly assumed that the President’s job is the economy. Republicans and Democrats regularly talk about “jobs created," businesses bailed out (see George W. Bush, Barack Obama) by them, and Fed officials Presidents choose to laughably manage the cost and supply of credit, along with the economy more broadly. This isn’t right.
Seemingly forgotten in all the attempts by Presidents, presidential advisors and political parties to take credit for economic growth is that there’s nothing about economic growth in the Constitution. The wise founders understood that free people would prosper. If people are free to do as they wish, then “pro-growth” policies are superfluous. In other words, when there are no barriers to individual initiative, growth is the rule.
Does policy matter? Of course it does. My book Popular Economics is all about the ease of economic growth, but its underlying argument is freedom. Remove or reduce the barriers to production of the tax, regulation, tariff and unstable money variety. Then walk away.
The shame is that most of these barriers exist on the federal level to begin with. This runs counter to the vision of the Founders. Policy was supposed to be local so that free people could migrate toward their policy bliss. Crucial here is that policies implemented are sometimes stupendously bad. Politicians err just as humans do. Policy crafted locally in cities and states (as the Founders intended) is a way of ensuring that bad ideas aren’t felt nationally.
Which brings us to a recent opinion piece by the great supply-side historian Brian Domitrovic. Channeling the late Jude Wanniski, Domitrovic observed about Donald Trump:
“Here was the most charismatic force in Republican politics since Ronald Reagan attacking one of the verities of the Reagan Revolution: free trade. In office, President Trump had to pull rank on even his own officials and insist on putting tariffs in place, after he passed a tax cut. All this was consistent with the wishes of his electorate: that this administration cut tax rates and impose tariffs.”
Domitrovic’s contention is that the voting market was communicating something to the political class through the election of Trump. His underlying point was that while all voters may or may not be wise individually, in aggregate they’re most certainly very wise. As Wanniski long ago put it to William F. Buckley (paraphrasing here), “you may be the smartest person in Giants Stadium, but the people in that same stadium are collectively much smarter than you.” Wanniski’s insight was that just as markets are brilliant for them comprising all known information, so are voting markets. Though people can individually be very dense and wholly uninformed, thousands of those same dense and uninformed people are collectively very smart. If you think you're smarter than the "deplorables" allegedly clamoring for tariffs and border walls, they're collectively smarter than you are.
So while there’s no disagreement with Domitrovic’s broad point about voting markets revealing crucial information, there is perhaps a problem with this knowledge being foisted on the electorate nationally. No constitutional scholar here, it’s not a reach to say that the Founders despised democracy. It’s as they say (another paraphrase) “two wolves and a lamb deciding what’s for breakfast.” It’s mob rule. Domitrovic is right that voters are collectively very smart, but then the U.S. is a nation founded on a very limited federal government as a way of ensuring its citizens don’t suffer the passions of the mob. Sorry, but policy made through the counting of heads is dangerous. The Founders once again didn’t mention economic growth in the Constitution. Free people would be fine. The greater danger to free people would be the majority driving national policies.
To all this Domitrovic might reasonably respond that the Founders’ vision is well in the rearview mirror. Since it is, economic policy is a national concept whether we like it or not. The voters elected a protectionist. So listen to the markets. A response to Domitrovic could be that Trump hardly emerged with a resounding mandate from the voters, his opponent won the popular vote, but in Domitrovic’s defense the electorate did at least halfway side with Donald Trump. The voting market was communicating something.
Domitrovic may even be right that the passionate arguments made in favor of free trade, arguments that ridiculed Trump and his supporters’ protectionism, in some cases “tipped into vanity and narcissism.” Count yours truly among those so vain and narcissistic as to regularly show why tariffs are "mindless." Domitrovic properly calls for listening over lecturing. As he goes on to write, channeling Wanniski once again:
“One should not lecture the electorate, but listen to it. Assume it is right, and figure out how it is right. A step we can take in this regard is to concede the major point. There is no good reason to favor domestic over foreign taxation, internal over external taxation in the language of the eighteenth and nineteenth centuries and the Constitutional order. Thank you, Trumpites, for helping us realize this.”
