What policies will be pursued by the author of "The Art of the Deal"?

After reading Trump:The Art of the Deal it seems to me that the best way to start thinking about how to answer this question is to ask yourself what Mr Trump could do to further promote his own reputation as a political leader. His policy choices are likely to be determined largely by the potential they offer for the further self-promotion required to enable him to win a second term in office.

Some may wonder why I see a book written about 30 years ago as providing guidance about Mr Trump’s current priorities. Although his co-author, Tony Schwartz, claims that he actually wrote the book, it is clear that Donald Trump strongly endorses the ideology of The Art of the Deal and sees his experience in negotiating business deals as highly relevant to the presidency. In announcing his candidature, he said: “We need a leader that wrote ‘The Art of the Deal’.”

The Art of the Deal conveys the impression that the prime motivating force in Mr Trump’s life is self-promotion. The book is itself a promotional exercise designed to enhance his reputation as a person with the capability of doing deals under difficult circumstances. Trump is the hero, using publicity as a weapon to defeat incompetent and evil opponents. He emphasizes the importance of giving the media a good story. He even views critical stories as providing valuable publicity. Most tellingly, he acknowledges:

“The final key to the way I promote is bravado. I play to people’s fantasies. People may not think big themselves, but they can still get excited by those who do. That is why a little hyperbole never hurts”.

If you think that makes Mr Trump sound more like a politician than a business leader, consider the way in which he emphasizes that it is important “to deliver the goods”:

“You can’t con people, at least not for long. You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you don’t deliver the goods, people will eventually catch on”.

The quoted passage is followed immediately by reference to two former presidents, Jimmy Carter and Ronald Reagan, as examples of leaders who were good at promotion, but not so good at delivering the goods. This guy obviously thinks like a political leader, but it remains to be seen whether he will be as good as Ronald Reagan at delivering policy outcomes that are worth having.

The new president will recognize that to have any chance at re-election he will have to deliver some of the “goods” expected by the people who voted him into office. There will no doubt be a flurry of activity to take specific actions he has proposed for his first 100 days. Over the next few years there will probably be some real policy change e.g. cuts in corporate tax cuts, increased infrastructure spending and more restrictive immigration policies. In the foreign policy arena, application of the Trump doctrine of doing deals with the big players might end up favouring closer relations with China, as well as Russia, despite recent anti-Chinese rhetoric. That might make life more difficult for China’s neighbours, but is probably preferable to the alternative of deepening tensions between the U.S. and China. In many other policy areas, including trade policy, we are likely to see major re-branding exercises, with little actual policy change. Every policy deal will have Trump’s name written all over it – just like his real estate developments!

When I decided to read The Art of the Deal one of my objectives was to see to what extent he sees deals as involving winners and losers rather than mutually beneficial outcomes. There is some of both.  A substantial component of the “art” endorsed by Trump is actually an entrepreneurial function that will be recognizable to fans of Austrian economics. The entrepreneur sees an opportunity to make a profit that others have not seen, and then proceeds to use his negotiation and management skills in pursuit of that profit. If the entrepreneur succeeds, many others also benefit, including original owners of sites and the air space above them, financiers, contractors, building workers, and the people who own or rent space in the building. Everyone involved can be a winner.

The added complication in the entrepreneurial art practiced by Donald Trump is the prevalence of  government regulation impacting on the property development that he has been involved in. As I was reading The Art of the Deal I began to realize that Donald Trump and Tony Schwartz were writing about the entrepreneurial function in rent-seeking environments – the highly regulated property development market in New York and gambling industry in Atlantic City. For the benefit of readers not familiar with the concept, the idea of a rent-seeking society was developed by Gordon Tullock and Anne Krueger to describe societies where government regulations play a large role in determining the distribution of incomes, and substantial resources are expended by individuals and groups – rent-seekers - lobbying to have the coercive powers of government used to their advantage at the expense of others. The U.S. is not one of the first countries that comes to mind when I think of rent-seeking societies, but rent-seeking is rife in the industries where Donald Trump learned the art of the deal.

