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Trump’s Everyman Fallacy

Devin Butler has worked in the Davenport College dining hall for the last three years. Affable and hard-working, he seems like the model American service employee, the sort who would benefit from a more robust hiring market in the United States. In theory, then, it might have made sense for Butler to vote for Donald Trump, whose campaign focused centrally on creating a better business climate for the working class. But Butler didn’t vote for Trump. Instead, he backed Hillary Clinton, saying he doesn’t agree with “any of the policies, economic or otherwise, Trump has mentioned so far.”

In a political season when so many working-class Americans abandoned the Democratic Party for Trump, why did Butler buck the trend? Why would someone whose career depends on opportunities in the private food service sector oppose a candidate who self-identifies as the “greatest” option for blue-collar prosperity? As it turns out, Butler’s reasoning provides insight into the troubling flaws in Mr. Trump’s economic plans; indeed, if enacted, Trump’s agenda could fail the very working-class voters he promised to help and upon whose backs he rode to electoral victory.

At its core, Mr. Trump’s economic agenda features sweeping tax cuts, an overhaul of the Affordable Care Act, the elimination of “unfair” free trade deals like the North American Free Trade Agreement (NAFTA), and across-the-board deregulation. The basis for these ideas is a simple one: businesses that bear fewer financial burdens earn more profit and therefore hire more workers who share in the prosperity. Economists have debated these ideas for years, but the general principle, that companies with lower costs make more money, holds.

Unfortunately, the tradeoffs intrinsic to Trumpian economics are also quite important. Reduced federal taxes means reduced federal spending, which could lead to crumbling infrastructure, underfunded government services like public education, and higher levels of government debt. Repealing Obamacare without a replacement, for instance, could slash costs for healthcare providers and insurers but also leave millions without coverage. In addition, undoing decades-old trade deals could increase prices for consumers and businesses and incite other countries to impose tariffs on American goods. Finally, the deregulation Trump has espoused could allow corporations to violate longstanding consumer and environmental protection laws–often to deleterious effect.

Consider, for instance, a change to the minimum wage. If the lowest permissible hourly wage was reduced or eliminated, companies could hire more employees for the same per-hour cost. But would it even make sense to work for, say, $3.50 an hour? There exists a point at which the fruits of working do not compare favorably to the costs and efforts put into a job, like transportation, time, and energy. At that point, businesses could find themselves without employees and working class Americans without a sensible job.

Despite these risks, the stock market has been on the rise since Trump’s election in November. The Dow Jones Industrial Average (DJIA) has climbed 2616.13 points, or 14.62%, over the past three months. For perspective, the same index fell by 655.25 points, or 3.53%, during the preceding few months. Some of that disparity could be ascribed to the post-victory optimism present after every election, but it is also true that this election cycle has been marked by more pessimism and fear than any in recent history. Therefore, it’s highly likely that Trump’s pro-business policies are driving the markets’ climb.

But how much do people like Butler really benefit from rising stock prices? The answer is not much, if at all. To be sure, financial growth directly results in more accessible credit, which could help Butler purchase a home or car. Yet in a sustained period of low interest rates, like the one we are experiencing now, the effects of short-term market spikes have only a limited effect on investors and the companies involved in those changes, let alone people who don’t invest. Even more striking: while the stock markets have soared since Trump’s election, the unemployment rate has risen by 0.1% from 4.6% to 4.7%, according to the Bureau of Labor Statistics.

To understand why people like Butler are not affected by these changes, it is important to understand the nature and composition of the DJIA. The index measures the stock prices of 30 major American companies, including Apple, Wal-Mart, Nike, ExxonMobil, IBM, and Pfizer, among others, all of which are traded either on the New York Stock Exchange or the NASDAQ. The problem with using the Dow as a barometer of the economy’s health is that it represents only large companies, leaving small businesses and consumers out of the mix. So, when the DJIA reached 20,000 points, Butler didn’t feel it.

Another issue with the Dow is that many of the managers and CEOs of the represented companies’ have become members of the president’s cabinet or inner circle. To date, Trump has tapped the former CEO of ExxonMobil, Rex Tillerson, and former Goldman Sachs executive, Steven Mnuchin, to serve as the Secretaries of State and Treasury, respectively. In addition, Trump has tapped Jay Clayton, a former Goldman advisor whose wife is still employed by the firm, to head the Securities and Exchange Commission (SEC) and Gary Cohn, the former COO of Goldman—who received a $285 million exit fee in December—to be his lead economic advisor. Cohn’s appointment prompted a group of Democratic senators led by Elizabeth Warren (D-MA) to request an investigation into potential conflicts of interest in the Trump administration.

Given the Trump Administration’s close ties to Goldman Sachs, it is unsurprising that the firm has been one of the biggest movers in the market. Since Trump won the presidency, Goldman’s stock has risen 37%—an astonishing and unsustainable figure. Significantly, however, this spike—and that of the broader market—only really affects those who own shares of Dow companies.

