Will Donald Trump Embrace Main Street Capitalism?

Tokyo at night. Wikimedia Commons/Creative Commons/Moyan Brenn

The elites in Washington have run out of excuses.

January-February 2017

But to try to create higher levels of growth, we first need a better understanding of money. Since the 2008 financial crisis, the world’s central bankers have injected massive amounts of liquidity into the global banking system. To their credit, in the face of the most devastating financial collapse since the 1930s, the world’s policymakers responded boldly. Governments and central banks collectively committed, in terms of both present and potentially future resources, a mind-boggling $17 trillion—almost one-quarter the size of global GDP at the time—for bailouts, guarantees, stimulus packages and an ocean of monetary stimulus.

Thankfully, the immediate free fall in global aggregate demand was arrested. Stock markets rebounded. But then, beginning in 2010, the world economy progressively slowed. But why? The U.S. economy could never quite gain momentum on a sustainable basis. Something always held it back. True, there were months when the data looked to be highly promising. But the sugar rush always faded.

Central-bank liquidity failed to be the magic pill for prosperity and, in fact, produced unintended consequences that distorted financial markets and increased inequality. The reason is that low interest rates mean very little to a person terrified of the future in an environment where risk capital for the little guy is hard to come by.

What policymakers should be more concerned with is another type of liquidity: the liquidity of confidence. Confidence—in particular, stemming from the knowledge that our leaders have a game plan for prosperity—creates liquidity. In a sense, liquidity is confidence.

The economic task, therefore, is not just to “put money into people’s pockets” but to shift expectations toward the positive to produce sustainable long-term growth. Washington policymakers should enact a series of bipartisan “grand bargains” on issues including infrastructure modernization, entitlement reform, healthcare reform, the financing of start-ups, the bolstering of existing businesses, more favorable corporate-tax treatment (repatriation) in exchange for purchases of 1 percent infrastructure bonds (in an environment of even broader tax reform), elimination of corporate efforts to gain competitive advantage through regulatory arbitrage, Dodd-Frank bank regulatory reform to restore the health of regional and community banks, the workhorses of small business expansion, and ways to allow families to be more economically mobile.

America needs a game plan, and it should be bipartisan. Passing Obamacare on a party-line vote was a major mistake. On both of his major tax initiatives, Ronald Reagan sought to make the legislation bipartisan. This added a greater sense of credibility to the exercise. Today by making the economic-reform package bipartisan, the entire country will prosper with a renewed sense of confidence that America now has an economic game-plan backed by a solid majority of its citizens. The extremes, both the Left and the Right, will resist, but it is time to unleash what rock star and social activist Bono called America’s “radical center”—the 70 percent of the country desperate for common-sense reform.

Trump should also explore the possibility of renewing the Plaza Agreement to try to establish order in today’s foreign-exchange markets, which are at the doorstep of a currency war. With the world’s combined public and private debt approaching an astonishing—and likely unsustainable—300 percent of GDP, there needs to be a global debt conference to establish contingency planning in the event parts of the world, particularly emerging markets, at some point initiate a scenario of debt default.

But most of all, Washington policymakers need to adopt a new Main Street mind-set that focuses like a laser on the small, the new and the entrepreneurial. They need to establish the conditions that continue to make the United States the start-up capital of the world. Audacious discovery is the goal, the true magic of this capitalism for all.

There is no doubt that technology today is feared by some as a disruptive force. And it is true that technological change can be scary. The rise of artificial intelligence is an exciting but sobering development. If computers increase their IQ by just 1.5 points per year, in less than a decade computers will be smarter than 90 percent of the U.S. population. Artificial intelligence has the capacity to be an awesome economic disrupter leaving a lot of people sitting around with not much to do. But fear of technological advancement has been present throughout history. Intense fear developed with the advancement of agricultural technology. And the pessimists time and again have been proven wrong. The new technology brought with it the creation of entire new industries.

But there is another reason why people had better hope the pessimists are wrong. The only way the world can save itself from the coming tidal wave of social chaos and violence associated with joblessness and debt is with turbocharged, innovation-driven growth. The facts are startling. Over the next twenty-five years, 3 billion more people worldwide will enter the global middle class. This growth will require the creation of hundreds of millions of new jobs. For many countries, within a quarter century, nearly half of their populations will be under the age of thirty, all desperate for a better life. An innovation-driven explosion in global growth is the only means of avoiding a worldwide political calamity of economic hopelessness dropped someday soon onto the laps of our kids.