I am not the first to recognize that The Art of the Deal is about entrepreneurship in rent-seeking environments:  Adam Davidson made similar observations in an article in the New York Times Magazine in March 2016. However, I don’t think Davidson’s view of Donald Trump was entirely accurate. He suggested that Donald Trump “is not just a rent-seeker himself; his whole worldview is based on a rent-seeking vision of the economy, in which there’s a fixed amount of wealth that can only be redistributed, never grow”. The Art of the Deal portrays Trump’s real estate development activities as being about adding value to sites rather than just obtaining benefit at the expense of others. Even allowing for his hyperbole, Trump seems to see his role as that of a capitalist hero, like a character out of an Ayn Rand novel, who is using his skills in self-promotion and his legal team to fight the rent-seekers who are trying to obstruct economic development.

When he talks about public policy issues Mr Trump sometimes seems to allow his desire to present himself as a person with a kind heart to get in the way of clear thinking:

“Unlike most developers, I don’t advocate eliminating rent control. I just think there ought to be a means test for anyone living in a rent-controlled apartment”.

I wonder whether Trump really sees rent-control as a good way to provide economic assistance to poor people. A cynic might suggest that his support for means tested rent control was a rent-seeking ploy to further his own interests in evicting wealthy tenants from the rent-controlled premises that he wanted to re-develop.

Adam Davidson might be close to the mark in suggesting that at an international level Donald Trump’s world view is governed by the idea that what one country gains another loses. Some passages in The Art of the Deal reflect that view. Trump claims that the Japanese “have become wealthier in large measure by screwing the United States with a self-serving trade policy that our political leaders have never been able to fully understand or counteract”. These days he expresses similar views about China.

 From an economic perspective, Donald Trump’s desire to put America’s interests first in trade policy would be desirable for Americans (as well as people elsewhere in the world) if only he knew where America’s interests lie. It is hard to believe that this builder of innovative modern buildings in New York thinks he can make America greater by transforming its manufacturing industry into a museum of mid 20^th century technology that can only survive sheltered behind high import barriers. If he sees America’s interests as providing widespread opportunities for Americans to enjoy greater prosperity, he should hire some competent economists to suggest what policies are most likely to contribute to that objective.

If Donald Trump believes his own rhetoric about asking lots of questions, keeping options open and thinking big, perhaps he could even end up as an advocate of unilateral free trade, rather than re-branded bilateral trade deals. In my view the odds are strongly against that, but it could happen! 

Postscript:

A couple of months later, I think I was excessively optimistic in suggesting that we are likely to see major re-branding exercises in trade policy with little actual policy change. There are two reasons for this. First, Trump’s most influential advisers strongly favour protectionism and will not be satisfied with the kind of re-branding that might satisfy the President. Second, as Barry Eichengreen has pointed out, Trump is likely to focus on trade policy because it is “the one set of economic policies a President can pursue without close congressional cooperation”.

It now looks as though the world might be about to enter a new era of trade protectionism. Some suggestions regarding appropriate Australian policy responses are in a later post.

Is our "real" constitution pro-liberty?

My main reason for reading Politics of Liberty in England and Revolutionary America, by Lee Ward, was to understand how the English Whigs could oppose the American colonists’ quest for independence. Ward explains why they did not have any problem reconciling their opposition to American independence with their philosophical views. 

Constitutional ideas that were held in high esteem by Thomas Jefferson and many other American politicians - particularly the views of John Locke - were on the radical fringes of political discourse in England. The English Whigs (and Tories) were more strongly influenced by the constitutional ideas of Samuel Pufendorf (1632-1694) a German jurist and political philosopher who argued that whatever form of government a people constituted must be guided by a supreme power that is subject to no limitations or external force. The British Parliament was seen by parliamentarians like William Blackstone, and even Edmund Burke, as having supreme power over the colonies.

Whilst reading about the differing constitutional ideas being put forward by influential writers in England and colonial America my mind often turned to the concept of a real constitution put forward by Sheldon Richman in America’s Counter-Revolution: TheConstitution Revisited (discussed previously on this blog). Richman defines the real constitution as the set of dispositions that influence what most people will accept as legitimate actions by the politicians and bureaucrats who make up the government. He derives support for this concept from Roderick Long’s observation that “government is not some sort of automatic robot standing outside the social order it serves; its existence depends on ongoing cooperation, both from the members of the government and from the populace it governs” (NPPE, Vol 2, No 1).

