Runaway Short-Termism

Since retaking the presidency in January, Donald Trump has initiated a blitz of chaotic, damaging economic policies. For months, as Nic Johnson wrote in the NYR Online this past April, he has been waging an unprecedented trade war against much of the world, “imposing punitive tariffs and threatening to retract America’s security umbrella” in the hope of strong-arming various countries into “sharing what he sees as the burdens of providing public goods like the global dollar system and military protection.”

One of the ostensible purposes of this ever-shifting tariff regime is to reshore US manufacturing. And yet Trump’s administration has hardly followed through on that promise in practice. Instead, as Susannah Glickman wrote in the NYR Online last month, it has taken “a sledgehammer to the government’s capacity, oversight, and industrial policy,” gutting the state’s ability to plan in the long term and eroding the defense-industrial base by giving ever more military contracts to Silicon Valley firms structurally ill-equipped to produce hardware at a large scale. In matters of trade and industrial policy alike, Glickman and Johnson suggest, the administration seems driven less by economic rationality than by right-wing ideological conviction and culture-war grievance.

To help understand these developments, we invited Glickman and Johnson to discuss the political economy of the second Trump administration, its ruptures from the last century of US economic policy, and the competing coalitions it brings together. —Max Nelson

Max Nelson: To start, maybe it would be useful to make a quick taxonomy of what we consider the Trump administration’s most important political-economic moves since January. The trade war seems like an obvious one. What are some others?

Nic Johnson: The immigration crackdown is obviously enormous, and it’s confounding our ability to even understand what’s going on in the economy right now. Economists have a standard way of trying to figure out if the economy is doing well or poorly based on how many jobs are being created. But the number of jobs you need to create every month to stay at full employment changes depending on whether your population is growing naturally or shrinking by millions as you deport people en masse and induce them to self-deport.

That’s just one respect in which the meaning of economic data itself has become harder to parse. For another thing, not only did Trump fire the statistics commissioner who reported economic data he didn’t like, he’s also pushing to relax financial-reporting requirements for publicly traded corporations, shifting them from quarterly disclosures to semiannual ones. In that sense he’s trying to make the public corporation more private.

Probably the biggest departure from the neoliberal period is that the American state is taking equity in private corporations. They’ve taken a golden share in US Steel. They took the grants that the Biden administration, in an attempt to discipline private capital, was going to award Intel if the company met certain milestones, and they just gave them out all at once in exchange for a 9.9 percent equity stake. They’ve done another deal with the rare-earth company MP Materials, becoming its largest shareholder. As a result the stock prices of all these companies have jumped through the roof, because private capital is taking the hint that they’re being backed by the state.

Susannah Glickman: The one-off equity deals do seem unique—not just because Deputy Secretary of Defense Steve Feinberg, formerly of Cerberus Capital Management, is staffing the Pentagon with personnel from the world of private equity and his other business networks, but also because the deals themselves are financially engineered and structured in ways that resemble private-equity practices. You take a stake, the idea goes, and then you do some work to govern and/or reform the companies that you’re taking stakes in—usually along some rubric of efficiency that makes companies seem more profitable in the short term but hurts long-term resilience and viability.

It isn’t as if these deals are reindustrializing or bolstering any particular sector. They seem to be more a matter of building private patronage networks. I don’t know what the Trump administration is going to do with the 15 percent they’ll get of Nvidia’s profits from selling chips to China, but it effectively gives them access to pots of money that they don’t need to go ask Congress for. In that sense, it’s like an end run around legislative oversight and the constitutional power of the purse.

Both of your essays aim to explain some of these aspects of Trump’s economic policy by looking back to the longer history of military Keynesianism in the US. What, in your views, are some of the signal ways that these decisions on the current administration’s part are eroding, or unraveling, that political-economic paradigm?

Johnson: One of the things that I’m concerned with in my research is how the Constitution makes it difficult to do macroeconomic management. Part of the point of the separation of powers, the Electoral College, the filibuster, and so on is to make it extremely difficult to pass new legislation. What military Keynesianism did, in the middle of the twentieth century, was provide a solution to this problem. If you can sell war as an existential emergency, you can get a burst of new spending to revive the economy—or maybe you’re not even trying to revive the economy, but that’s just what happens. Globally, all this was bound up with a legitimacy narrative: America is going to use these extraordinary powers to fight communism and prop up global aggregate demand, and it’s going to allow the third world to develop.

