President Trump loves businesspeople.
Whereas the Obama White House relied heavily on people from academia, Trump has courted the input and good opinion of leaders in finance and industry. His Cabinet is full of wealthy corporate titans and Wall Street powerbrokers. And of course, Trump himself is a real estate mogul.
Trump has spent a lot of time as president with other business leaders. On Tuesday, for instance, he hosted a meeting with 50 of them — from JetBlue, Blackstone, MasterCard, Citigroup, and more — "to discuss policies to create a pro-business climate."
Well, okay, but shouldn't Trump lean heavily on the smartest minds in business? The economy is still in the doldrums, wages are still stagnant, investment is down, and infrastructure is crumbling. And who knows the economy better than business leaders?
It seems intuitive. And yet, the thinking here is flawed.
Think about what Trump ostensibly wants to achieve for his working- and middle-class supporters: more jobs and higher wages.
Think about what business leaders want: higher profits.
The two do not necessarily go hand in hand.
The money to pay for new jobs and higher wages inevitably comes out of businesses' revenue. That means less money leftover for the profits that go to business owners and stock holders.
Now, the counter-argument is that creating new jobs should grow a business — and thus increase revenue. In that case, there's more leftover for profits too, and everyone wins.
But that's not always how it works. In fact, under capitalism, profits are supposed to be fleeting. That's because businesses aren't just squeezed by demands from workers or the need to invest; they're squeezed by competition, too. Companies try to undercut each other by offering better products and services for lower prices, forcing everyone to lower prices. So businesses have to spend more of their revenue to fend off competitors, even as that competition threatens to lower the revenue they take in.
Businesses often profit mightily when they come up with some new innovation that lets them escape this competitive squeeze: No else has their innovation, so the business enters that happy place where workers and owners benefit together. But always, profits are fleeting. Competitors inevitably adopt the new innovation, and everyone's profits gets squeezed back down to near-zero.
In other words, life in a well-functioning economy full of productivity and jobs and high wages isn't a pleasant experience for business leaders. It's a horrible experience. They are constantly beset by threats at all sides. Furthermore, those threats often come from ostensibly good things like more productivity, more jobs, and higher wages.
As a result, the business leaders and CEOs Trump is turning to may be great at running their companies, but when they start running macroeconomic policy instead, they're all mixed up. They treat profits as the cause of a good economy, rather than as a symptom. And they assume things like tax cuts and deregulation must help the economy, because they increase profits.
But taxes and regulations often serve as guardrails, forcing businesses to plow money back into communities and jobs and investment, rather than siphoning the money off and hoarding it as profits. Cutting taxes and regulation often increases profits by making life easier on businesses, not tougher. And those are the kinds of profits that don't help anyone other than business leaders themselves.
Here's another problem: Smart businesspeople focus on bringing in more money than they spend. That's the goal. Business leaders encourage politicians to adopt the same principles on economic policy. But in the context of the economy as a whole, this makes absolutely zero sense.
The economy doesn't take in money from outside itself, the way a business does. Nor does it "make a profit" that can be spent elsewhere. By definition, the economy is all of the economic endeavors in America. Everyone's spending is someone else's income, and everyone's debt is someone else's asset. There's nowhere else for the money to go.
When lawmakers apply the lessons of business — cut debt, control spending, and profit — to the economy as a whole, we don't get growth. We get recessions. So much for the wisdom of businessmen.
