Donald Trump's win highlights the dark side of productivity and growth

By Alan Kohler

Donald Trump's inauguration in Washington will be watched with a hot mix of bewilderment, excitement and dread; it should be a riveting four years, best viewed from a safe distance.

Trump's victory carries two important lessons for politicians in Australia and everywhere: first, jobs don't matter as much as you think — prices matter more; and second, productivity and economic growth have a dark side.

An aphorism coined by Paul Krugman has become a truism: "productivity isn't everything, but in the long run it's almost everything".

In Australia, our woeful productivity lately is a source of puzzled discontent and finger-pointing, especially when compared with the United States.

America's labour productivity is now 15 to 25 per cent ahead of Europe, Japan, Canada, and Australia, due mainly to technological innovation in both software and hardware, as well as less regulated labour and product markets.

That productivity is driving world-beating economic growth and employment. The US dollar is surging — it's described as a "wrecking ball" for smaller countries — and Wall Street is consuming the world, with the US stock market now representing two-thirds of global market value.

As the Financial Times' chief economics commentator, Martin Wolf, wrote recently, the "sustained prosperity of the US is astounding".

German real GDP per head fell from 92 per cent of the US level in 2000 to 84 per cent in 2023; the UK's is down from 82 to 73 per cent of the US.

These days "American exceptionalism" and the rising US dollar have become the dominant theme of global financial markets, taking over from artificial intelligence, which has become just part of the broader American exceptionalism story.

So given all this prosperity and exceptionalism, why are Americans angry enough to have installed a convicted felon and obvious liar as president?

Because it's about more than the economy, stupid (to paraphrase the famous Clinton campaign slogan).

I'm not saying lifting national productivity is bad, far from it, but the pickle in which America now finds itself, with a vastly unpredictable and narcissistic president and a spectacularly unqualified cabinet, tells us that prosperity from productivity growth comes at a social and political cost.

America has a lot more murders than any other high-income country — seven homicides per 100,000 people versus two in the next highest, Canada, and one per 100,000 in the UK and France.

Maternal mortality rates are far higher in the US than any other country. Life expectancy is 48th in the world.

The American system allows extreme health inequality, with 25 per cent of the population uninsured or underinsured, and exposed either to devastating medical bills and the possibility of bankruptcy, or having to forego treatment and medical visits.

And it's not just health insurance: many Los Angeles residents are now learning that their houses were uninsured, after they burnt down.

Wealth inequality in the US is much greater than elsewhere. In Europe and Japan, the share of national wealth controlled by the bottom 50 per cent is about 7 per cent against 2 per cent in the US, whereas the top 0.1 per cent own less than 10 per cent of national wealth in Europe and Japan vs 14 per cent in the US.

America has always tolerated greater inequality, but that was based on the idea of equal opportunity of success, and a high degree of upward social mobility. That was true in the decades after World War II, but as multiple studies have shown, the past three decades have seen a big reduction in upward mobility and an entrenching of the elite.

Another way to put it is that America is the only country that really does prioritise economic growth ahead of everything else. In other countries, Australia included, they only pretend to be doing that, while preserving a decent welfare system and progressive taxes.

But the anger and disillusionment of Americans shows there is a dark side to prioritising growth and productivity over social protections and equality.

And now Trump is taking it up a notch, with the billionaires moving into the government, led by the world's richest man, Elon Musk, who will apparently even have an office in the White House. Musk, Jeff Bezos and Mark Zuckerberg will be on the dais at the Trump inauguration.

In his final televised speech last week, outgoing president Joe Biden warned about "the dangerous concentration of power in the hands of a very few ultra-wealthy people, and the dangerous consequences if their abuse of power is left unchecked".

"Today, an oligarchy is taking shape in America of extreme wealth, power and influence that literally threatens our entire democracy."

The other, related, problem is the jobs/prices conundrum.

Politicians always spruik the number of jobs they have "created" and the number they will "create" in future through the magic of press releases.

But the idea that success in politics is all about jobs is no longer true; prices matter more.

A Republican was elected president despite the Democrat incumbent creating 16 million jobs over the past four years, with unemployment falling from 6.4 per cent to less than 4 per cent.

Americans voted on prices, not jobs. Inflation fell, but prices didn't, they kept rising — more slowly, that's true, but they didn't come down. The consumer price index has risen 21 per cent since Biden's inauguration; the price of food is up 25 per cent.

Naturally Trump promised to bring grocery prices down and says now that he won because of groceries. But having won, he says bringing food prices down will be very, very hard, which is true at least.

It makes sense that high prices matter more in politics than jobs because they affect far more voters (ie almost everyone) than unemployment does (4 per cent now, 10 per cent at most in a recession).

Rethinking the cost of productivity growth and emphasising inflation in politics over jobs are just two of the ways in which the inauguration of Donald Trump this week will change the world.

There'll be more next week.

Alan Kohler is finance presenter and writes weekly for ABC News. He also writes for Intelligent Investor.

https://www.abc.net.au/news/2025-01-20/donald-trump-dark-side-productivity-and-growth/104830730

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