All the advocates of different constitutional ideas in England and America in the 17^th and 18^th centuries were seeking to influence their readers’ dispositions concerning what they would accept as legitimate actions by governments. Robert Filmer used his interpretation of scripture as a basis to argue that even tyrannical kings had a divine right to rule.  Thomas Hobbes argued that while individuals had a right to self-defence, life would be “solitary, poor, nasty, brutish and short” if they were unwilling to authorise a strong government to maintain order. John Locke’s view of the state of nature - life without government - was not much more benign: in his view the absence of government to act as an umpire to settle disputes would result in a state of war, or something dangerously close to it. Locke argued, however, that government power derives from the individuals who compose society; it is held by governors as a form of trust; and if governors break this trust - fail to preserve the property (lives, liberties and estates) of individuals - then power devolves back from whence it came.

Moderate Whigs successfully advocated a Pufendorfian interpretation of the Glorious Revolution which deposed James II in 1688. Rather than asserting that the people had a natural right to appoint and depose their governors, the House of Commons accused James of having “endeavoured to subvert the constitution of the kingdom, by breaking the Original Contract between king and people”. However, the House didn’t even present those actions as grounds for rightful deposition – it relied on the legal fiction that James had abdicated. All mention of an original contract was expunged from the final version of the Declaration of Rights presented to William and Mary.

As already noted, the constitutional ideas advocated by Thomas Jefferson owed a great deal to John Locke. Tom Paine went somewhat further by asserting that modern society rather than the classical polis provides the psychic plane on which moral virtue flourishes:

“Society is produced by our wants, and government by our wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices”.

Unfortunately, Paine’s argument for government to be viewed as “a necessary evil” was not matched by recognition of the potential for legislative tyranny. Paine believed that legislatures would protect individual liberty because they would reflect the “popular will”.

   

Our experience with representative government over the last couple of centuries should have made everyone sceptical of claims that democratic constitutions allow the people to rule. The only way the people can rule is if the real constitution is pro-liberty – and that can only happen if enough individuals accept responsibility for governing their own lives. In my view Karl Popper was right to defend democracy on the grounds that it provides a way to get rid of bad governments without bloodshed. Democracy does not necessarily help us to choose good government. 

Did the framers of the U.S. Constitution intend it to protect liberty?

A week ago my answer would have been along the lines that while I could not claim any expertise in American history I had the impression that the natural right to liberty had been recognised in both the US Declaration of Independence and the US Constitution. In support of that view I would have pointed to the division of powers between the executive, congress and judiciary; the specific guarantees of freedom including freedom of speech; and the allocation of specific powers to the central government with remaining powers residing with the states. I would have argued that limiting the powers to the central government was a particularly important guarantee of freedom because states which imposed burdensome taxation and regulation were likely to lose out in the competition for people and investment. However, I would also have indicated that I was aware that the federal government had ended up with more power than the founding fathers had intended as a consequence of imaginative judicial interpretations of the Constitution.

For the benefits of an Australian audience I might have added that the framers of the US Constitution were obviously more concerned about liberty that the framers of the Australian Constitution. The two constitutions are similar, but the Australian Constitution - written a little over a century later - does not include explicit guarantees of liberty. As with the US Constitution, the Australian Constitution specifies limited powers for the central government, but some leading politicians who were heavily involved in federation were aware from the outset of the potential for its taxing powers to give the central government great leverage. Soon after federation, Alfred Deakin remarked that the Constitution had left the States “legally free but financially bound to the chariot wheels of the Central Government”.

My view of the libertarian credentials of the framers of the US Constitution has been challenged over the past week by my reading of Sheldon Richman’s book, America’sCounter-Revolution: The Constitution Revisited. Richman suggests that the framers of the US Constitution staged a counter-revolution:

“the Constitution, far from limiting government, was actually designed to bring about a new one that betrayed the ideals of the Declaration of Independence itself. … There is a reason it has done a poor job in protecting freedom: it was never intended to do so”.

