Last week, Donald Trump was feted by the international business elites at their annual gathering in Davos, Switzerland. The takeaway was that Trump’s tweets, corruption, divisiveness, racism and attacks on truth don’t matter. What does matter instead is that his policies of deregulation and tax cuts for corporations and the wealthy are letting them make more money than ever – and that is a good thing for the world economy.
It would be helpful to remember that these are the same people – literally, in the case of many international bankers gathered in Davos – who screwed up royally in 2008, pushing the world to the brink of a new Depression. They were then bailed out by the Barack Obama administration and world central banks who rewarding them by showering them with massive amounts of free money. Using this free cash, the new class of global super-rich solidified its position over the past decade, grew vastly richer and privatized the political system – at least in the United States.
Ukrainians could take comfort in the thought that the guys gathered in Davos were a global version of their own oligarchs, who have been systematically depriving their country of its future. Also in Davos, financier and philanthropist George Soros warned that the Trump administration is building a kleptocracy in the United States. People living under various forms of kleptocratic regimes, such as Ukrainians and Russians, know only too well what this entails
In the early days of the AIDS epidemic, HIV- positive patients tended to develop rare diseases, such as Kaposi sarcoma. Such diseases were symptoms of the underlying illness – AIDS – but were also destroying the body in their own right.
Trump is both a symptom of dysfunction in American society – because only a deeply troubled society could possibly have elected a president like this – but also, in his turn, a cancer that is wreaking havoc for American political institutions. Like a cancer that attacks weakened organs first, Trump is exposing rotten American institutions, making a mockery of do-nothing Congress with its venal Republicans and impotent (and also venal) Democrats, of the hypocritical Evangelical movement, of the liberal Jewish supporters of Israel, of the sensationalist mainstream media, of the military whose generals rush to work for a man suspected of colluding with a hostile foreign power and of so much more besides.
Also like cancer which can attack several organs at once, Trump is spreading the damage widely. While wreaking havoc in the U.S. political system, Trump is also fatally undermining the U.S. economy – which, it should be admitted, has been turned into a bubble economy long before his arrival on the scene. In 2016 the U.S. Federal Reserve reported that the richest 1% of American households controlled a record 38.6% of America’s wealth, while the wealth of the lowest 90% has shrunk from one third of the total in the late 1980s to less than 23%. In 2017, Trump and Republican Congress gave the rich a budget-busting tax cut, cynically claiming that it would somehow benefit ordinary Americans.
The U.S .economy has been growing and some of the benefits have started to trickle down. The jobless rate is near a record low and wages are starting to climb as well. However, the stock market, whose eye-popping run since the 2016 election has made Trump especially boastful, represents the single most important risk to this recovery. Also in Davos, Nobel Prize-winning economist Robert Shiller – who had uncannily predicted the 2000 dot-com bust and the 2008 housing crisis just as they were about to hit – compared the current stock market to 1928. We all know what happened after that.
Moreover, Shiller believes that the stock bubble won’t need some kind of catastrophic event to trigger a sell-off – because an overbought market can collapse by itself, under its own weight.
As in 1928 and again in 2008, a major financial crisis in the United States will inevitably have severe repercussions around the world. The impact will be exacerbated by what some economists are now calling the Everything Bubble, a massive rise in asset prices in many markets around the world.
No doubt Washington will be blamed for any financial and economic debacle next time – as it was blamed for triggering a global recession 10 years ago. However, the global economy is broken too. Just like the U.S. economy, it is catastrophically top-heavy. Oxfam, the London-based international charity organization, reported ahead of the Davos Forum that the 1% of the global rich got 82% of the wealth created during 2017 and that the list of international billionaires expanded at a record pace.
According to Oxfam, “the billionaire boom is not a sign of a thriving economy but a symptom of a failing economic system.” Indeed, while the rich are getting richer the world is facing existential challenges, such as climate change, the runaway increase in global population which is racing toward the 11 billion mark by the end of the century (a quarter of which is under 14 years of age and nearly 10% is over 65), the rise in automation and artificial intelligence that eliminates the need even for the existing workforces and a drain on resources and strain on the environment as poor nations become even slightly richer.
Washington, which built the global economic system, can no longer be relied upon to play the role of world leader. Trump’s America First policy which he was showcasing in Davos entails both the dismantling of the international trade system – in fact, he has just imposed tariffs on several foreign products – and withdrawal of the United States into its own shell. To be fair, however, it should be noted that the United States had been reluctant – or perhaps unable – to accept its international responsibilities for some time.
None of the problems facing the U.S. and world economy will be addressed unless – or rather until – there a major crisis. Last time, in 2008, a perfectly good crisis was wasted because it was doused by limitless free liquidity, while the problems were kicked down the road. We may not have a similar luxury this time.
So perhaps we should take heart and view Trump, for all his faults, as a potential catalyst for change. To quote a line from Goethe’s Faust, which was used by Bulgakov as an epigraph to his Master and Margarita: “I’m part of that power that eternally wills evil and eternally works good.”
