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The Trump Trilemma

Dani Rodrik, the Turkish born Harvard Economist states that a nation may have two of the following three things: national sovereignty, democracy, or deep, global economic integration. It can have any combination of two. But it cannot have all three.

This is “Rodrik’s Trilemma.”

The logic behind why is somewhat complicated but can be reasonably explained as three forces pulling on one rope. Only two can pull at once to balance it. The third has nothing to grab on to.

One force, economic integration or, globalization as it’s called in the political world, is created when we reduce the barriers for trade of goods and flow of capital between nations. In order to have it, we reduce transaction costs; tariffs, import/export quotas, etc. When we do this, we inherently weaken some aspects of the control of the nation state and strengthen the input of global regulatory bodies in the sovereign affairs of the participating nations. The two sides pulling on the rope in this scenario are globalization and the sovereignty of a state.

If a nation desires globalization, it has to give up some power in determining its trade policy. If it wants more control over trade policy, it should be prepared to lose bargaining power in a globally integrated economy. The ebb and flow can be rationally managed and balanced to meet the best outcomes of the nation.

The trilemma comes in to play when that nation tries to do this while maintaining the accountability of democracy. In a deeply integrated global trade environment, an electorate has to have a focus beyond the nation’s own borders to ensure that it governs and makes policy in a way that effectively facilitates the global flow of goods and capital. In order to do this, the electorate must be willing to surrender, through democratic process, some sovereign power to global regulatory entities. They need to be able to do this in all circumstances even when, or especially when, the near-term outcomes of trade policy negatively impact the outcomes of the electorate.

Rodrik maintains that electorates don’t do this.

As a result, a nation wishing to maintain global trade integration and democracy must give up sovereign power to the global regulating entity lest the unwashed masses of democracy break the global economy with a tariff to protect their jobs. The tug of war then transitions between global trade outcomes and democracy. The more power the democracy has, the less integration we’ll receive. Sovereign control sits it out, surrendered to the electorate or the global regulatory entity.

We could continue the analogy through all the potential combinations but the one material to the Trump-ism discussion is where we’ve insisted that global economic integration sit out the contest and let democracy and sovereign control of trade policy have a go at it.

Let the people pick the leader. Let the leader pick the economy that delivers for the people. Everyone else get in line behind America.

America First.

This path is sold easily after hard times like the Great Recession. Trump and Brexit are textbook Rodrik’s Trilemma occurrences. Globalism is the casualty.

Most economists agree, if not in magnitude at least in direction, globalism is a net economic positive. It increases GDP, decreases the cost of goods, and makes the world an “overall” more stable place. The global margin increases.

People don’t vote on the global margin. In America today, they don’t vote much on their individual outcomes either. They vote on their culture. And that makes globalism an easy target.

Much of the Trump-ism message is about transitioning the economics of globalism into a cultural message of nationalism. One of the great tricks of Trump-ism has been to align the negative economic outcomes for its political base with the culture of toleration.

About halfway through the first quarter of the 2017 Super Bowl, I began to get the feeling that the American consumer, or at least the corporations that sell to the American consumer, were not big fans of the inward anti-globalism focus voted into office with the Trump administration.

The global cultural mindset was everywhere.

Coca-Cola ran an ad with people from all over the world singing America the Beautiful in their native tongues. Budweiser told the story of Adolphus Busch’s immigration. 84 Lumber showed the first half of a story that had to be cut off and shown on the internet because it actually showed Trump’s dubious great wall of America.

The message was loud and clear. Americans associate positive sentiment with a modern, compassionate, global perspective. We feel warm and fuzzy about the idea of diverse cultures all longing for and participating in the American dream. That message was market tested and executed by multi-national corporations who spent $160K a second on airtime to deliver it. It was not an unintentional endeavor.

The commercials we were fed were about people and culture and diversity. And tolerance. They filled Americans with the positive sentiment ad companies love to attach to the brands they represent. Inclusion sells. The sentiment, though, is a classic example of a problematic progressive globalism trap.

The progressive globalism trap pushes the notion that globalism is about people and tolerance. And if you’re about people and tolerance (I am), then you are a fan of globalism. In reality, globalism as we know it, the globalism that’s actually materially impacting Americans, has almost nothing to do with people and cultures and everything to do with trade and money. The standards enforced by the World Trade Organization and the outcomes that reducing barriers to free trade have coincided with an era of tremendous global growth. It’s drastically reduced economic inequality across nations.

But at a cost.

That cost has been the re-distribution of wealth and the increase of income inequality within already wealthy nations like America. It’s a firm reality of economics. We grow other place’s middle class at some difficult to quantify expense to our own.

Additionally, the opening up of the international flow of capital allows money to move seamlessly from country to country. But that’s come at a cost too. That cost has been a financial interdependence that fuels global recessions without alleviating the need for sovereign nations to bail out institutions deemed “too big to fail.” The global community didn’t bail out the American financial sector or our automakers. America did.

At the same time, the open flow of capital has also allowed open competition for corporate earnings to drive the corporate tax rate down globally almost 50% in just a few decades in a way that makes America less competitive for internal investment.

The fair point that Trump-ism makes is that global growth and stability hasn’t come without a cost to America. And the cost has fallen heavily on an American working class that hasn’t realized that we transitioned from a manufacturing and production economy to a services economy two generations ago. While the benefits of that global growth of the second half the 20th century exist, the costs are easier to point to in the wake of the recession.

By aligning the economics of anti-globalism with the cultural phenomenon of nativist nationalism, Trump-ism trapped their opposition in a reality where one is either for diversity, or one is for America. One can’t be for both and have the economic interests of Americans as a priority. The only counter Democrats found in 2016 was a departure from capitalism all together of Bernie Sanders.