The Constitution was ratified in 1788, twelve years after the Declaration of Independence. It replaced the Articles of Confederation, which had been ratified in 1781. Under the Articles the government of the United States had been essentially confined to external affairs. It had no power to tax, regulate trade, or raise an army.

Greater central government powers were apparently not required to improve the lives of citizens. Under the Articles of Confederation, America was relatively peaceful and prosperous. In Richman’s words, life “wasn’t so bad after all – at least for white males with property  … ; obviously it wasn’t so good for African Americans, Indians, and white women, but their fate did not change in 1789”.

Richman cites evidence that a negative impression of the confederation period was fostered by those who favoured nationalist centralisation. Mercantile interests apparently tended to favour nationalist centralisation because they hoped it would help them to hold onto political power at the expense of radical democrats – including overtaxed small farmers - who were gaining greater representation in some state legislatures. Interstate protectionism was more legend than fact.

The author suggests that from the outset the US Constitution could reasonably be seen as a stool with three legs: taxation; mercantilist trade-promotion; and national security in a hostile world. The Constitution gave Congress taxation powers that would be sufficient (in my view) for any modern warfare/welfare state: “Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”. Promoting trade was seen in those days (and still today in many quarters) to be more about opening export markets than enabling mutually beneficial transactions between people in different countries; trade-promotion was about selective embargoes and building empires. The nationalists sought a permanent military establishment that would be powerful enough to protect the nation’s interests from the old colonial powers and the Indian nations, whose lands Americans coveted.

The bill of rights in the US Constitution was introduced as an afterthought to mollify anti-federalists who had made the absence of a bill of rights the top talking point against the draft constitution. The rights embodied were largely uncontroversial common law rights of Englishmen.

Richman seems to me to make a strong case that James Madison, sometimes referred to as the father of the US Constitution, was father of the “implied-powers doctrine”. Madison argued that it was impossible to confine the federal government to the exercise of powers “expressly delegated” unless the constitution “descended to recount every minutiae”. Richman comments:

“Madison was right, of course. … There must be implied powers. But that’s the danger of a constitution and a monopoly constitutional government. Implied powers must be inferred, and inference requires interpretation. Who is likely to have the inside track in that process: those who seek to restrict government power or those who seek to expand it? We know the answer to that question”.

This book does more than make the case that a counter-revolution set America on the wrong path over 200 years ago. The author asks an important question that could help put America back on the right path: “Where is the Constitution?” Richman is referring to “the real constitution – the set of dispositions that influence what most Americans will accept as legitimate actions by the politicians and bureaucrats who make up the government”.  The point he is making, with the aid of Roderick Long’s (easily found) contribution on “market anarchism as constitutionalism”, is that if government power is to be wound back the real constitution must be pro-liberty:

“That’s why there’s no substitute for education and an intellectual-moral revolution”.

Another piece of wisdom that Sheldon Richman provides to libertarians is to avoid letting the perfect be the enemy of the good:

“I see no reason for libertarians, in the name of purity, to withhold support for steps that make real progress toward liberty and pave the way for more”.

That is an approach that a I can readily support without having to be persuaded that market anarchy offers the best prospects for human flourishing. 

How did the culture of growth evolve?

There can be little doubt that a change in attitude toward nature and the ability to harness it to human needs, that occurred among an educated elite in Europe in the period 1500 to 1700, paved the way for the industrial enlightenment in Britain, and the subsequent economic growth that has since benefited much of the world’s population. Joel Mokyr’s recent book, A Culture of Growth: The origins of the modern economy, explains that change of attitude in terms of cultural evolution.

Since cultural evolution involves individuals in making choices that change their beliefs, values and preferences it might be expected to be a gradual process. However, Mokyr uses cultural evolution to explain the large, discontinuous change in attitudes that occurred in Europe by pointing to: factors causing resistance to such change throughout the world; factors specific to Europe leading to a weakening of such resistance; and specific change agents espousing the cultural change that occurred. At the risk of over-simplifying the author’s scholarly efforts I will attempt to outline his thesis below.

