The Folly of Trump’s Command Economy

By Ian Tuttle
Wednesday, December 07, 2016

If you’re a business, Donald Trump is making it hard to plan for the future.

Last week, President-elect Trump intervened to keep the Carrier air-conditioner company from moving part of its operation to Mexico and shutting down its plant in Huntington, Ind. Then, on Tuesday morning, Trump tweeted that aerospace firm Boeing was overcharging to design and build the new Air Force One fleet, adding in a brief interview at Trump Tower that he thought Boeing might be “doing a little bit of a number.” With plenty of American companies looking to lower their bottom line, Trump will no doubt locate a new company of concern next week.

It’s hardly unprecedented, of course. The United States has a long history of federal intervention in the affairs of large companies, and not always for the worse. It’s not impossible (though it’s perhaps improbable) that Trump’s deal with Carrier will end up in the country’s best interest, and, as I wrote recently, it’s not unreasonable to ask whether the federal government is getting the best bang for its buck in defense contracts, the Pentagon not being the most conscientious of spenders.

But it’s not clear yet that President-elect Trump’s interest in Carrier and Boeing is part of a coherent approach to big business. Many firms are considering offshoring jobs. Why was Carrier favored? The government has more than 1 million defense contractors. Why single out Boeing? Will the president intervene with every firm that offshores? Will he squint at every defense contract? Unfortunately, there is the distinct impression that Trump is primarily responding to whichever events happen to penetrate his consciousness.

This would, of course, fit the Trump mode. It was just a few weeks ago that he tweeted about flag-burning because he’d seen protesters burning flags on a Fox News broadcast. And perhaps singling out a few firms is meant to send a message to others. But, at first blush, this does not look like a foundation for a healthy economy. Rather, it looks like arbitrary government intervention.

Being a businessman, Donald Trump is surely well aware of the problem this presents. To succeed, businesses need to be able to make long-term investments — that is, they need to be able to make strategic decisions whose payoff if not immediate. But that requires a stable business climate, one that is not subject to arbitrary rule changes. F. A. Hayek, in The Road to Serfdom, put it this way:

[Rule of law means] that government in all its actions is bound by rules fixed and announced beforehand — rules that make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge. Thus, within the known rules of the game, the individual is free to pursue his personal ends, certain that the powers of government will not be used deliberately to frustrate his efforts.

But President-elect Trump has not signaled that he will aim to foster a climate in which businesses can plan for their future. He has signaled that he will intervene, without warning, to prohibit individual business decisions he does not like.

That is, as Trump’s defenders might say, “disruptive.” But “disruption” should be a temporary waystation on the way to “fixed and announced” policies that give businesses the comfort of mind to plan for their futures. Rather, based on what we know of Donald Trump, Carrier and Boeing may turn out to be the first in a parade of companies randomly anointed or condemned from on high.

Unfortunately, President-elect Trump does not seem to understand that in an economy of arbitrarily chosen “winners,” most of us end up losers.