Ok, but did the Trumpites really open our closed eyes to an obvious policy advance? Domitrovic is ascribing to the Trump voters a rather deep message about the failures in our tax system, but implicit in his argument is that the present tax system, one that in Domitrovic’s mind favors foreign producers over domestic ones, has somehow brought economic harm to the U.S. and its workers. Really? How?
He seems to suggest that while U.S. corporations face taxes but no tariffs, foreign corporations enjoy few tariffs stateside while not suffering U.S. corporate taxes. True, but then many have major operations here that are taxed, not to mention the corporate taxes they pay in their home country. But the main thing is that the previous sentences are a digression, or words wasted. Indeed, who cares if foreign businesses are advantageously taxed stateside? Goodness, businesses in Texas are taxed less than they are in California. Are Californians walking aimlessly, without shoes and food, to reflect the tariff-free treatment of Texas-produced goods in California? Let’s not forget that the goal is freedom. The corporate tax is a double taxation of individual earnings since taxes are paid by shareholders who’ve already paid individual taxes. Why, just because we have corporate and individual taxes here, should we amplify the bad by also imposing tariffs on foreign goods? How does it make us better or more free to hand the federal government yet another income stream, and in doing so hand it more control over the economy? Here yet again lies the danger of the mob rule that Domitrovic likely wouldn't be comfortable with. And if my argument is idealistic for it presuming governance of the kind that the Founders wanted, then so is his. Even if Trump et al imposed tariffs with an eye on placating the electorate, the act of doing so wouldn’t mean that other taxes would suddenly be made reasonable. Odds are we the people would endure economy-sapping tariffs in addition to the vandalism of common sense that is our present tax code.
Domitrovic is ascribing wisdom to the electorate, but it’s hard to find wise in the Trumpian view that other countries are damaging their corporations and workers with protective tariffs, so let’s damage our companies and workers in the hope that they’ll stop. The answer is freedom, always.
If Domitrovic’s goal is a different tax code that only hits consumption, let’s do just that. Investment is what powers economic growth, so let’s get the government out of the business of penalizing work and investment. The problem there is that Domitrovic’s vision of a consumption tax coming to fruition is about as likely as Congress and the White House embracing constitutional governance. Since neither is going to happen, where’s the alleged genius in imposing tariffs that shield our businesses from crucial market signals, tax the work of every American worker, and shower the federal government with even more revenues?
Still, a dispute remains. Implicit in Domitrovic’s argument is a deep message from an allegedly frustrated electorate about a tax code that supposedly favors foreign production over that which takes place in the U.S. Judging by his op-eds over the last several months, Domitrovic is saying that this presumed favoritism has resulted in an unhappy electorate full of just-getting-by workers along with wannabe workers rendered periodically jobless by supposed tax code favoritism toward foreign products. This is where Domitrovic arguably misses.
For one, he would probably agree that big, booming businesses generally get that way by virtue of meeting the needs of the masses, not niche buyers. If so, Domitrovic would have to agree that all the charts, graphs and yes – narcissistic whining – from conservatives about supposedly “forgotten” Trump voters is overdone by many, many miles. Sorry, but billionaires become billionaires because there are well-heeled buyers from the middle who possess the means to buy from them. As a supply sider Domitrovic knows Say’s Law intimately, and because he does he’s well aware that people can only demand insofar as they supply. Domitrovic’s column was written at Forbes, a brilliant media company which wonderfully chronicles the genius of the billionaire class; one that is growing by leaps and bounds. That it’s growing is the surest sign that the earnings of the average worker are growing too. To be clear, billionaire wealth is nearly always an effect of talented entrepreneurs meeting the needs of the average worker. To be yet clearer, the surge in billionaire wealth is the surest sign that all the talk of downtrodden Trump voters finding hope in the outsider was a tad trite. If U.S. workers were destitute, then there would be very few billionaires. It can’t be repeated enough that great wealth springs from serving the masses. Trump’s victory occurred amidst great opulence despite what we’re told by Peggy Noonan, David Brooks and others who fall over themselves in their pretense about being in touch with the common man. The common, “forgotten” American worker of the present enjoys a rather lavish lifestyle as a U.S. littered with billionaires reminds us.