Early modern Europe was a deeply religious age. The great Thomist synthesis, in which Christianity was merged with Aristotelian physics and metaphysics became a deeply entrenched dogma. The prevailing culture discouraged potential innovators from openly challenging this dogma. Science had previously flourished during some periods other parts of the world. It flourished in the first centuries of Islam, but was subsequently held back by mystical religious dogmas. It flourished in China during the Tang and Song dynasties (618-907 and 960-1127), but stagnated during the Ming and Quing dynasties (1368-1644 and 1644-1911) when institutions such as the imperial service examination system served to discourage intellectual innovation.

Political fragmentation is the specific factor which led to a weakening of resistance to intellectual innovation. In the context of the ongoing cultural unity of Europe, political fragmentation made it possible for intellectuals whose ideas were suppressed in one jurisdiction to continue their work elsewhere. The ubiquity of the printing press made a mockery of prohibitions on books by rulers of particular states. The rulers of different states sought to enhance their prestige by competing with one another to attract citizens with academic or other skills. 

The third element of the evolutionary story is the work of cultural entrepreneurs, particularly Francis Bacon (1561-1629) and Isaac Newton (1643-1727). Joel Mokyr emphasises that Bacon’s contribution should be assessed in terms of his rhetorical contribution to cultural change rather than his specific contributions to science. Bacon challenged the traditional orthodoxy by emphasizing the potential for the “sacred duty” to improve the material conditions of life to be aided by knowledge gained from experimentation. He argued that knowledge ought to bear fruit in production.

Isaac Newton promoted the view that the universe is mechanistic and understandable and that the role of science is to establish empirical regularities. He also argued that this knowledge should be used for the material benefit of mankind.

The educated elite in Europe – members of the so-called Republic of Letters – looked upon Bacon and Newton as the most influential thinkers of their age. The Republic of Letters set up norms and incentives that supported the market place of ideas. Participants were expected to reply to letters, disclose findings and data truthfully and acknowledge intellectual debts. The main payoff for successful scientific efforts was enhanced reputation. Evidence and logic were needed to back up assertions in order to win acceptance for new ideas. Scepticism provided the basis for advances in codified knowledge.

In Britain, the Puritans were particularly impressed by Francis Bacon’s writings. They were deeply attracted to experimental research. The systematic study of God’s creation was seen to be the closest a Calvinist could get to understanding an inscrutable deity. The study of nature was seen to have potential to instruct interpreters of the scriptures. The Puritans saw a great deal of virtue in “good works”, which they associated with labour that was useful and profitable in a worldly sense. What we call leisure, the Puritans viewed as idleness. They regarded education in physics, science, mathematics and languages as deeply virtuous.

The Puritans showed little concern for improving institutions in ways that would benefit economic growth, but in their stress on empirics and the practical use of knowledge they constitute “an essential link between the early followers of Francis Bacon and the Industrial Enlightenment of the 18^th century” (which Joel Mokyr wrote about in The Enlightened Economy). During the later Enlightenment period, science was, of course, able to “shed religion and advance on its own steam”.

In this brief review I have focused on the bare bones of Joel Mokyr’s model of cultural evolution. Readers interested in a broader perspective, should read Deidre McCloskey’s review. McCloskey’s important trilogy of books in this field also emphasise the importance of rhetorical contributions in promoting a culture of growth, but seem to imply that literature’s role in changing attitudes toward business made a greater contribution than Bacon’s cultural entrepreneurship in the field of science.  I mention this just to acknowledge that history can be complicated.

I find it difficult to read a book like A Culture of Growth without wondering what the implications it might have for the future. My reading of the history of the industrial enlightenment (sometimes still referred to as the industrial revolution) has previously made me think about the links between cultural change and economic policy reform. One might think that if a cultural evolutionary framework can help us to think about the past it should also be able to help us to think about the future. However, such models can only provide a framework. As Joel Mokyr emphasises models of cultural evolution are contingent rather than deterministic:

“In other words, they force us to recognize that things could have turned out differently than they did with fairly minor changes in initial conditions or accidents along the way” (p 232).

Hopefully, the “accidents” that  the world is currently experiencing will not destroy the culture of growth.