The “New Keynesianism” that emerged after the stagflation crisis of the 1970s, represented by people like the former Federal Reserve chair Ben Bernanke and the former European Central Bank president (and Italian prime minister) Mario Draghi, put more emphasis on the role of central banks in managing the macroeconomy and less on government-led fiscal policy. That vision came to grief after the global financial crisis, when interest rates fell to zero and the Fed couldn’t seem to stimulate aggregate demand. The obvious answer should have been a return to federal spending, but again gridlock shut that down. As a result, a lot of the 2010s were about trying to think of ways to stimulate the economy that don’t require Congressional horse-trading, a major new war, or relying on an independent central bank.

Trump and his advisers seem similarly frustrated with the lack of flexibility that the Constitution affords the executive. But in many ways their preferred macroeconomic uses of executive power are drawing down the capital of military Keynesianism’s legacy. In the middle of the twentieth century we built bases all over the world and established the dollar as the global reserve currency—and today Trump is using all that as a weapon against the rest of the world in order to extract resources. Maybe the most telling examples are the recent “prosperity deals” he has made with Japan and South Korea, in which each country agreed to invest hundreds of billions of dollars in America. In the case of Japan these funds will flow through the “Investment Accelerator,” a fund conceived of by US Secretary of Commerce Howard Lutnick. The idea, in effect, is that Trump gets to direct this slush fund into investments that he chooses—and then America gets to keep 90 percent of the profits. Like classic military Keynesianism, this is an attempt to juice investment in the American economy; this time, however, it’s paid for not by taxes or debt but by bullying our client states with threats of higher tariffs. I think the long-term sustainability of this kind of agenda is highly questionable, especially given how fast Trump is eroding the sense of legitimacy on which military Keynesianism’s elite consensus depended.

Glickman: Trump’s coalition is a varied bunch: he has advisers and allies associated with his own business practices and networks, with the private-equity sphere, with Silicon Valley, with the local gentry class that Nic described in his piece, and, relatedly, with the Christian right. These cohorts hardly have compatible visions of the state and the country; each of their visions, for that matter, is incoherent even on its own terms. But what stands out to me is that they have a weird cohesion in methods, or in ways of understanding and acting on the world.

My research often focuses on the 1980s, and a range of industries and figures in Trump’s political coalition are children of that decade. They came of age at a time when military Keynesianism and the cold war state were in crisis and their replacements were just starting to be defined, when legal and financial rules were being loosened, renegotiated, and remade. All these industries—private equity, venture capital, telecoms, the emerging tech cohort—got very good at exploiting legal loopholes and taking advantage of the state’s unwillingness to regulate the private sector, enforce existing laws around monopolies and corporate consolidation, or act decisively to shape the economy. At the same time, they still benefited from significant state support, even as the forms of that support were changing.

The story of how the tech firms in particular got intertwined with the US state doesn’t start with Trump. From Clinton to Obama to Biden, it’s been a long-term Democratic project at the Pentagon to swap in Silicon Valley corporations for the older group of firms from World War II–era industries like automobiles and aerospace. Venture capital in different forms was also part of the cohort of financial institutions that got more involved in policy and the national security state—and was even built into the infrastructures of federal research, science, and contracting—from the 1980s onwards.

At the same time, successive administrations, especially Obama’s, consolidated more control of the Pentagon in the executive branch.
Secretary of Defense Ash Carter, for instance, started to bring more Silicon Valley tech guys into the national security state—much like Steve Feinberg is doing now. In retrospect that shift toward greater executive power over the military helped set the precedent for the influence that, say, Stephen Miller now seems to have over the Pentagon’s foreign-policy decisions, like the summary executions in the Caribbean, not to mention domestic policy like the occupation of cities.

