Neo-Nazis and the Impotence of Trumponomics

Crude economics doesn’t explain what just happened

Neo-Nazis — no point in euphemisms — just won big in the rough equivalent of a state-level election in Germany. America’s leading neo-Nazi — again, no point in euphemisms — congratulated the AfD (in German) on the result, and in return received “thanks for your support” from the AfD’s lead candidate.

In the days and weeks ahead there will be many analyses of the results and its implications from people who, unlike me, know something about German politics. For now, let me do something more parochial, and write about what the Sachsen-Anhalt election might teach us about U.S. political economy.

So, about America: Make America Great Again meant different things to different people — racism, of course, being a key component. But in Donald Trump’s mind it also clearly meant trying to bring back “manly” jobs. He would do this by imposing tariffs to eliminate trade deficits, which, in his garbled version of economics, would end huge U.S. “giveaways” to surplus nations. And this would, in turn, lead to a huge revival of U.S. manufacturing employment.

Why is Germany relevant to this story? Because in terms of both trade balances and manufacturing Germany is, in effect, the anti-America. Where we do indeed run large trade deficits, Germany runs huge surpluses. And while Germany, like every other advanced economy, has seen the manufacturing share of employment decline over time, it remains a more industrial nation than the U.S. has been since the 1980s.

Indeed, relative to the size of its economy, Germany runs trade surpluses and retains large-scale manufacturing employment to an extent that lies far beyond the wildest dreams of Trumponomics.

And none of this appears to make a bit of difference to the resentment that underlies right-wing extremism on both sides of the Atlantic.

Start with trade. Here are balances in trade in goods and services for the two nations, expressed as a percent of GDP:

The U.S., as Trump constantly emphasizes, consistently buys more stuff from other nations than they buy from us. In his mind this means that we are being ripped off (as opposed to attracting large inflows of foreign investment, which as a matter of sheer accounting necessarily implies that we run trade deficits.) In any case, however, the Germans should be feeling pleased with themselves for running big trade surpluses, and hence taking advantage of the rest of the world, right?

Somehow, they aren’t.

America’s large trade deficit in manufactured goods does mean that we have fewer manufacturing jobs than we would if that trade were balanced. Robert Lawrence of the Peterson Institute for International Economics estimates that eliminating the deficit would raise the manufacturing share of employment from 7.9 to 9.7 percent, similar to my own back-of-the-envelope calculations. Correspondingly, Germany, with its large manufacturing surpluses, has relatively higher manufacturing employment as a share of total employment. Here are trends in industrial employment — a bigger category than manufacturing alone, but the trends are similar:

Even Germany has gradually become “deindustrialized,” but even now it is more of an industrial nation, as measured by where the jobs are, than the United States has been for at least 35 years. Has this insulated Germany from the bitterness and political extremism that many U.S. observers attribute to deindustrialization? Apparently not.

So here’s one way to think about the political economy here. The economic component of MAGA might be described as a plan, or maybe a concept of a plan, to make the U.S. economy more like what it was in the 1950s, when we didn’t run trade deficits and had a lot more men working in industry. But this might also be described as a concept of a plan to make America more like Germany. And what the results in Sachsen-Anhalt show is that even if such a plan were to deliver the promised results (which it wouldn’t), it would do little if anything to reduce politically radicalizing resentment.

I should mention one more lesson from the AfD’s victory, one that has me reconsidering some of my own beliefs.

Many U.S. observers, me included, have laid considerable stress on the problem of “left-behind” regions — rural and small-town areas bypassed by the rise of a knowledge economy, which tended to favor large, highly-educated metropolitan areas. These economically stranded regions have been plagued in particular by declining employment among men of prime working age, a decline that in turn is associated both with social problems and with strong support for Trump and hard-right politicians in general.

For many years it has been common to think of the former East Germany, which includes Sachsen-Anhalt, as one of the many European analogues to what Austin, Glaeser and Summers called the Eastern Heartland. Indeed, East Germany, which had near-full-employment among working-age men, went through an extended period of men-not-working after German reunification.

But that story is now long out of date:

Residents of the former DDR still consider themselves economically disadvantaged, and their incomes are somewhat lower than the national average — although not, as far as I can tell, as low in relative terms as poorer U.S. states. But in any case the tale of East Germany as a deeply depressed region no longer fits the facts.

What, then, is the moral of this analysis? Mostly it’s negative: Crude economic factors don’t explain the fascist shift in Germany. And Trumponomics, even if it worked (which it doesn’t) wouldn’t end the resentment feeding our own authoritarian movement.

MUSICAL CODA

Not topical; I just need cheering up