Trump is Smarter Than I Thought
January 18, 2019
by William P. Meyers

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Average is smart enough when you know what you are doing.

Few people would deny that Thomas Piketty, author of Capital in the Twenty-First Century, is a smart man. Yet many Americans and people around the world think Donald Trump is lacking in brains. I've made remarks to that effect myself.

Consider the following from Piketty's book, page 130. "The very high level of public debt served the interests of the lenders and their descendants quite well, at least when compared with what would have happened if the British monarchy had financed its expenditures by making them [the rich] pay taxes. From the standpoint of people with the means to lend to the government, it is obviously far more advantageous to lend to the state and receive interest on the loan for decades than to be taxes without compensation. Furthermore, the fact that the government's deficits increase the overall demand for private wealth inevitably increased the return on that wealth."

Piketty is talking about the British Empire in the 1800s, but the lesson applies today. To those whose main source of wealth is inheritance, like Donald Trump, running a deficit instead of having a high tax rate on income, capital gains, or inheritances is a double blessing. You get to keep your money, and as much as you want can be safely invested in government bonds. You can set up your family for generations of wealth.

I am certainly not saying that Trump is a financial Einstein, or that he thought up the tax cuts for the rich and running a trillion dollar per year federal deficit all by himself. But I learned long ago that intelligence is complex, and it requires context. I do not care if you have an IQ of 140, if you try to do something complicated that you have never done before, an experienced person of average intelligence will almost certainly do the job better. Think of the Big Bang scene where the physics boys try to change a car tire. Experience counts.

The ruling class knows about making money and using political power. Trump was born into the ruling class. He knows he and his friends are better off with taxes on the backs of the middle class. He knows that his friends depend on government spending far more than welfare moms. And even if Trump did not read Piketty, you can bet that Mnuchin did, or at least had an assistant summarize it for him. Page 130 may have leapt out, but more likely this is a historic fact that was already common knowledge in the ruling class apparatus.

It also puts some aspects of history in a different light. Government bonds in the United States were not that big of a deal until Franklin Roosevelt started running huge government debts. Sure, Franklin took some actions Herbert Hoover would not, and the New Deal was a good thing for most Americans. But it was also a particularly good deal for the ruling class, whether they said so or not, because it created a very safe way for them to invest their money.

Reading Piketty is forcing me to re-examine my ideas about how much government debt the U.S. economy can suffer under without collapsing. He shows that the Brits prospered with proportionally larger amounts of debt for a very long period of time. Of course, they ruled half the world, and were good at extracting wealth from their colonies. The scheme might not have worked out so well in other circumstances.