The members of Trump’s coalition might all ultimately want different things, but they have a shared interest in renegotiating power within the government, including by further routing control away from Congress and into the executive. They share a commitment to consolidating power in a range of other settings, too. As far as climate goes, there’s a push, long underway, to keep a couple big fossil fuel companies in control of energy production rather than spreading that control across the more distributed network of renewables.

Then there’s gender: in your essay, Nic, you quote an internal White House document that Peter Navarro circulated back in 2017 advocating for bringing back manufacturing—which in any case is absolutely not what they’re doing—because doing so would stop the “fertility rate” from falling, prevent the “abortion rate” from rising, and avoid “increased spousal abuse.” There’s a sense in which that sort of language about bringing back an earlier gender order is part of a coherent project of control, including control over children, which we can see in, for instance, the new permissiveness around child labor at the parent’s behest. All of this is basically along the lines Melinda Cooper draws in her great book Family Values.

Johnson: That might be one reason these guys don’t seem to mind taxing the US’s long-term legitimacy: at least some of them have a coherent, Christian nationalist vision for America’s future. They don’t want to lead the world, they want to be walled off from foreign influences so they can restore piety at home. They think Trump’s reelection is providential, and so is America’s leadership within Christendom. If God has chosen this nation to play that part in world history, then the economics will work themselves out as long as we have faith.

Certain members of Trump’s coalition seem to me more or less like Machiavellian technocrats. But then there are people like Russell Vought, the director of the Office of Management and Budget and the Consumer Financial Protection Bureau, who has a highly articulated theological worldview. I recommend people read the articles his think tank, the Center for Renewing America, puts out, and his essay “Wheaton College and the Preservation of Theological Clarity.” This isn’t just the patina of Bible-thumping, it’s the real deal.

For Vought, I think, the political economy comes in second. He has economic arguments to rationalize his preferred policies—about immigration, for one thing, but then also, as you were saying, policies that transfer authority and power to patriarchs within the private world. On some level figures like Vought don’t appear all that interested in American global hegemony. They’re interested in making sure that Christendom reproduces itself over the long term.

This bears on a point that both of you make, namely that culture-war-inflected ideology seems to have an unusual degree of power for explaining this administration’s economic behavior. Rhetoric about using tariffs to restore American masculinity appears to be steering federal trade policy; talk about restoring American greatness through “software-driven reindustrialization” seems to be steering state military investment. What are some other important items in this mix?

Glickman: For the Silicon Valley contingent, the question of China seems to crystallize a bunch of contradictions in a crucial way. Starting at the end of the Obama administration and building over the course of the Biden administration, some major Valley figures came to think that the Democratic White Houses were too permissive with China and that reindustrializing was about confronting this national adversary. But something has changed in their thinking on this score: since Trump’s reelection this cohort seems to find the China fight less urgent. In retrospect Biden seems to have been much more deliberate about confrontation with China, for instance in his use of export controls. I don’t think Biden’s export controls were all that effective, for a variety of reasons. But there was a vision that the US was reindustrializing and using new forms of trade policy to confront China along the lines that these Silicon Valley billionaires had been asking for.

Now I see a number of competing tendencies and interests, even within the Silicon Valley set. There’s a desire to control the Pentagon and its patronage networks, which is essentially a desire for monopoly, arguably for autocracy. And then there’s also at least a nominal commitment to building industrial capacity in the service of American power and for the maintenance of American empire. But those two desires are at odds, because to maintain American empire you need a powerful state, a robust industrial policy, and a long-termism that this group seems unable to really sustain. They’re not building industries. They’re not reindustrializing. In many ways they’re contributing to the destruction of the state’s capacity, not least by privatizing so many of its functions, especially its ability to exercise oversight over industry and set neutral standards.

Some of the Silicon Valley billionaires, as I mentioned in the essay, seem to think that they can essentially do research on a private, mercenary basis, without the help of a strong state—that you can create a private veto on public action by just contracting out essential functions of government rather than ever building durable government capacity. Maybe they don’t think that shifting jurisdiction to this kind of private sphere is at odds with maintaining the US power on which they themselves depend for their international dominance, access to resources, and favorable business environments. But to me those two things do seem at odds.

