Donald Trump and Irrational Economics
July 13, 2018
by William P. Meyers

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Trump's Irrational Economics

My mother used to say to me and my siblings, "Don't follow the crowd."

What she actually meant was, don't follow any crowd but mine. Her crowd was white racist, Roman Catholic, conservative, and Marine Corps.

On the other hand, she at least paid lip service to honesty, and she made sure we were fed three meals a day. She got up early in the morning, started breakfast, got us up and off to school and work, then headed to work herself.

Irrational thought and behavior comes in many forms. No one escapes it entirely. Sometimes it becomes the cultural norm: the irrational seems rational because it is habitual.

Economics evolved into a science, or at least a pseudoscience, after the publication of Adam Smith's Wealth of nations in 1776. Despite the industrialization and electronicification of our world, it is still a readable book. While I would certainly recommend that every citizen read through an introductory economics text, Wealth of Nations is much easier to read, with much the same result.

But it also began the trend of assuming that people make economic decisions rationally. Only in the past couple of decades have economists come to grip with the reality that people are more apt to rationalize decisions made for psychological reasons than act in what is considered a rational manner. The main source of irrational behavior is the need for Status, but that is hardly the only one.

Which brings us to Donald Trump, President of the United States of America, who by his own lights is a good man. Whether his Presidency is good for the country or the world is much disputed. My view is that it is not.

President Trump grew up rich and sheltered, but he did learn the family business. He aspired to move the initiative from the suburbs of New York, where his father built housing for families, to Manhattan, where tall buildings meant construction and operation on a larger scale. Fortunately his father had the banking and political connections already in place to allow Donald to succeed. I believe that Donald was a status seeker, that celebrity was at least as important to him as wealth accumulation, and that he was right in coming to believe that in modern America the two go hand-in-hand.

Trump saw an opportunity to become the closest we have to King of the land, and he grabbed it, surprising his opposition both within the Republican Party and then in the Democratic Party. He thus rose to his level of incompetence.

A rational consumer would put $100 in a savings account, rather than lose it to a casino, but we know that using this test of rationality, there is at least enough irrationality to keep casinos afloat, as long as they are not run by Trump.

The key problem, at the Presidential level, is that policies that appear to be rational are in fact irrational. The reason is that it is not just humans that don't work the way economists and politicians think. The world does not work the way they think.

For instance, the leaders of China are not behaving like building contractors that can be paid if things go well and blown off if someone has to be out the money for a failed project. Trump has almost no knowledge of history, not even the history of the years since he was born. China had the largest economy of any nation in the world in 1800, and it has the world's largest economy today (if you use reasonable measurements of size). The period of inferiority for China, say 1840 to 2010, was an aberration.

Trump's "make America great" reasoning is that China ships more goods (in $ terms) to the U.S. than the U.S. ships to China. That is unfair, and the reason some American workers could not find jobs during the Great Recession. But the Great Recession is over, for one. The main reason China exports more to the U.S. is that the Chinese are focuses on production and savings, whereas Americans are typically focussed on consumption and credit. If Trump wants to win this battle (or peacefully improve the U.S. economy), then Americans must be nudged into saving and investing more. Of course there is a spectrum. China has its spendthrifts, and a significant portion of Americans are pretty good savers. But on the average, there is a big difference.

If Trump wants to negotiate America's way to greatness, the people he needs to negotiate with are the American people. The Chinese are a convenient sideshow, an artificial enemy. Trump never accepts responsibility, and in his lifetime far too many Americans have blamed others for their problems, rather than getting off their asses and improving things.