Trump punches free enterprise

White House counselor Kellyanne Conway isn't an economist, nor is she part of President Trump's economic team. So it's tempting to disregard her comment Tuesday that although the "president doesn't run [General Motors], he runs the country's economy." Except that Trump has been acting as if both things are true — or at least should be — when actually neither are.

Republicans — supposedly America's business-loving party — in particular should be horrified at such a politically-driven attempt at what they might have previously condemned as "central planning" or "crony capitalism." Trump's threats this week against America's largest automaker are nothing less than a dangerous political punch at a fundamental aspect of America's free enterprise system. A big reason why that system has been so successful at creating the largest and most technologically advanced economy is because Washington has generally been tolerant of churn. As economist Joseph Schumpeter once wrote, "This process of creative destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in." The market determines winners and losers, not politicians. Small companies aren't stopped from supplanting big ones, even if they're politically connected. Nor are existing firms prevented from firing workers or relocating if the bosses thinks it's in the company's best interest.

But that's just what seems to be happening in the Age of Trump. After GM boss Mary Barra told President Trump that the automaker was cutting jobs and production in the key electoral states of Michigan and Ohio, the president said he told her, "I heard you're closing your plant. It's not going to be closed for long, I hope, Mary, because if it is you have a problem." He then followed up that threat with another, tweeting, "We are now looking at cutting all @GM subsidies, including for electric cars." What exactly Trump meant is unclear, although almost certainly some of those "subsidies" would include the federal government's $7,500 income-tax credit for electric vehicles that applies to the entire auto industry.

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Even if Mitt Romney, a businessman of near-legendary acumen, was the guy occupying the Oval Office, the president shouldn't be telling a company how to run its business — at least not if we want it to stay in business without government help. This is doubly true of Trump, who clearly has little idea how a modern multinational corporation is run. Example: Trump apparently wants GM to domestically manufacture the cars it sells to China. That, even though the shipping and other logistic costs would make those cars unprofitable and result in GM ceding its largest market to foreign automakers. And if Trump can't understand how a traditional car company makes money, good luck with an internet company like Amazon, which also has been the frequent subject of Trump's Twitter attacks.

It's also folly for the president to think that threats and tweets can overpower the business fundamentals facing a company that needs to make a profit to stay in business. Recall Carrier, the furnace manufacturer Trump "saved" in December 2016 before even taking his oath of office. At a cost of $7 million in Indiana state tax breaks, Trump stopped the plant's closing and the dismissal of over 1,000 employees. Temporarily. More than 600 employees were laid off six months later, and by January 2018, Reuters reported another 550 workers had clocked in for the last time. Morale inside the plant has cratered. "People still don't trust Carrier," said one long-time employee. "They still have the warehouses and the factory in Mexico, and they can move down whenever."

Instead of saving jobs, the real lasting effect of such political meddling could be to make business execs think twice before making an investment if they also have to make a political calculation. Republicans bemoaned the potential impact of political uncertainty on business when Barack Obama was president, but now it gets a shrug at most.

In addition to leaving the private economy alone to manage itself, Trump should lay off the Federal Reserve. He doesn't run that, either, and shouldn't try. Sure, Wall Street loved it yesterday when Federal Reserve Chairman Jerome Powell made comments suggesting the central bank might soon stop raising interest rates. And Trump probably was happy, too. He's been bashing Powell on a regular basis, arguing that low inflation makes rate hikes unnecessary. Indeed, Trump was quoted that morning in The Washington Post as saying he was "not even a little bit happy" with his selection of Powell to replace Janet Yellen, whom he thought too short for the job. (Yes, really.)

Whether or not a Fed pause is warranted — and there is legitimate reason to think it is — it would be bad news if Trump thinks his barrage of criticism played a role and is encouraged to do more of it. Most economists think it's important that central banks are insulated from political pressure. If not, they might be nudged into monetary policy that might juice economic growth in the near term at the cost of higher inflation down the road.

Of course, if the president becomes the de facto chairman of every company in America, higher prices might be the least of our problems.