In a recent newsletter, Paul Krugman succinctly described what Trump has done to the economy. Granted, his economic ignorance is only a part of the current devastation–there are also the daily assaults on the constitution and individual liberties, and the continuing restoration of the Confederacy and its out-and-proud racism and misogyny…
But a lot of people who don’t care about the American Idea or fundamental fairness do care about their bottom lines. So Krugman’s summary ought to matter. Here’s that summary:
He has imposed high tariffs, undoing the effects of 90 years of trade negotiations. His deportation policies are already creating labor shortages and supply disruptions in multiple sectors of the economy. His Big Beautiful Budget Bill, aside from being cruel, is fiscally irresponsible. Deportations will undermine Social Security and Medicare. His drastic cuts to scientific research will undermine U.S. technology, and hence long-run economic growth.
That recap was an intoduction to Krugman’s analysis of why the stock market hasn’t tanked (yet), which he attributes to faith in the promise of AI. (My jury is out on the question of whether that “promise” is really a threat…) He also points out that the market has historically been a poor predictor of longer-term economic trends.
Whatever the market’s performance means–or doesn’t–it’s impossible to read that quoted paragraph without recognizing the enormity and inevitability of decline in American prosperity unless the mindlessness and madness aren’t reversed.
I wonder whether Trump voters will find the restoration of Confederate statuary and philosophy worth the economic costs…
There’s an old adage that counsels us to be careful what we wish for.
Before our mad king’s ascension to a second term, lots of Americans held negative views of immigrants. Political pundits attributed a good deal of Trump’s support to his promise to rid the country of these terrible people, the majority of whom (he asserted) were criminals and rapists.
That’s one promise the Trump administration is trying to keep, unlike its promises to curb inflation and cut out government “waste and fraud.” ICE has sent masked, armed enforcers after those nefarious lawbreakers–well, really, after everyone who “looks” undocumented (basically, engaging in racial profiling, yet another Trump administration unconstitutional practice).
So, how much has the keeping of that promise– the delivery of a result that MAGA folks ardently wished for–increased support for the administration? Strangely enough, it turns out that reality has punctured the always dishonest portrayals of America’s undocumented immigrants.
Just months after President Donald Trump returned to office amid a wave of anti-immigration sentiment, the share of U.S. adults saying immigration is a “good thing” for the country has jumped substantially — including among Republicans, according to new Gallup polling.
About 8 in 10 Americans, 79%, say immigration is “a good thing” for the country today, an increase from 64% a year ago and a high point in the nearly 25-year trend. Only about 2 in 10 U.S. adults say immigration is a bad thing right now, down from 32% last year.
What has caused the shift?
Well, first of all, despite Trump’s dishonest descriptions of an “invasion” of undocumented criminals, it turns out that there really aren’t many criminals out there. Experts have calculated that there may be–at most– only around 78,000 undocumented immigrants with any sort of criminal record, and of that number, only 14,000 have been convicted of violent crimes. Given Stephen Miller’s demand that ICE arrest 3,000 people a day, ICE has turned its attention to farm workers and day laborers.
For example, multiple media sources have confirmed that the great majority of detainees held at Alligator Alcatraz, the immigration detention center (concentration camp) built in the Florida Everglades, do not have criminal records or charges pending against them in the U.S. — despite Donald Trump claiming the facility would hold “the most vicious people on the planet.”
For that matter, in the case of immigrants who do have records, most of those records are for immigration violations, which are technically civil offenses.
Business owners–especially landscape companies, construction companies and restaurant/hotel owners–have lost significant segments of their workforces, as ICE has rounded up workers who may have been undocumented but who were anything but dangerous criminals. Grocers (and their customers) are dealing with increased prices, as farmers have lost numerous undocumented workers who picked their crops.
And as ICE has moved to deport their friends and neighbors, many more Americans have come to recognize the indiscriminate cruelty of these sweeps. It turns out that abstract promises about ridding the country of undocumented criminals is conflicting with the reality of these roundups.
Masked ICE agents have refused to show ID as they continue to engage in a variety of offensive and unconstitutional behaviors, sparking outrage.
