President-Elect Trump has nominated a distinctive group of individuals to serve in his Cabinet: With some exceptions, they are all wealthy individuals with little or no government experience but a lot of experience as hedge fund managers. We will have to wait to see how these individuals fare in the confirmation process, but their nominations suggest that Trump believes that such people will manage the economy well. That assumption will likely prove to be very wrong.
We have historical examples of similar decisions. For example, Venice was once a powerful city-state and a dominant force in the global economy in the 13th-15th Centuries. That wealth was based upon international trade and Venice’s ability to link Europe to Asia through the Silk Trade routes.
But the Venetians decided to close off trading opportunities to all but the noble families who had grown quite wealthy as traders. According to Diego Puga and Daniel Trefler in their article “International Trade and Institutional Change: Medieval Venice’s Response to Globalization“:
“This brings us to the great puzzle of Venetian history. During the period 1297–1323, a defining epoch in Venetian history known as the Serrata or “closure,” Venetian politics came under the control of a tightly knit cabal of the richest families. It was, in Norwich’s (1977, p. 181) words, the triumph of the oligarchs. Furthermore, by the early 1330s this political closure had spilled over into an economic closure that excluded poorer families from participation in the most lucrative aspects of international trade. Finally, by 1400 the political and economic closure had created a society characterized by a new emphasis on rank and hierarchy. In short, after 1323 there was a fundamental societal shift away from political openness, economic competition, and social mobility and toward political closure, extreme inequality, and social stratification.”
Ultimately, more dynamic economic centers emerged, such as Portugal, Spain, the Dutch, and Great Britain, finding a way to bypass the Venetian chokehold on the Silk Trade by finding alternative routes to Asia. Venice lost its economic vitality and declined into nothing more than a footnote in the history of the global economy.
The argument is straightforward: rather than continuing to innnovate under the pressures of competition (such as the need to find a sea route to Asia), wealthy individuals tend to use political power to protect their interests through laws. That political power is then used to insulate existing techniques and technologies from externally induced change. Those industries become less efficient over time and economic growth slows as a result.
That same process seems to be in play in the US today. Robert Reich outlines the process in the YouTube video, “Wealth Inequality Explained”:
The composition of Trump’s Cabinet fits into this mold perfectly. In a broader cocntext, the process seems to be affecting many different countries in the world, as globalization produces distorted economic outcomes. Trevor Jackson describes the dynamic in his recent essay on the New York Review of Books:
“For decades now, the ideology of free-market liberalism has obfuscated the ongoing distributive conflicts of the world, but it has not blunted the material suffering of the people on the losing end. Since the 2008 crisis, the reality of ruthless distributive conflict has become impossible to ignore, but the failure of market liberalism to reconcile political equality and economic inequality has produced a global crisis of legitimacy and a growing constituency amenable to antiliberal figures like Trump, Orbán, Modi, and Bolsonaro.”
The anger against the prevailing patterns of wealth distribution is not only found in political outcomes. The astonishing amount of support for the alleged assassin, Luigi Mangione, reflects the degree of animosity toward the “undeserving” rich. If the Democratic Party needs to make a decision about how to orient its platform for the future, it would be well-advised to concentrate exclusively on the process of redistributing wealth and breaking up the political power of economic interests.
World Politics News 