Butler is not one of those people. He has maintained a savings account for several years and, with only a few thousand in the bank, isn’t affected by changing stock prices. That said, the volatility of the American polity at present has concerned him.

“You know, if I could get a bunker to protect myself, I would,” Butler joked in an interview just a few feet behind the large wooden desk he operates every evening. “You never know what fight [Mr. Trump] is going to start next. I think it’s important to have a safety net, a safety precaution.”

Although he probably won’t be able to find a bunker for sale in New Haven, Butler has already taken other measures to help insure himself against Trump’s instability. Since November, he has moved a significant amount of money out of his bank account and into other holdings he considers safer. Despite Federal Deposit Insurance Corporation (FDIC) guarantees and the relative reliability of savings accounts, Butler doesn’t trust the new administration enough to let his money idle.

“You don’t know if he’s going to need money for another war or to build the wall or for whatever he might do. For some reason, if I lose my money, and I’m out a couple thousand dollars, what do I do?”

Not everyone would take the same steps, but Butler’s general thought process aligns with those of many prominent academic economists. Laurence Kotlikoff, an economics professor at Boston University and a 2016 write-in presidential candidate, has advised his students and clients to sell their securities to insulate themselves from market volatility.

“Trump is going to be really bad for the stock market,” predicts Proffessor Kotlikoff. “In general, the market doesn’t like uncertainty,” which Trump has undoubtedly fueled. On top of that, the price-earnings ratio–the price of a share of a company divided by the company’s earnings per share–is “already quite high, possibly nearing a peak” in terms of viability. Therefore, while Trump’s young presidency has so far yielded market gains, that could easily be undone. As the old maxim goes, confidence erodes faster than it recovers. Whereas the market took years to return to pre-crash levels under Barack Obama, it could be a matter of days—hours, even—for a plunge to take place under Trump.

And what of an economic crash? It goes without saying that nobody would benefit from a downturn—perhaps except for people like President Trump, who notoriously remarked in 2006 in reference to the housing crisis that “I sort of hope that happens because then people like me would go in and buy.” For average Americans, however, the economic losses would be far worse in scale and magnitude than the gains reaped from the business-friendly environment Trump has called for; high unemployment, increasingly elusive credit, and depressed wages would likely dwarf any marginal gains. In other words, the benefits people like Butler might enjoy from a deregulated system are likely outpaced by the risks they carry.

The same is true with respect to health care. If President Trump repeals the Affordable Care Act, which cut the number of uninsured Americans by around 20 million, and decreases the responsibilities of corporations to provide coverage for their employees, companies’ costs would drop substantially, but workers with medical problems—pre-existing or otherwise—could find themselves in grave trouble.

“How do you take cover from that if your brother or mother needs help and doesn’t have Obamacare anymore?” asks Prof. Kotlikoff. “I don’t know. I think it puts everybody in a very risky position. You could lose your job. I think people need to save, to the extent they can, so they have something they can fall back on. But we’re talking about a big shock, a very big shock.”

Trump’s trade policy fits the same mold. According to Prof. Kotlikoff, around 30% of American jobs are directly tied to international trade and would be heavily impacted by any changes to current policy, like ripping up NAFTA or imposing tariffs on Chinese imports. Such actions would most likely trigger retaliations, including foreign tariffs, that could seriously harm the US economy. Prices for goods would almost certainly rise across the board, which could negate or at least diminish the benefits felt by manufacturing workers. Even businesses could be hurt, Prof. Kotlikoff points out, because many physical goods are sent back and forth between the U.S. and Mexico or other countries to maximize the power of the dollar in the production process. Cars, for instance, are often made with materials from one country, assembled in another, painted or tested in a third, and then sold in various markets around the globe.

“Trump is complicating the supply chain,” Prof. Kotlikoff argues, “which is not something you want to be messing around with.”

Other potential ramifications for the US from Trumpian trade policy could include reduced domestic tourism or even an ejection from the World Trade Organization.

The upshot is simple: President Trump’s economic agenda is bound to fail the very people he pandered to during the campaign. While insurers, banks, large companies, and already wealthy individuals may benefit from Trump’s economic policies, the common man who works outside the corporate sphere and doesn’t own stock may not feel the boost. With that in mind, it is no surprise that many of Trump’s most important donors on the campaign trail were billionaires and businesspeople who saw an opportunity to advance their narrow interests.

Butler isn’t sure what would have happened if Bernie Sanders, whom he supported in the Democratic primary, or Hillary Clinton, his candidate in the general election, had won the presidency. But he is concerned that the election of our current president could undo the economic and social progress he and similar Americans have made over the past few decades.

“I really don’t know what to expect. I hope it goes well, but I don’t know. I just don’t feel as safe as I did under Barack.”