The threat to economic journalism

The stoush over the size of Trump’s inauguration crowd is a portent of how this president might deal with policy failure.

White House press secretary Sean Spicer arrives at a White House senior staff swearing in ceremony in the East Room of the White House, Sunday, Jan. 22, 2017, in Washington. (AP Photo/Andrew Harnik)

It’s hard to know which was more troubling, Donald Trump’s inauguration speech or his press secretary Sean Spicer’s first media briefing. The latter, I’d say.

Sure, the speech was mad, but it merely confirmed that President Trump is the same person as Candidate Trump and that America is going to shoot itself by shutting down trade.

But Spicer’s five-minute tirade against the press over the size of the inauguration crowd, followed by Trump’s attack on them for accurately reporting his earlier attacks on the intelligence community, lays the groundwork for four years of undermining free speech generally, and the media specifically.

Apart from the unsettling sight of a dear leader inflating the enthusiasm of his beloved subjects, the Trump Administration is setting up to delegitimise reporting on the economy.

Proper reporting of economics and business is fundamental to the operation of markets. Some of what’s reported is rubbish, it’s true, but most is a genuine and essential attempt to describe what’s happening, and why.

Without it, investors are operating in the dark, especially small investors who don’t have much access to analysts.

In his inauguration speech, and in his campaign, President Trump made some big, explicit economic promises: “Protection will lead to great prosperity and strength … America will start winning again, winning like never before. We will bring back our jobs. … We will bring back our wealth. And we will bring back our dreams. We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation. We will get our people off of welfare and back to work rebuilding our country with American hands and American labor.”

Right. Protection will not lead to prosperity and strength, and turning America into a big-spending tax haven is experimental at best, but most likely absolutely crazy.

A nation is not like a company, and the global economy is not a zero sum game where market share, surplus and deficits, are definitive guides to who’s winning and losing.

But, most importantly, Trump’s economic plan fundamentally misunderstands the problem.

Insipid economic growth since the GFC is a function of slowing population growth and excessive debt, not too much trade, and the hollowing out of American industry is due as much to technology as globalisation, and more so in future.

And as Thomas Piketty explained in his book, “Capital In The 21st Century”, widening inequality is a global phenomenon due to something deeper than China’s currency manipulation.

“When the rate of return on capital significantly exceeds the growth rate of the economy (as it did through much of history until the nineteenth century and as is likely to be the case again in the twenty-first century), then it logically follows that inherited wealth grows faster than output and income,” Piketty wrote.

Whether or not we are in secular stagnation, as some economists think, Trump is very unlikely to double the US growth rate to 4 per cent, “or 5 or 6 per cent”, and he is even less likely to diminish inequality.

When the iPhone was launched 10 years ago this month, innovation was just about making consumers lives better. Now it’s about replacing all repetitive human tasks with machines and undermining regulation and employment through the sharing economy.

As more and more jobs are automated in the future, inequality will only increase unless there is a fundamental change to the way welfare works, with some kind of universal basic income.

A big corporate tax cut certainly won’t reduce inequality, and tax cuts in general, combined with infrastructure and military spending, won’t reduce debt. The birthrate is likely to keep falling and the rise of right wing politics will cut immigration into developed countries, further reducing population growth.

So, Trump’s extravagant promises about inequality and growth are a fair chance to fall short; when they do, it seems likely the messengers will get shot rather than the policies and advisers.

The argument between Spicer and the media over the inauguration crowd size seems trivial, but it undoubtedly heralds more substantial arguments in future.

As Ezra Klein wrote in Vox.com over the weekend: “Delegitimizing the institutions that might report inconvenient or damaging facts about the president is strategic for an administration that has made a slew of impossible promises …”

Economic reporting is facing a crisis of legitimacy, which means markets are facing years of confusion and volatility.

Alan Kohler is publisher of The Constant Investor — www.theconstantinvestor.com