Fri, Nov 25, 2016 page9

• Donald Trump and the need for a sense of economic power

  • By Robert Shiller
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  US president-elect Donald Trump campaigned in part on a proposal to cut taxes dramatically for those with high incomes, a group whose members often have elite educations as well. Yet his most enthusiastic support tended to come from those with average and stagnating incomes and low levels of education. What gives?

  Trump’s victory clearly appears to stem from a sense of economic powerlessness, or a fear of losing power, among his supporters. To them, his simple slogan, “Make America great again,” sounds like “Make YOU great again”: economic power will be given to the multitudes, without taking anything away from the already successful.

  Those on the downside of rising economic inequality generally do not want government policies that look like handouts. They typically do not want the government to make the tax system more progressive, to impose punishing taxes on the rich, in order to give the money to them.

  Redistribution feels demeaning. It feels like being labeled a failure. It feels unstable. It feels like being trapped in a relationship of dependency, one that might collapse at any moment.

  The desperately poor may accept handouts, because they feel they have to. However, for those who consider themselves at least middle class, anything that smacks of a handout is not desired. Instead, they want their economic power back. They want to be in control of their economic lives.

  In the 20th century, communists politicized economic inequality, but they made sure that their agenda could in no way be interpreted as creating alms or charity for the less successful. It was fundamentally important that communists take power by a revolution, in which workers unite, take action and feel empowered.

  Trump supporters call his triumph a revolution, too, though the violence — at least by the campaign itself — was limited to name-calling and insults. It was still nasty enough, apparently, to inspire those of his supporters who interpret aggressiveness as evidence of power.

  It is certainly not just in the US that people desire a sense of vocational accomplishment, rather than simply money to live on. In no country does it feel generally right to respond to rising economic inequality by imposing heavy taxes on the rich and transferring the money to others. That feels like changing the rules of the game after it has been played.

  In their recent book Taxing the Rich: A History of Fiscal Fairness in the United States and Europe, Kenneth Scheve of Stanford and David Stasavage of New York University use two centuries of data on tax rates and on income inequality to examine outcomes in 20 countries. They found that there was little or no tendency for governments to make taxes more progressive when pretax inequality increased.

  Katherine Cramer, author of The Politics of Resentment, gained some insight into this outcome in Wisconsin, where, like Trump, Wisconsin Governor Scott Walker has been popular among working-class voters.

  After he was elected in 2010, Walker cut taxes on higher incomes, refused to raise the state minimum wage above the federally mandated minimum, and rejected the insurance exchanges created by US President Barack Obama’s signature 2010 health care reform, which would benefit lower-income people.

  Instead, Walker promised measures that would take power away from labor unions, actions that usually are perceived as likely to lower working class incomes.

  Cramer interviewed rural working-class voters in Wisconsin, trying to understand why they supported Walker. Her interviewees stressed their rural values and commitment to hard work, which have been a source of personal pride and identity.

  However, they also stressed their sense of powerlessness against those perceived as unfairly advantaged. She concluded that their support for Walker, amid evidence of economic decline, reflected their extreme anger and resentment toward privileged people in big cities, who, before Walker, had ignored them, except to tax them.

  Their taxes went, in part, to pay for government employees’ health insurance and pension plans, benefits that they themselves often could not afford. They wanted power and recognition, which Walker seemed to offer them.

  Such voters are also almost certainly anxious about the effect of rapidly rising information technology on jobs and incomes. Economically successful people today tend to be those who are technologically savvy, not those living in rural Wisconsin (or rural anywhere). These working-class voters feel a loss of economic optimism; yet, admiring their own people and upholding their values, they want to stay where they are.

  Trump speaks these voters’ language; but his proposals to date do not seem to address the underlying shift in power.

  He stresses cutting domestic taxes, which he asserts will unleash a new flurry of entrepreneurism, and renegotiating trade deals in a protectionist direction, to keep jobs in the US.

  However, such policies are unlikely to shift economic power to those who have been relatively less successful. On the contrary, entrepreneurs may develop even more clever ways to replace jobs with computers and robots, and protectionism may generate retaliation by trading partners, political instability and, ultimately, possibly even hot wars.

  To satisfy his voters, Trump must find ways to redistribute power over income, not just income itself, and not just by taxing and spending. He has expressed only limited ideas here, like subsidizing school choice to improve education.

  However, powerful economic forces such as technological innovation and lower global transportation costs have been the main drivers of increasing inequality in many countries. Trump cannot change this fact.

  If those who lack the skills that today’s economy demands refuse redistribution, it is hard to see how Trump will make them better off.

  The Trump revolution, as it has been presented so far, seems highly unlikely to deliver what his supporters really want: an increase in workers’ economic power.

  Robert Shiller, a 2013 Nobel laureate in economics, is a professor of economics at Yale University and the co-creator of the Case-Shiller Index of US house prices.

  Copyright: Project Syndicate
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