Johnson: I think you’re totally right that various members of Trump’s coalition aren’t really thinking about the long-term sources of American power. They don’t see the university as a place where human capital accumulates and innovations happen—they see it as a place that contests their current power in the culture. Similarly, they’re not thinking of immigration as helping to stave off American demographic decline—they’re thinking of the great replacement theory.

Part of this, frankly, is a question of age. I think you really can’t underestimate the importance of the fact that Trump and some of his crucial policy advisers are quite old, so their time horizon is ten years. We’ve had old presidents before, of course, but Trump’s uniquely personalist form of rule makes him less disciplined by the need to build a social and political base within a party apparatus which consists of multiple levels, including young people who might be thinking more seriously about the long term.

Additionally, I think it’s important to keep in mind the shift from prior Republican regimes in the social base of Trump’s power. Previous Republican presidents had multinational capital as their principal social base. I don’t think that’s exactly true of Trump. Matthew Smith, Danny Yagan, Owen Zidar, and Eric Zwick wrote an article that I like in the Quarterly Journal of Economics where they look at who the one percent actually are in the US today, and how they make their money. They found that it’s small businessmen who use pass-through profit to pay themselves: single-establishment dentists, auto dealers, or regional beverage distribution companies. These are the kinds of guys who participate in “Boaters for Trump” parades.

The example that I always have in mind is Marty Davis, the Midwest quartz countertop king, who lives across Lake Minnetonka from my dad in Minnesota. Or you can think of the more famous Mike Lindell, the “MyPillow guy,” another Minnesota native who has risen to the ranks of the lumpen bourgeoisie. He dropped out of college, but grew to be worth tens or hundreds of millions of dollars. These small businessmen don’t have much interest in what’s going on in Ukraine or the Middle East or East Asia, except insofar as they dislike whatever competition happens to come via imports. The quartz countertop king gets quartz from the Midwest, and he sells to the Midwest (and elsewhere in North America). Global hegemony presumably just isn’t on his radar. What one assumes is on his radar is control over labor and his place within broader American society—which is to say the culture war.

I think Trump is reacting to that social base, and then he’s finding places where he can allow the Silicon Valley set to come in and loot the state as a bonus. For now, AI-driven investment seems to be propping up large portions of the economy, and the scale of this investment is justified by the belief that they are, in their own words, “building God in a box.” I believe it was the former CEO of Google who was rumored to have said he was willing to drive his company into bankruptcy if it meant he could win the race for Artificial General Intelligence. Again, a theological project behind economic events.

Glickman: And these two coalitions are in tension: the Silicon Valley guys have very distinct interests from local or regional capital or the “America First” contingent. When Trump makes moves that seem to go in different directions—softening some of the trade war against China, for instance—it may be because he’s responding to the competing pressures I outlined earlier. Many in the Silicon Valley set rely on Chinese markets, production, labor, and supply chain components. There also appears to be a more general conflict between shoring up national security and making money: Attorney General Pam Bondi’s relaxation on enforcing the Foreign Agents Registration Act is one example among many.

Let’s come back to the equity deals. What do you two make of them?  

Glickman: As I mentioned earlier, I see them as quite continuous with the private business practices that the deputy secretary of defense is so familiar with. They are one of the tools this part of the Trump coalition is using to create a patronage network and amass political power. It is effectively picking winners—a charge the right often uses to demonize much less narrowly targeted forms of government intervention. These companies may not use that capital effectively, because they have no incentive to do so, aside from whatever governance their allies in the Pentagon choose to impose on them using the equity stake as a disciplining mechanism.

I’ve heard some people say that these deals are part of an attempt to replicate the Chinese model, and it seems true that there has been much more openness to state capitalism on the right: people have watched the rise of Chinese companies that are really quite impressive. But insofar as the architects of this new form of state capitalism are taking their cues from China, they’re misreading what’s happening there. And misreadings are often historically important—the scholar Finn Brunton, for example, writes in his book Digital Cash (2018) about how cyber-libertarians and proto-cryptocurrency guys have derived their politics and theories of history from misreadings of Friedrich Hayek.