Not only have ICE “enforcers” engaged in racial profiling, “immigration enforcement” is increasingly being used as a barely-veiled cover for efforts to chill the exercise of free speech. Columbia University student, Mahmoud Khalil, was detained by ICE, his student visa revoked, and he was threatened with deportation– not for criminal activity, but for involvement in pro-Palestinian protests. His arrest was widely–and accurately– seen as a part of Trump administration efforts to crack down on student activism. Another widely reported example was the arrest of Rümeysa Öztürk, a 30-year-old Tufts University student. She was taken off the street by masked ICE agents near her home. A court subsequently determined that her arrest had been prompted by her co-authorship of an article about the ongoing war in Gaza.
There’s much more.
The bottom line is that there is a difference between fantasy and reality. When political promises are based on “alternate realities,” the effort to fulfill them can become an (unintentional) educational exercise.
It turns out that the American economy is heavily dependant on immigrants, both documented and “illegal.” It turns out that constitutional guarantees for everyone are weakened when an administration decides that some people aren’t entitled to them.
It turns out that immigration enforcement is “more complicated than that,” and that pesky realities are significantly different from the racist fantasies that spawned them.
One of the multiple failures of the not-very-bright people who are currently running/ruining our government is their inability to connect the dots, to understand that when they set out to undermine X, the consequences of that assault aren’t just limited to X. We live in a complex and interrelated world, and failure to understand those complexities can lead to unanticipated damage.
The Trump administration consistently displays enormous ignorance of the way the world actually works. That ignorance–that disdain for pesky things like expertise and evidence–is particularly evident in Trump’s approach to economic policy. It isn’t just his insane belief in tariffs (a belief shared by no economist, conservative or liberal). It isn’t just his echoing of longstanding Republican insistence that tax cuts for “job creators” will grow the economy–despite ample evidence to the contrary. (Of course, even if those tax cuts don’t lead to economic growth, they do lead to the growth of generous political contributions…)
It isn’t even the GOP’s failure to understand the dire economic and civic consequences of further impoverishing citizens who are already struggling in order to fatten the wallets of the already wealthy, a failure once again demonstrated by Trump’s “Big Beautiful Bill.”
The most dangerous failure to connect the dots is the less-noted but even more consequential failure to understand the economic importance of the rule of law, or to recognize how Trump’s assaults on the law will dramatically and inevitably undermine the nation’s economy.
I’ve previously explained why widespread obedience to the rule of law is an essential underpinning of liberty and civic equality–why it is at the very basis of what I call “the American Idea.” But it is equally important to understand why the nation’s economic health is absolutely dependent upon a government that respects the rule of law.
Trump’s autocratic attacks on–and utter disregard for– the rule of law are a direct threat to the willingness of foreign investors to buy and hold American stocks and bonds. When those investors see Trump and his administration unilaterally defaulting on contracts, arbitrarily withholding funds that have been properly and legally appropriated, ignoring court decisions and attacking judges, deporting people without even the pretense of due process–while at the same time providing special treatment for donors, favored companies, and White immigrants– those investors re-think the safety of their investments.
Why should we care?
Among other things, foreign investors inject capital for increased production and economic expansion. They create new employment opportunities and facilitate technology transfer. Foreign investors often bring in advanced technologies and expertise, fostering innovation and boosting productivity in local industries. When foreign businesses generate profits, they contribute to U.S. tax revenues, providing American government with resources to fund public services.
That investment is at risk. As one economist put it,
The erosion of the rule of law under Trump can have enormous economic significance for a foreign government, investor, or company with stakes in our economy. They now know that the U.S. government may ignore its contracts with them or decide not to enforce their agreements with others when it serves the political or personal interests of the president. That’s the way the world works in the kleptocratic dictatorships in Russia and Venezuela, and virtually no one invests in their stocks and bonds.
By following their lead, Trump and his apprentices risk devastating capital flight that could leave many of our leading financial institutions insolvent. In addition to his deeply destructive tariffs, Trump’s sweeping campaign against the rule of law in the United States has raised the economic stakes from a rocky business cycle to a potential financial and economic meltdown with terrible consequences.
