Trump Ran for the ‘Forgotten.’ Then He Forgot Them. ... Green Rules apply
How does President Trump continue to pass for an economic populist even as his policies and appointees are those of an economic royalist? The Republican tax plans he supports are a prime example: They favor corporations and upper-bracket individuals and rely on the long-discredited “trickle down” theory to offer benefits to workers.
Wall Street veterans dominate the major economic posts in the Trump administration.
Spencer Platt/Getty Images
Mr. Trump’s key economic posts have gone to Wall Street veterans. Most recently, he nominated Jerome Powell — a partner from 1997 to 2005 in the Carlyle Group, one of the largest private equity firms — to be chairman of the Federal Reserve.
The president’s other top economic officials are either investment bankers or private equity managers. Gary Cohn, who heads the National Economic Council, and Treasury Secretary Steven Mnuchin both came from Goldman Sachs. Mr. Trump’s commerce secretary, Wilbur Ross, is another prominent private equity operator.
In 2002, Mr. Ross bought several steel factories that had been closed; he reopened them after persuading the steelworkers union to take major cuts. When he cashed out three years later, he made 14 times his original investment of $90 million. According to the economists Eileen Appelbaum and Rosemary Batt, “his three-year investment netted him $4.5 billion — just equal to what retirees lost in their health and pension plans.”
This is an administration run by and for financial engineers. The president’s policies have sought to gut what remains of the Dodd-Frank Act and other legislation that protects consumers from financial wrongdoing, most recently in his assault on the Consumer Financial Protection Bureau.
Despite Mr. Trump’s campaign promises to eliminate the carried-interest loophole — which taxes the fees of private-equity fund managers and other investment managers at low capital gains rates instead of at higher income tax rates — the House and Senate plans leave it intact.
Mr. Trump’s administration rewards what we might call an “extraction economy.” Rather than adding value, financial engineers often extract as much as they can — from operating companies that they buy, strip and sell as well as from consumers, borrowers, workers and other taxpayers.
Private equity epitomizes financial engineering. The very term “private equity” is a sly rebranding of what used to be called “hostile takeovers” or “leveraged buyouts.”
For the most part, private equity companies don’t contribute equity capital. They do the opposite — loading up the enterprise with debt, paying themselves large fees, cutting jobs and wages and extracting cash, rather than investing in the health of the enterprise. When an operating company is stripped of assets and loaded with debt to the point that it can’t continue, private equity owners then use the bankruptcy code to exit and move on, having already taken exorbitant profits.
Much of the undertow on wages and job security is a result not just of global competition or automation but also of private-equity ownership of some $4.3 trillion worth of operating companies, in sectors that include retailing, hospitals, nursing homes, newspapers, rental housing, private prisons, for-profit child care, payday lenders and private universities, employing well over 10 million workers and affecting millions of others. These, as it turns out, are the industries in which Trump voters often work.
The operating companies, taken into and out of bankruptcy, are household names, like Toys “R” Us, Radio Shack and Albertsons. But the maze of private equity firms, with names like Carlyle, Cerberus and Blackstone, are not.
When Mr. Trump was elected, his story was that the Wall Street influence would be offset by self-proclaimed economic nationalists, such as the chief strategist Stephen Bannon and the trade negotiator Robert Lighthizer. Mr. Bannon had counseled bringing back manufacturing, investing heavily in infrastructure, getting tough with China and taxing the rich. Economic nationalism, Bannon-style, might actually deliver something tangible to Mr. Trump’s base.
Today, Mr. Bannon is long gone from the White House, busy settling scores with Mitch McConnell. Getting tough with China on trade issues has taken a back seat to enlisting Beijing’s cooperation on North Korea. After a blitz of corporate lobbying, Nafta renegotiation drags on. The power struggle at the White House between the nationalists and the globalists from Goldman is being won by the usual suspects.
Why don’t Trump voters get that they are being had? Four basic reasons, I think.
First, there is oft-remarked displacement of pocketbook grievances by cultural resentments. But there are three other, more subtle causes.
For starters, the sources of economic assault on regular people are opaque. Investment banking and private equity are cloaked in obscurity. The health, safety, labor, environmental and financial regulations being gutted are intelligible only to specialists.
Also, Americans famously identify upward. Most don’t mind if billionaires get tax breaks as long as they get a little something, too.
Last, despite their tough resistance to the tax bills, Democrats often blur differences. Several key top officials of both the Clinton and Obama administrations came from Wall Street, and then went back to Wall Street. Mr. Obama’s Treasury secretaries, Jack Lew and Timothy Geithner, went to work for private equity companies.
This brings us back to Mr. Powell, the nominee for Fed chairman. The abuses that led to the 2008 financial collapse were widely attributed to the low interest rates promulgated by a former chairman, Alan Greenspan. But that’s only half the story. The real economy needs low interest rates. What led to the financial derring-do and the eventual collapse was Mr. Greenspan’s toxic combination of loose money and loose regulation.
The current chairwoman, Janet Yellen, wisely coupled loose money to promote growth with tight regulation to prevent speculative bubbles. Mr. Powell, as a Wall Street guy, is more likely to pursue the Greenspan formula — further enriching financial engineers and putting the rest of the economy at risk.
Will Trump voters connect these several dots? I doubt it, unless Democrats will offer something persuasively better.
Robert Kuttner is a co-editor of The American Prospect, professor at Brandeis University’s Heller School and the author of the forthcoming “Can Democracy Survive Global Capitalism?”
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by ROBERT KUTTNER
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It isn't surprising that the Right Wing Hate Warriors> on NT behave insanely. They are beset by a degree of cognitive dissonance that would drive even the most stable person mad... and most of them probably weren't ver stable to start with...
Since entering the White House, Trump has done nothing at all in favor of his Unthinking Faithful TM . In fact, the Republican Party is close to concluding a devastating attack on the middle and lower classes who are the bulk of the Unthinking Faithful TM ... who continue to cheer like the maniac idiots that they are.
The obsession with Clinton is the best indication we could have that they aren't interested in Trump's failings to help the middle and working classes.
There’s more to it than that, I think. I'm going to write something about the consequences of constant cognitive dissonance...
It was truly incredible how the RWNJs accepted Trump's appointments of GS people to high level government positions after setting their hair on fire over Hillary merely speaking to them. Republican hypocrisy is rivalled only by that of the Catholic Church. 'Drain the swamp' my eye, Donald Trump IS the swamp!