And we know how that went.

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Are You a Watkins or a Massengill?

In 1937, the pharmaceutical firm S.E. Massengill Company launched a liquid form of the drug sulfanilamide to help fight strep throat infections. They called it Elixir Sulfanilamide. The drug was never tested on animals or humans. Because they didn’t really do that back then. But it did contain a chemical compound related to anti-freeze. The result of the drug’s distribution was a nationwide mass poisoning. Over a hundred people died, mostly children. Thousands more were made violently ill. After the early reports of death and illness, the company tried to recall the elixir. They could not. No one kept records back then. So the FDA had to use the entirety of its field force to track down all the available bottles of the medicine, door to door, to avert further crisis.

At the time, the only law that S.E. Massengill Company violated was the mislabeling of the drug as an elixir. Elixirs contain alcohol. Elixir Sulfanilamide did not; just anti-freeze. The only reason the FDA was empowered to participate in the recall was because of that fortunate mis-labeling. In response to the tragedy, there was a public outcry and Congress passed the 1938 Food, Drug, and Cosmetic Act requiring clinical testing be conducted before any pharmaceuticals go to market, among other sweeping regulatory changes.

Dr. Samuel Evans Massengill, the owner of the company, offered his assessment of the events shortly after the recall. “..there was no error in the manufacture of the product. We have been supplying a legitimate professional demand and not once could have foreseen the unlooked-for results. I do not feel that there was any responsibility on our part.”

Harold Watkins, the company’s lead chemist who developed the compound personally was more contrite. He committed suicide shortly after.

S.E. Massengill Company survived. It’s one of a half dozen companies that have merged, split or spun into Glaxosmithkline, the massive British pharma company that manufactures household name drugs like Advair.

The Food, Drug and Cosmetic Act of 1938 is hard to poke holes in. It’s pretty difficult to argue that if we can’t manage to not hand out anti-freeze to children with sore throats without government intervention, then perhaps we ought to have some government intervention. So have some we do. Most would agree that we’ve come a long way towards the safety and efficacy of our medicine since the 30’s. For the most part. There’s a gap though. Because the funny thing about regulation, when large sums of money are involved, is that it tends to drive minimal acceptable behavior. Here’s how it works.

For 50 of the 80 or so years of it’s existence, the only people the Food, Drug and Cosmetic Act of 1938 protected, were white men. Because the only people that participated in the clinical testing were white men. And it’s not just because we had a long history of only really meaning white men when we pass laws. There’s actually a slightly better answer for this one.

If you need to test a drug that you think is going to help people, and you have limited time and resources to do it, like everyone does, you probably need to find the most stable, common test subject. Now, from a biology perspective, we men are pretty boring. We don’t have exciting things like menstrual cycles, pregnancy or menopause. We just get horny, then old, then bald and grumpy and dead. But our body chemistry stays pretty consistent. And since we white folks in America have historically been the majority of the population, the safest, most consistent, effective and efficient test subjects to pick were white men.

Additionally, in the early 60’s we had the thalidomide tragedy, where thousands of pregnant women were prescribed thalidomide to help with morning sickness. The outcome was that thousands of babies around the globe were born without limbs. The less tragic but more enduring outcome was a knee jerk reaction to eliminate women all together from clinical testing because they ran the risk of becoming pregnant or being pregnant, and no one wanted to repeat the thalidomide tragedy. So, at first, no one wanted to test women because it was inefficient. And then, no one was really allowed to. At least until the 80’s, when people started to notice.

It sounds like a reasonable excuse. Right? Well it depends. Are you a woman? Are you an African American who is at higher risk for diabetes, heart disease and a litany of auto-immune issues that needs the drugs that weren’t tested on people like you before they were issued to people like you?  Are you one of the women who sleep drove off a highway because Ambien metabolizes 15% slower in women then it does in men of equal weight. But no one told you because no one knew. If you are, then I would imagine that the excuse gets less reasonable. Especially since we’ve since found out that sex and race have much more of an impact on a drugs effect than we originally thought. So we’ve had some more regulation regarding the requirements to test women and minorities over the last thirty years.

Now, there’s a chance that you read the last few paragraphs and you were satisfied or at least sympathetic to the biological explanation of exclusion of women and minorities from clinical testing. And though you wish the science of the time had known better, you understood the approach and even appreciated the efficient principles behind it. As a result, you don’t carry too much ill will towards those who were responsible for it. You might say something about those that executed a policy of women and minority exclusion from clinical testing that sounds something like, they were “supplying a legitimate professional demand and not once could have foreseen the unlooked-for results.” As a result, you bristle a bit about government sticking their nose in the industry and forcing things on companies that are just trying to run a business.

That’s how Dr. Massengill felt. Remember?

On the other hand, you could be outraged. Perhaps because you are a woman. Or perhaps because you are one of the tens of millions of ethnic minorities in America. And you feel that an entire industry, one with nearly unending profits and durability decided to focus on efficiency instead of your wellbeing for something as important as the medicine you take to keep you and your family safe. And like the parents of those poor children who were fed anti-freeze that destroyed their kidneys and killed them, you might take offense to the opinion that no one was responsible for bad behavior.

Thats’ how the chemist Watkins felt. Remember?

So are you a Watkins? Or a Massingill? Somehow, history feels somewhat better about Watkins. Even if Massingill did die rich in his bed. But that’s not really the point.

Change is coming in the domain of government regulation. Seek the debates that ask the better questions: Does the regulation in question provide sufficient benefit for the cost? Is your sense of benefit impacted by your own experience with it? Answer those questions, and you’ve got a sound opinion. Anything else is just noise. And it’s about to get really noisy.