The “MAGA” saga

Scale

The defining slogan of Donald Trump’s 2016 Presidential campaign was “Make America Great Again” (MAGA).  Presumably he won the election because millions of discouraged voters, particularly those in the Rust Belt, bought into the idea that Mr. Trump could deliver on his MAGA promise. But can he? Does he have a well-defined social, economic and policy recipe? Is it even possible, given worldwide demographic, technologic and regulatory trends? Answers to these questions will likely be key to not only reviving robust domestic economic growth, but garnering Mr. Trump a second term.

There are probably as many definitions for MAGA as there are jaded voters in Michigan and Ohio, but one that resonates with most Americans is the halcyon period of the 1950s and 1960s. U.S. manufacturers dominated world markets following the tumult and destruction of World War II, and postwar Germany and Japan were economic shadows of both their former and future selves. American workers had the playing field pretty much to themselves, as U.S. farms and factories restocked and rebuilt the world from the ground up over twenty years. Mr. Trump talks a lot about “winning”; this was winning—in spades.

Unfortunately, if this is the America Donald Trump aspires to, he’s probably out of luck. The competitive horses have left the barn in the form of a resurgent Germany and Japan, along with China, Korea, Brazil, Russia, India, Malaysia, Indonesia, Vietnam and on and on. There’s simply no point in trying to put armies of semi-skilled Americans to work making and selling goods to all points of the earth, as we did 60 years ago. If we tried it today, we would lose. Our competition is too strong. They do basic manufacturing at lower costs—lower labor costs, lower regulatory costs and generally lower tax rates.

Perhaps a more attainable model is the Ronald Reagan/ Bill Clinton era—where selective economic victories proved possible, and healthy job growth occurred in sectors where domestic producers maintained technological or market advantages. The advent of truly useful networked and  sophisticated (CAD/CAM was a great example) computer systems allowed the aerospace, entertainment, biotechnology and software industries to expand quite readily in the late 1980s and 1990s, for example. The lesson: forget world domination of basic manufacturing, and instead play to your strengths. It worked, at least for a while.

Even this economic archetype proved unsustainable for many U.S. workers, however. That’s because digitization and automation continued to grind away in the background, and not just in the U.S., but around the world. Computer systems and software are like rust—they never sleep— and they consume a greater slice of Gross Domestic Product each minute, and at an ever-increasing rate to boot. Leading-edge manufacturing firms such as Honeywell and Rockwell Automation employ more software engineers than any other category, for example. These engineers are equipped with sophisticated tools that allow them to build applications in large chunks, rather than one line of code at a time. Software doesn’t quite write itself yet, but someday even human hackers will worry about losing their jobs to a machine.

This leaves Americans with basically two ways to respond and compete in world markets. First is with highly restrictive tariffs and trade barriers, a solution suggested (and already tried in some cases) by President Trump. But this is an economic dead end, as the drastic worldwide trade collapse of the 1930s proved. The other route involves ramping up automation to compete even more aggressively on cost, and this is apparently the one we’ve chosen. Not only is the number of physical robots in use steadily increasing (there were 260,000 in the U.S. last year, per the Robotic Industries Association), but software “bots” are taking more (and more complicated) tasks. By 2021, Forrester research estimates that robots in all forms will eliminate another 6 percent of existing jobs in the US, starting with customer service representatives and eventually displacing truck and taxi drivers.

Donald Trump must confront the core conundrum of relying on automation to goose economic growth: It might win the cost war and crush international competition, but it kills jobs as well. Winning in the marketplace means prodigious profits for the owners of the robots, but doesn’t build the broad industrial and consumer base of the 1950s. Modern Gross Domestic Product requires fewer inputs in the form of labor and tangible material—which in turn reduces final consumer demand and stunts growth.

John Cochrane, an economist at Stanford’s Hoover Institution, calls sclerotic growth “the overriding economic issue of our time.” Since 2009, the U.S. economy has grown at an average rate of just 2 percent per year. This compares with 3.5 percent annually for the 50 years before the millennium. This gap sounds small, but it drastically erodes the American dream over a generation, particularly when combined with automation-driven income inequalities and high social (taxes) and financial (debt) overhead.

Historically, new methods of production have spawned entirely new industries and economic vistas for Americans to exploit. Perhaps they will again. Millions of us left the farm at the beginning of the twentieth century for factory jobs, for example. This time seems different, however.  With both factory and service jobs now threatened by automation, where do we go next? What do we do when we get up in the morning? Some have suggested we needn’t go anywhere; a guaranteed income funded by a tax on robots can square the circle. Perhaps. To Make America Great Again, our President must at least take the first steps toward solving the automation conundrum stunting growth and fraying the fabric of U.S. society.