These Pentagon reformers seem to think something like, Oh, the Chinese state works just like our investment firms, picking winners, funding them, and shaping them until they get something right. Subsidies and government planning are definitely crucial to the Chinese model, but in China there’s also really robust, cutthroat competition at the local and regional levels between different companies representing different provinces, maybe even to the extent, according to some observers, that they’re undercutting one another’s prices too much. This isn’t my expertise, but that’s what many scholars of Chinese political economy, like Yingyao Wang, Muyang Chen, Xuan Li, Cornel Ban, and Xiaohuan Lan, have shown in their research.

There’s also a misunderstanding here about what private equity is good at. There are better and worse private equity firms, but in general they seem to be less good at reinvigorating the companies they invest in than they are at stripping them for parts to enrich the private equity executives themselves. In that respect, the current situation feels quite different from other moments when we’ve had a much more interventionist state, because back then planners were thinking about particular sectors or about the economy as a whole, and the state was fostering competition, and so US companies became much more globally dominant.

Johnson: Right—from a longer historical point of view, the deviation isn’t that they’re taking equity in private corporations. I’m writing a book about the Reconstruction Finance Corporation, a massive public company that was a centerpiece of the New Deal, which at one point controlled a third of all bank capital in America and had equity stakes in half of all American banks. The difference is that the RFC developed an advanced industrial policy that involved seeding the field with a range of different private competitors and undercutting the power of specific monopolies.

In the 1930s and 1940s, for instance, three big copper companies controlled somewhere between 60 and 80 percent of the market in copper, which is totally essential for running a war economy. Those companies would have used their market power to make the American government pay through the nose—so the RFC seeded a lot of little money among small copper producers. These weren’t very efficient—they were high-cost producers. But the effect was to take market share away from the big three and lower their leverage over the government. One of my favorite observations by John Kenneth Galbraith in American Capitalism (1952) is that the Reconstruction Finance Corporation “eased the problem of entry of new firms.” It was, he wrote, “significant that the new arrivals in such industries as automobile, steel and aluminum production in the last ten years have all had capital from this source.”

If you’ve got a monopoly or oligopoly problem, in other words, you just sponsor competition to erode their power—and if out of that comes a more successful national champion, then great. What the Trump administration has done is simply decide from the get-go that these high-cost producers aren’t going to be disciplined by the state, just enabled. That’s a problem, because Intel is not very efficient—that’s why it needs government support!

By way of conclusion, I wonder whether either of you have thoughts about the conditions that made all this possible in the first place. Why is it now that we’re seeing these pivots away from, say, the state empowering certain sectors toward one-off deals, or from concern over the future of US empire toward a kind of short-termism? What shifted on a broader economic level to set the stage for these recent changes in the state’s priorities?

Glickman: The changes to the state are certainly radical, but I also see a lot of continuities. Some important industries started offshoring in the 1960s. The demise of labor began manifesting in the 1960s. Over the next decade it became clear that the version of the US state that came together at the end of World War II and the start of the cold war was dying, and it wasn’t clear what was going to replace it.

It’s this moment of uncertainty and institutional experimentation that created the new coalitions I described earlier, rooted in parts of the emerging tech sector and in financial industries like venture capital and private equity. Other factions of capital and other factions of the state resisted this emergent group: there’s lots of maneuvering, but in the most basic terms this side was dominated by productive industries tied to the national-security state.

As I wrote about in my article, in the 1990s these two forces came to a drawn-out truce. National-security-adjacent industries would still benefit from a weaker form of industrial policy, but in public they’d attribute their success to a new class of entrepreneurs, especially in the tech sector. That truce had broken down by the time Biden took office, though there’s no simple explanation as to why that happened when it did: foreign-policy developments like Russia’s invasion of Crimea, the rise of China, and the supply-chain shock during the pandemic all probably had a part, among other things. In any case, that shift has created an opening for Biden and then Trump—and the factions of capital to which they’re responding—to try to rearrange the system to benefit themselves.

Johnson: I think it’s a confluence of things. For one thing, the right’s elite coalition shifted to the gentry we talked about earlier, which has less interest in America’s global hegemony; for another, macroeconomic mismanagement after interest rates hit the zero lower bound in 2008 subjected people to repeated economic traumas that, in turn, created a populist political surge. But these sort of factors just help explain why we’re leaving neoliberalism for a new paradigm. They don’t explain the character of this one, in particular the short-termism. 