America’s respect for the rule of law is the reason foreign investors have felt safe parking their money here, and all Americans have benefitted from our role as a safe place in the global economy.
Anyone who has taken Economics 101 understands that the rule of law is fundamental to business and investment. It creates the predictable, stable, and fair environment that economic activity depends upon. Without predictability and stability,
businesses and investors are unable to make long-term plans and commitments. Unless laws governing commerce are clear and consistently enforced– and not subject to arbitrary changes– companies can’t assess risks and returns.
You would think the Republicans who fancy themselves protectors of private property and capital would understand that it is the rule of law that protects that private property from seizure or infringement, and that investors–foreign or domestic– are highly unlikely to put money into an economy where assets can be seized or destroyed without due process.
When the GOP was a party, and not a cult, it understood that.
Back in 2009, I wrote a book titled “Distrust, American Style,” in which I explored the role of trust in government and civil society. My research for that book involved dipping into the considerable scholarship on the subject, and confirmed the immense importance of trustworthy behavior by both governments and the various elements of our society. I traced the negative effects of then-emerging examples of untrustworthy behaviors–by businesses like Enron, by a variety of sports figures, and by religious figures. (Catholic Church scandals were in the news daily.)
I did not, however, turn my attention to the importance of trust to national economic performance. Paul Krugman has recently filled that void, explaining the likely, significantly negative consequences of having a madman and would-be king occupying the Oval Office.
Krugman began by focusing on the stupidity of the law firms that “bent the knee” to our mad king–pointing out what should have been blatantly obvious (and raising doubts about the intellectual and analytic bona fides of the fat-cat partners who cowered before Trump’s patently illegal threats.)
Less than a month ago many of America’s biggest law firms made deals with the White House in which they promised to end diversity, equity and inclusion (DEI) practices and to devote substantial resources to pro bono work on causes the administration supports. It was a shameful capitulation.
It was also stupid. Anyone who looked either at Donald Trump’s personal history or the history of authoritarian regimes in general would have realized that there’s no such thing as a deal with this administration. Whatever you think Trump and co. have agreed to, they will feel entirely free to make new demands whenever it suits them.
Those firms should have known that giving in to Trump just signals weakness, which leads him to demand further concessions.
Then Krugman explains why Trump’s mercurial behaviors are such a threat to the American economy. U.S. efforts to build an anti-China trade alliance are doomed to failure, Krugman says, “Because nobody with any sense trusts the Trump administration to honor the terms of any deals it makes, whether they’re deals about pro bono work with law firms or tariff deals with other governments.”
And as more and more people realize that Trump and his minions can’t be trusted, the damage will spread from trade to finance. The international role of the dollar and, eventually, America’s ability to service its debt are very much at risk.
Why can’t Donald Trump be trusted? Partly because he’s Donald Trump. But even if he weren’t, absolute monarchs — which is what Trump is trying to become — are fundamentally untrustworthy. The ruler may sometimes choose to honor his promises, but it’s always his choice — a choice that can be changed at any moment. And his untrammeled power makes the nation he rules weaker, not stronger.
Krugman uses historical examples to buttress his central argument that reliance upon a nation’s commitment to the rule of law–a commitment that promises stability–is central to economic growth and prosperity. And as he says, Trump will be unable to make trade deals because nobody trusts his promises.
The international role of the dollar depends in significant part on the belief that the U.S. government can be trusted to behave responsibly. “Among other things, international investors normally assume that the president will respect the independence of the Federal Reserve and refrain from, say, arbitrarily rewriting the terms of federal debt.”
Krugman ends his economics lesson by writing that, “Even now, I don’t think businesses, investors and the public in general fully appreciate what it means that we’re all subject to the whims of a mad king. But they’ll learn.’
Actually, there are indications that the more sophisticated investors and businesspeople are beginning to understand the enormous consequences of installing this madman in office, and of surrounding him with sycophants and clowns unable to restrain his incoherence.
But I’m quite sure Krugman is correct when he says that the public in general doesn’t “get it.”
