French President Emmanuel Macron, who is visiting Washington this week, emphasizes an important theme. As explained in a recent Wall Street Journal article, Macron is said to hold the view that “ … the political establishment has grown complacent in claiming that the tide of globalism would lift all boats. Instead, as he sees it, a privileged class of elite ‘insiders’ have learned to surf the waves of global markets while local communities depending on manufacturing jobs sink.”
According to the Journal, he argues that “part of the reason economic nationalism is on the march worldwide … is that globalism’s institutions, from the United Nations to the World Trade Organization, have been frozen in time, making them the perfect foil for populists.”
Amid President Trump’s tariffs and threats of trade wars, a colleague of Macron’s reduces all this down to an extremely simple, but trenchant, equation: “It’s protection versus protectionism.”
Riffing off these themes, my argument begins with the realization that we are living in a moment that is as precarious as it is dangerous. Nationalistic forces abound, easily tapped by charismatic politicians who pit groups against one another, often with an implicit threat of violence. They frame globalization and immigration as the reasons for the discontent of the white working classes, and they promise a return to a bygone era, before trade and immigrant flows allegedly disrupted the status quo.
Most recently, the economic conditions that preceded and produced this moment include a huge asset bubble (in housing), inflated by reckless finance that was, in turn, facilitated by regulators lulled to sleep by comforting, mythical stories about how capitalism self-regulates.
Before that reverberating crash, however, everything wasn’t fine. Middle-class wages had been in stagnation since around 1980, which also was when both trade flows and economic inequality, the latter of which had been relatively quiescent for decades, began to rise.
Once these dynamics were embedded in our economic system, productivity or gross domestic product growth, though still important, mattered less than they used to, because inequality became a wedge between growth and broadly shared prosperity. Between the late 1940s at the mid-1970s, both productivity and real median compensation just about doubled. Since then, productivity is up about 74 percent, while median compensation is up only 12 percent.
When growth doesn’t reach most people, most people will eventually sour on “pro-growth” arguments (along with allegedly pro-growth trade pacts — which, for the record, have little to do with growth and much more to do with its distribution). This, in turn, leads them to be more open to those who, often with good reason, accuse the elites on both sides on the aisle of abandoning the middle class. As noted, for racist and xenophobic demagogues, that becomes the white middle class.
Finally, all these developments are greatly exacerbated in the U.S. case, where high wealth inequality toxically interacts with money in politics such that the wealthy purchase not merely self-serving policies, but faux think tanks to promote phony research in support of their agenda.
That’s the diagnosis, but what does it have to do with tax cuts?
The connection is surprisingly straightforward. Without an amply funded government that is functionally capable of helping those hurt by globalization, there will be no “protection” (vs. protectionism). In its place, inequality, wage stagnation, and, for the most disadvantaged, a well-founded insecurity about getting ahead, will set the stage for the Trumps of the world.
When we fail to provide people with affordable, quality education, from preschool to college, or a safety net that includes not merely a poverty-level food stipend (which is, of course, vital) but employment opportunities, we open a vacuum that nationalists fill by vilifying the usual suspects. These include economic and political elites, who often deserve it, as well as immigrants and minorities, who do not.
The tax bill obliterates the revenue needed to protect those hurt by globalization and technological change. As we speak, conservatives are trying to disassemble the safety net and impose work requirements, regardless of whether remunerative work is available or feasible. Now that they’ve shifted revenue from the Treasury to their donor base, they are arguing that we can’t afford social insurance programs.
Deficit spending can relieve the tension for a while. But, eventually, the tax cut, unless it is reversed, will erode the policy insulation that must both provide meaningful opportunity to those on the wrong side of the inequality divide and prevent the rigging of the system. Because once the system is rigged, rest assured that Trump-like characters will promise that its de-rigging depends on global insulation and nationalist racial/immigration policies.
Why, you might ask, should these characters win elections over those who argue that de-rigging the system depends on class vs. race-based coalitions? Why does “we’re in this together” lose to “blame that group over there?” Well, for one, it doesn’t: Trump lost the popular vote. Moreover, pendulums swing, and electoral change is hopefully in the air.
But, if my diagnosis is correct, the opposition party must make repealing and replacing the tax cuts its top priority. And it must understand the point of doing so is not to cut taxes for those with less means, but to help those hurt by forces beyond their control to reconnect to the broader economy, which has long left them behind.
Because, at the end of the day, regardless of whatever venom the demagogues are spewing (or tweeting), we really are in this together. The sooner we recognize that truth, the sooner the forces of divisiveness will be driven back under their rocks, where they belong.