President-elect Donald Trump’s focus on trade deals is misplaced, economist says.
CHICAGO (MarketWatch) — President-elect Donald Trump’s “bullying” of private companies is an expansion of “corporatist” economic policy not seen since the fascist governments in Italy and Germany in the 1930s, said Nobel Prize-winning economist Edmund Phelps on Friday.
In a speech at the American Economic Association meeting, Phelps said that the U.S. economy is suffering from stagnation due to waning innovation, and not unfair trade deals as the Trump team has alleged.
In fact, innovation in America has been on the wane since the late 1960s, said Phelps, as the U.S. government has exerted more control over much of the private sector.
Insiders benefit from this government control because it effectively blocks them from competition.
“Restoring innovation” should be the focus of the new administration, said Phelps, who is the director of Capitalism and Society at Columbia University.
However, the early policy steps of the president-elect is “just the opposite and dangerous,” he said.
Trump has been “bullying” U.S. companies primarily on Twitter. For instance, he has urged auto makers not to manufacture cars in Mexico that they intend to sell in the U.S.
“There is the assumption that by bullying corporations, such as Ford, and stepping into aid other corporations, such as Google, the Trump administration can achieve various objectives that will widely boost output and employment. But this is an expansion of corporatist policy of a kind not previously seen since the German and Italian economies of the 1930s.”
“If history is a guide, by expanding protection and interference in the business sector, the Trump administration may very well block the innovation of outsiders and newcomers more than it would stimulate the innovation among the innovators,” Phelps said.
As a result, “the Trump government is threatening to drive a silver spike into the heart of the innovation process.”
“Hitler, I can’t refrain from mentioning, by controlling the economy, caused productivity growth to stagnate in the second half of the 1930s,” he added.