370 Top Economists Cannot Be Wrong

TRUMPED-UP, iconoclastic, fallacious, dangerous, delusional, incoherent, dreadful, naïve: If you are looking for words that explain the economic ideas of Donald Trump, you can choose freely and justifiably from among the above list.

Economics professors Oliver Hart and Eric Maskin who jointly won the Nobel Prize in Economic Sciences for their respective work on contract theory and the development of a mechanism design theory, are among a group of 370 prominent economists who have affixed their signatures to a letter warning against the election of Republican nominee Donald Trump, who has himself become notorious for developing and peddling conspiracy theories.

The letter warns voters of the risks Trump’s nativist instincts and protectionist policies pose to the U.S economy – calling him a “dangerous, destructive” candidate who “promotes wilful delusion over engagement with reality”.

That a group of prominent economists and academics, representing diverse areas of expertise and schools of economic thought can unite in opposition to the unsettling ideas of a candidate a week before a presidential election, is both remarkable and unprecedented. Among the profound concerns expressed in the letter are fears about Mr. Trump’s spreading of economic disinformation; his degradation of public institutions and un-Reaganesque contempt for democracy; his half-truths (and twisted logic) about the future and decline of U.S manufacturing and trade, and his use of immigration as a “red herring to mislead voters about the issues of economic importance.”

Just a few days before that letter was signed, a separate group of 19 winners of the Nobel Prize in economics had endorsed Hillary Clinton in a letter posted online – on the grounds that a Trump victory would make international investors less confident about the direction of U.S economic policy. As far as policy details go, the weekly publication “The Economist” has described Mr. Trump’s plans for the economy as “scrimping on sense” and “more wild brainstorm than policy memo”.

Beset by allegations of misogyny and sexual abuse, Mr. Trump (whose speeches are marked by elaborate equivocations) has vacillated throughout the campaign on just about every issue; from abortion and immigration – to ISIS and nuclear weapons; while at the same time praising the Chinese government’s violent suppression of protests in 1989 and lauding Mr. Putin for his “very strong control over his country”.

Yet, the only consistent, albeit destructive, positions he has held throughout the campaign are his fanciful ideas about trade, job creation, debt and fiscal policy. On fiscal policy, he has watered down the ruinously expensive plan he proposed during the primaries – prompting economic and business leaders to describe his ever-changing prescriptions as “progressing from preposterous to merely intellectually dishonest”. Without a single plan or explanation, the gaffe-prone Republican nominee has proffered the idea of forcing foreign multinationals to repatriate their overseas earnings – a position best described as mere political posturing.

But that’s hardly the whole of it. Crucially, he has questioned the legitimacy of statistics and economic data produced by veritable institutions and academics, while continuing to promote the rejection of economic orthodoxy and spearheading a dangerous anti-intellectual, post-truth, post-factual “movement”.

Unfazed by facts and evidence, Mr Trump continues to mislead his supporters about the actual state of the American economy, claiming that America’s unemployment statistics are “a hoax”. The Economist writes: “Mr Trump paints a picture of the economy that is irreconcilable with the facts. He says jobs are scarce, poverty is rising and incomes are stagnant. But in reality America’s economy is the strongest in the rich world. Unemployment is only 4.9%. The poverty rate, though high, has been falling since 2012. And median earnings have risen by 5% in real terms in the past two years.”

Rejecting economic information substantiated by data and spreading disinformation aren’t the only outrageous practices that we’ve witnessed during this election cycle. There’s also been unorthodox and crude attacks on the character of distinguished professionals and institutions, including Janet Yellin, the Chairwoman of the Federal Reserve, whom Mr. Trump has accused of “doing political things” by keeping interest rates low.

Were Mr. Trump to be elected, a combination of his misguided policy proposals on trade (tearing up NAFTA and threatening tariffs), foreign policy and the Fed would hit equities hard and possibly push America – and even the global economy – into a recession. Already, the prospect of a hard Brexit and the travails of Deutsche Bank are giving the markets the jitters.

In fact, the narrowing in the presidential race has already brought more volatility and uncertainty to markets from commodities to financial assets. Gold and bond prices have risen and the VIX, a volatility measure (commonly called the “fear measure”) for Wall Street, went up by 14 percent last Tuesday – to its highest level since June this year. The currency market (particularly the Mexican Peso as investors expect that Mexico’s economy would be negatively impacted by a Trump victory) is jittery as investors are worried by the prospect of a Donald Trump presidency.

As economic reality and research have shown, trickle-down economics have largely failed, but Mr. Trump still insists that this approach will grow the American economy. The argument – that if you cut taxes on the RICH and deregulate markets, the gains will trickle down to everyone else – has long been discredited.

Reflecting the views of many mainstream economists including many of those who signed the letter, The Economist explains: “He (Trump) wants big tax cuts for the rich and for firms, which would send the incomes of the top 1% of earners soaring by at least 10%. This would come at great expense: perhaps $7.2trn over a decade, according to the Tax Policy Centre, a think-tank (for comparison, America’s entire national debt is currently about $14 trillion). Fear not, say Mr Trump’s advisors: tax cuts and deregulation will boost economic growth to 3.5-4%, up from an average of 2.1% since the end of the recession, boosting the Treasury’s coffers enough to pay for both lost revenues and spending increases. But that is a fantasy. America is growing slowly for two reasons: the working-age population is shrinking, and productivity growth is low. If, as he promises, Mr Trump were to crack down on immigration and to shred trade deals, both problems would get worse, not better. For that reason, Mr Trump’s fiscal policy would send the national debt soaring.”

Throughout this presidential campaign, it has become crystal clear that Mr. Trump and many of his supporters have allowed their emotions (American democracy has fallen prey to emotions) to act without the benefit of intellect. It’s all been “magical thinking” on the part of the Trump economic team – to borrow an expression from the referenced warning letter signed by the 370 prominent economists.

Hillary Clinton may not be the perfect candidate, but her economic plan is far more coherent and offers a lot more hope to America and the world than Donald Trump’s economic mumbo-jumbo.

For comments, write to [email protected] – Clement Wulf-Soulage is a Management Economist, Published Author and Former University Lecturer.