On Incentives

"Never penalize those who work for us for mistakes or reward them for being right about markets. It will go to their heads, is counterproductive and, in any event, material compensation will not correlate with their ability to predict the future next time."

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You already know a lot about Donald Trump.  You know about his narcissism.  You have seen his bullying.   You know that he believes he is the center of the universe and that he can reorder society – ours and everyone else’s – by fiat.   You have seen how he thinks little of the adverse consequences of what he says.

How will this toxic mix play out?  Let me speak bluntly about what will likely happen were Donald Trump to achieve the office he seeks.  Domestically, if he in fact implements tariffs or punishes  companies which have brought their facilities overseas, we can expect a massive drop in the stock market.  The reason is simple and inevitable.  U.S. companies, large and small, rely on open markets for their viability and growth.  Donald Trump’s protectionism is likely to make the market losses experienced in the crash of 2008 – 2009 look pale in comparison.  For those with retirement assets, your 401Ks, your savings, will be irreparably damaged.  And, jobs will be lost across the entire economic spectrum.  Innovation will be a luxury; research in health and technology will be starved for funding.  Why?  Because U.S. companies, wherever located, will be barred or severely limited in their ability to sell goods outside the United States, as countries surely will take punitive action against the United States in an all-out trade war.  U.S. investments overseas will therefore drop substantially in value.  That will cost millions of jobs here, and will directly affect small businesses, and suppliers who rely directly or indirectly on a free and viable international market for goods and services.  For once, trickle-down economics will work, but on this occasion, the adverse consequences will spread from the largest companies down to the smallest parts of our economy.

I wonder sometimes what Donald Trump would recommend if he were advising say China, or India, or Mexico, or Canada, or Brazil how they should respond to his proposed policies.  They will surely respond.  Or, does he think they will not respond, that they will simply roll over in response to his magnetism? 

The problem goes beyond the loss of jobs.  Donald Trump’s proposals will likely result in unheard of increases in prices for our raw materials, our clothing, our electronics, our cars, our appliances, our smart phones, our commodities, our oil, our consumption of the basic necessities of life. Consumers will bear the cost of confiscatory tariffs.  In short, his protectionism will not create new jobs but will result in massive unemployment.  His policies will have the same result as the tariffs of the 1920s.

And it’s not just savings, and jobs, and growth, and inflation that are at risk.  Interest rates will go through the roof while our currency declines.  Capital always seeks safety and confidence and flees if default or “bankruptcies” are the way to go.  Countries, unlike the private sector, do not have the luxury of default or renegotiation of what they owe.  The United States is not some tin-pot dictatorship which can renege or renegotiate on its obligations and expect the world to invest in U.S. dollars.  Nor are we like the tin-pot dictatorships where the President anoints himself as investigator, prosecutor, judge, jury and sentencer.

Let me turn now to those who do not have savings and the unemployed, or underemployed, who have been caught in the transition to a global economy, or who have been mired in poverty for decades.  Donald Trump’s policies will hurt them the most.  They will drive more of the middle class down the economic ladder.  The idea that he supports or cares for the “common man,” given his life style, his history, is beyond belief.  His tax proposals push wealth upwards at the expense of the middle class and don’t address the very arcane “loopholes” he has used to avoid paying any income tax.  I wonder whether his vaunted expertise in the tax code is to assure us that he will not change those very sections which he has so diligently used to pay no federal income taxes or whether he intends to change them.  I think we have the answer.  Not a word – not a single word about eliminating the very clauses he has used to avoid taxes. 

He has proposed no policies, to help those caught in economic transition.  He pretends a concern about the poverty in the inner cities for which he does not have a single articulated program while he brags about favorable laws (which he does not recommend changing) that have helped him avoid his obligations and have helped him “stiff” blue collar workers time and time again.  That man has been sued or has sued over 3,500 times in the courts!  That should tell you enough.

Perhaps the best evidence of what we will do can be found in what we have stood for and accomplished in the past.  What I have stood for, have worked for, my entire public life.  Reflect for a moment what we, the Democratic Party, has initiated and implemented, usually over vehement Republican opposition, in State Houses and the U.S. Congress over the last decades:

  • Social Security
  • Minimum wage and hour laws
  • Protection of our national natural resources
  • A measurably cleaner, safer and healthier environment
  • Child labor laws
  • Unemployment compensation
  • Purer foods, safer drugs,
  • Financial support for college education
  • Parks, recreational facilities, highways, ports, dams, bridges
  • Medicare and Medicaid
  • A government that has supported, in hundreds of ways, the private sector
  • Civil rights
  • A legal system that protects our freedoms
  • Civil liberties that have supported our right to different life styles
  • Equal pay for women
  • Laws that have encouraged competition, prohibited predatory pricing, and prevented monopolistic pricing of goods and services
  • Support for the elderly, the disabled, the poor, and, yes, even those who didn’t need it.

The list can go into the hundreds of large and small interventions.  The fact is we have established a covenant, a consensus among government, the private sector, labor and the myriad of constituencies that make up our great nation.  It has taken a long time to establish that consensus.  Yes, reasonable people will debate about when and how to rebalance that consensus in response to changing political, international and economic conditions and how to make sure that the pressing needs of the poor and the middle class are addressed. 

I have one final point.  We are a democracy – we elect school boards, governors, state legislators, Congressmen, Senators and, yes, the President.  They represent us – all of us.  They have fashioned much of our society after debate, compromise, and, yes, bloodshed.  Donald Trump labels, with much scorn, these elected officials – Democrats, Republicans and Independents as – “The Establishment.”  He seems to reject and forget they are elected through a democratic process.  Would he change that too. 

There are two ways of looking at Donald Trump.  He will simply be an embarrassment, a humiliation, to our nation.  He will be ridiculed as an unstable man without self-control – without a “filter,” unable to help even himself.  He will not be treated seriously.  That’s the best outcome.  The worse scenario is that he will be taken seriously.

Let me sum up.  Fundamentally, Donald Trump is unable to see down the road, to see the consequences of what he says when he is out of control.  That is what comes from bullying and narcissism.  That comes from thinking, talking and acting as if you alone are the center of the universe.