For that I think I have a somewhat deflationary answer, which is that in the mid-twentieth century we had a baby boom, and so in the 1960s the median age of the American population was twenty-eight. It’s worth thinking about what it means for more than half the population to be under the age of thirty. The baby boomers were all young together, at the same time, and they came into a world just after the total catastrophes of the Great Depression and World War II. Inequality is falling, labor representation is rising, monopoly power is weakening, and rentier interests as a percentage of total income are down, although all these gains are distributed markedly unevenly along lines of race and gender. In his great recent book, As Gods Among Men, the economic historian Guido Alfani uses data going back to Renaissance Italy to show that this fall in inequality in the mid-twentieth century was really a world-historic break in modernity. As far as wealth-leveling events go, it’s equivalent to the fall of Rome or the Black Death in the damage it did to the wealthy’s relative social position.

Now, of course, the median age is approaching forty, and the tail end of the distribution is much higher. Rent is back to normal historical levels, as is finance; the labor movement’s been destroyed; the economy has shifted away from manufacturing toward the service sector. Inequality—and therefore inheritance—are reverting back to historic levels, and this is reshaping the character of intergenerational conflict.

What we’re experiencing now is in some sense a crisis of reproduction of the boomer worldview. What worked for the boomers as a generation is just not working for everybody else, because they were world-historically unique. Now that they’re looking at the ends of their lives, they’re having these apocalyptic visions of what’s going on, in a world that has a lot more freedoms for women and minorities than when they were kids. I think that’s part of what’s giving rise to a certain short-termism. The materialists want one last squeeze of the orange before they die, and the religious want to squander their wealth on projects to make sure this is a Christian nation after they are gone.

Glickman: So we’re back to fertility—and if Peter Navarro is right, we can solve the problem of inequality by bringing back manufacturing jobs and getting women back to the business of having enough kids to bring that median age down!

What might be some of the logical endpoints of the trends we’re seeing now?

Johnson: Going back to where we started, I think the American constitutional system is rigged to produce inaction. It takes a real existential crisis, like a total war or a Great Depression, to really shift a trend in a different direction. I don’t know if we’re going to see one of those anytime soon: I think the Federal Reserve has the tools needed to prevent another Great Depression; I hope there’s not going to be another total war. In the absence of those kinds of shocks, I think we can predict a return to trend, and the elimination of the anomalies that accumulated in the mid-twentieth century. In that sense the twenty-first century might look a lot like the ancien regime of the eighteenth and nineteenth centuries—neo-mercantilism as far as the eye can see.

Glickman: We’ve both talked about how fast US power seems to be eroding. So maybe we’ll just be less and less important, and the vagaries of US politics will come to matter less for the rest of the world—up to a point. There’s still the power of the global dollar system, for one thing, as Nic talked about in his piece; certain other pockets of US power also seem durable.

Within the US, I think it remains an open question how the country’s politics are rearranging themselves—perhaps the new constituencies reflect different kinds of capital, or ideas about American power, or stand for or against autocracy. One of the more interesting developments is that a regional divide seems to be reemerging. The tech companies have their political bases on the coasts, and I’ve noticed that some corporate actors in the Midwest and in other parts of the country seem to have made somewhat strange coalitions in common cause against the Silicon Valley bloc: legacy or alternative defense contractors (especially drone manufacturers) have come together with agribusiness and others who object on various grounds to the Valley’s growing access to defense spending. I think the future of American politics may look more regional as a result, which would be an interesting throwback to older periods of the country’s history. (I was trained in Eric Foner’s American history program, so I naturally think of the Civil War.)

But we’re only a year in. I wonder whether we’ve neglected just how rapid the pace of change has been, how many different sorts of things are happening—that we know about—and how quickly the administration seems to be pivoting from one point of view to another. It started out really hawkish on China, for instance, and now it’s pretty relaxed. That rate of flux is overwhelming, and it makes it hard to think as far as even the next month. When I was writing my piece, every day the administration would do something else, and I kept thinking, Well, now this is reshaping my picture. I have to add this. This article is never gonna end.