Wednesday, February 1, 2017

Implications of protectionist policies in the long term

Has The Trump Presidency begun in the worst possible way for all those who believe in Free Markets?

According to University of Chicago Booth School of Business Professor Luigi Zingales, “it is clear that the Trump industrial policy will be pro-business, not pro-market. It may seem to be a nuance, but there is a fundamental difference. A pro-business policy favors existing companies at the expense of future generations. A pro-market policy favors conditions that allow all businesses to thrive without any favoritism. A pro-business policy defends domestic enterprises with favorable rates and treatment. A pro-market policy opens the domestic market to international competition because doing so would not only benefit consumers, but would also benefit the companies themselves in the long term, which will have to learn to be competitive on the market, rather than prosper thanks to protection and state aid.

Paradoxically, a pro-business policy ends up damaging not only the economy, but also, in the long-run, those companies that it had originally benefited.”
Zingales concludes that, “The Trump presidency has begun in the worst possible way for all those who, like me, still believe in the market.”

Young Invincibles is a national organization, representing the interests of 18 to 34 year-olds, which makes sure that their perspective is heard wherever decisions about their collective future are being made. Young Invincibles (YI) recently published a study entitled Financial Health of Young America: Measuring Generational Declines between Baby Boomers & Millennials, which makes very interesting reading.

According to YI, “Baby Boomers were much more financially secure than Millennials when they were the same age. Boomers earned higher incomes, amassed greater assets, were more likely to own homes, and had greater net wealth when they were young adults than today’s young people.”

It will be interesting to see whether the protectionist policies of Trump will improve the financial conditions of the millennials or, as I believe, hurt them even more because from now on the millennials will not only have to live with lower incomes, less wealth, and inflated asset markets, which they cannot afford, but also with rising consumer prices.