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Analysis: It’s the politics, stupid

By Paul Mackintosh  
Aug 7, 2019

All those businesspeople and investors who voted Republican thinking that Donald Trump would at least be better for the economy than Democrats are probably feeling the pain of the latest salvo fired by Washington and Beijing in the US-China trade war. The S&P 500 is already down 6% from its record high on July 26 and looks destined to slide even further.

President Trump has apparently decided that China-bashing pays greater dividends with his support base for his re-election prospects than a prosperous economy. Since he seems to feed off instability and resentment, he may be right.

Businesspeople who optimistically believe that high office will constrain politicians to act like rational human beings need only look at the US or – right now, even more so – the UK.

It’s a relief to turn from this insanity to the articulate and concise, evidence-based reasoning of French economist Thomas Piketty. Mr. Piketty’s fundamental thesis is that there is no hidden hand correcting the market towards optimum distribution of wealth across society, and thus ensuring prosperity and stability for all. Any such outcome has to be achieved at the political level, not the economic. Why do it? To ensure a stable society.

But the US now appears to be an increasingly unstable society, and the economic damage is piling up. Wealth maldistribution and social malaise triggered by the neglect of industrial policy is fuelling violence in a society already ludicrously oversupplied with weapons, as well as providing a fertile audience for demagogues likely to push even more destabilising policies. And so the cycle goes on.

This isn’t to hand the credit to the other side, by the way. Events in Hong Kong right now provide their own lesson as to how a rich economy does not automatically produce a docile, obedient populace. I am getting plenty of feedback from friends on the ground that the Hong Kong government’s failure to address wealth inequality and obscenely high property prices is one of the main motors for the current discontent in the Chinese territory. And China is locked into an economic growth model by political pressures to continue to ensure national enrichment to prop up the Communist Party oligarchy.

As a child of the Enlightenment, Scottish economist Adam Smith could easily believe in the hidden hand and the benign workings of a rational economy that benefited the whole of society if left to run by its own natural laws. Unfortunately, it absolutely does not need to be so. In economics, wealth; in politics, power. Both need institutions and relentless hard work to be distributed equitably and managed effectively. Everyone with an interest in such an outcome has to work to ensure it. You only need to look at Hong Kong or El Paso to see the alternative. Businesspeople learn business, but they are born citizens.