A couple of days ago, I quoted Frederich Hayek for his analysis of the conditions giving rise to the emergence of “the worst.” They were 1) a dumbed down populace, 2) a gullible electorate, and 3) scapegoats on which that demagogue can focus public enmity and anger. MAGA voters have proved Hayek prescient. Millions of Americans lack even rudimentary civic and economic literacy, and have been kept gullible by media outlets that tell them what they want to hear.
And as a recent Facebook meme has it, “This is all so unfair to people who were just voting their racism.”
One of the dangers of even thoughtful policymaking is the possibility of unintended consequences; as I used to tell my students, even the best-intended legislative efforts can create unforeseen “spinoffs” that range from unfortunate to truly damaging. That’s why careful attention to policy details, consultation with people having expertise on the subject, and thorough review of available evidence are all so important.
So what happens when people in positions of authority are incapable of thoughtful policymaking and dismissive of evidence and expertise? We are about to face the consequences of policymaking by ignorant egomaniacs, and Paul Krugman has identified some of the most obvious.
Krugman notes that the new PM of Canada has ordered a review of that country’s plan to buy a substantial number of U.S.-made F-35 fighter jets, joining European nations that are similarly reconsidering their dependence on U.S. weapons.
This turn away from military dependence on the U.S. is understandable. America is no longer a reliable ally to the world’s democracies; indeed, between Trump’s turn toward Putin and his talk of annexing Canada and Greenland, we don’t look like an ally at all. Rumors that U.S. jets have a “kill switch” that would allow Trump to disable them at will are probably false, but sophisticated military equipment requires a lot of technical support, so you don’t want to buy it from a country you don’t trust.
He then considered several other emerging responses to the chaos being caused by our mad kings, pointing out that a nation “that can’t be trusted to honor agreements or follow the rule of law has to have monetary as well as political and diplomatic consequences.”
Several of those monetary consequences will be very damaging. Krugman says he’s been exploring the available data, and “U.S. exposure to foreign revulsion looks quite large.”
Military hardware isn’t the only export likely to suffer from our new rogue nation status. Our trade deficit in goods is partly offset by a surplus in services trade, but several of our major service exports will definitely be hurt by America’s turn to the dark side.
One of these is education. Many foreigners come to America to study, attracted by the quality of our colleges and universities. In 2023, the most recent year for which data are available, they spent more than $50 billion. But if you were a foreigner considering study in the U.S. next year, wouldn’t you be worried that you might find yourself arrested and deported for expressing what the current administration considers anti-American views? I would. So we can expect a hit to higher education, which, although we rarely think of it this way, is a major U.S. export.
Personal travel — basically tourism — was even bigger, more than $100 billion. But you can be sure that we’ll be seeing a lot fewer Canadians this year and next. And it won’t just be Canadians reconsidering their plans.
Media is already reporting cratering European tourism.
Krugman admits that he’s much more worried about Trump’s threat to our democracy than his bad economic policies. He also notes that– even in purely economic terms–the self-inflicted damage from tariffs and deportations is likely to outweigh the costs caused by other countries’ loss of trust in the United States. That said, those costs are real.
One way to think about this is to say that Trump is doing to America what Elon Musk is doing to Tesla, destroying a valuable brand through erratic behavior and repulsive ideology. Did I mention that Tesla sales in Europe appear to be cratering?
True, there are differences between a private business and a nation-state. I don’t think people visiting Tesla showrooms are subject to random arrest, or that Musk will kill your car if you say something he doesn’t like (although to be honest I’m not entirely sure on either count, especially since Musk seems to be running much of the government.) On the other hand, Tesla depends a lot more on buyer goodwill than the United States as a whole does.
Still, Trump’s belief that America holds all the cards, that the rest of the world needs access to our markets but we don’t need them, is all wrong. We are rapidly losing the world’s trust, and part of the cost will be financial.
I think it’s unlikely that either of our mad megalomaniacs considers the probable or improbable consequences of their actions. The hard core of MAGA cultists will refuse to acknowledge even the outcomes that negatively affect them (and the data suggests that Red states will likely bear the brunt).
We can only hope that a sufficient number of “softer” Trump supporters will realize that the costs of voting their racism have become too high.