Secondly, Domitrovic seems to have forgotten that the U.S. itself is a massive free trade zone. About the previous point, this was something the Founders plainly intended. The Constitution would ensure that trade within U.S. states would be regular. That trade is free matters for a number of reasons. For one, no one talks about Tennessee’s trade “deficit” with Arkansas, but lots of Trump partisans talk about “America’s” trade “deficit” with “China.” Ok, but what’s the difference? Does Domitrovic really think the electorate is collectively divining one? Figure that all U.S. states have different tax rates and different electoral makeups (including lots of American citizens of Chinese descent), yet exchange among individuals is rather harmonious. So is migration among citizens for jobs across state lines sans "walls" harmonious. We don’t talk about this free-trade zone truth, it’s surely never used by politicians desperate to win votes, but if someone outside the fifty states meets our needs, politicians do? This is a long way of saying that the certain genius of free trade aside, the political arguments against it are just that. They’re 100% political, and have nothing do with anything economic. If they did, then it’s also true that self-interested gubernatorial candidates around the country would be routinely running with messages about “getting tough” on Texas, California, Tennessee, along with getting tough on the intrepid former citizens of those states "invading" other U.S. states.
Third, the competition for “American jobs” is most keen among American companies. Domitrovic has written of Main Streets that have “taken on the look of the dead,” of factories being closed with “mordant regularity,” and of towns being reduced to the ranks of the “pathetic,” but what he’s glossed over is that the relentless job destruction is frequently an effect of American genius. Lest we forget, it wasn’t Chinese competition that hollowed out U.S. newspapers and magazines as much as technological innovation within the U.S. profoundly changed how we access and consume information. From there it’s worth noting that Seattle-based Amazon took out Borders Books, Los Gatos-based Netflix wiped out Blockbuster, and San Francisco-based Uber replaced medallion-protected cab drivers. Crucial here is that all of what’s previously been described is progress. More specifically, those mill towns that Domitrovic laments the death of weren’t killed by factory closures (if so, New York City and Los Angeles would be the two deadest cities in the world given their uber-manufacturing past), rather they were killed by the departure of people like Domitrovic. Indeed, while it’s experiencing a revival born of job-destroying technology (self-driving cars, among other technologies), Domitrovic was reared in Pittsburgh. The problem is that cities like it haven’t modernly offered opportunity that appeals to people like him. As Jerry Bowyer once put it, there are Pittsburgh Steeler bars all over the country precisely because the city’s best and brightest long ago left. To be clear, mill towns don’t suffer shuttered mills, rather they suffer mills that were open too long such that the talented in those mill towns left them for good.
Taking this further, Domitrovic has suggested that the bleak outlook of the supposedly downtrodden American worker can be blamed on “massive container ships” reaching U.S. ports with “Made In China” stamped on them, but Say’s Law yet again stands in the supply-sider’s way. Simply put, people aren’t supplied to unless they’re supplying. One can’t help but wonder if other motivations inform Domitrovic’s analyses that don’t sound at all like him, but for now the surge of plenty from China is yet another reminder of how well off the American worker is. Indeed, businesses don’t produce in massive quantities for workers who aren’t productive, and earning well because they’re productive.
No doubt Domitrovic would agree that a certain driver of U.S. growth has been the previously-discussed truth that the U.S. has forever been a free-trade-zone unto itself. Precisely because massive containers filled with myriad goods - and more crucially - because people have long been able to move throughout the U.S. unmolested, Americans have enjoyed particularly amazing prosperity. Important here is that what has worked incredibly well in the ultra-rich United States has only been enhanced by strivers from around the world participating. Prosperity is an effect of capital (goods, services and most important of all, people) relentlessly being pushed to its highest use. The previous sentence is a statement of the obvious. It’s not just an American thing. That which enables us to specialize and gives us bargains can’t hurt us. Never. Ever.
Bringing this all back to the electorate’s message, Domitrovic perhaps owes his readers a better explanation. Without doubting his voting market thesis for even a second, and even ignoring for now the danger of mob rule, tariffs seem to be the wrong answer to an unrelated question. Leaving the rest of the world aside for a minute, the growth of the United States in human terms is the greatest market message in the history of the world. Millions of people around the world migrated to a zone of freedom, both personal and economic. For us to accept what is at best a vague market message unearthed by Domitrovic, we’d have to ignore a centuries’ long message that is still being reinforced as the ongoing arrival of “foreigners” attests.
