"What Donald Trump Doesn’t Understand About ‘the Deal’"

I have spent much of the past few months trying to make sense of Trump’s policy proposals. His website lists his major priorities as, in order: health care reform, China-United States trade agreements, Veterans Affairs reform, tax reform, gun rights and immigration reform. There are no other issues addressed at length. It’s a puzzling mix. Any serious economic proposal to ‘‘make America great again’’ would surely mention education, fiscal policy, entrepreneurship and trade with the entire world, not just China — issues he makes little or no reference to. No doubt Trump’s list of priorities reflects the issues that he and his advisers perceive, probably correctly, to be red meat for Republican primary voters. But tellingly, it’s also a set of issues for which the ‘‘deal’’ — that is, Trump’s unique ability to make deals — can be presented as his crucial promise. . .

It’s easy to dismiss Trump as a loutish ignoramus who simply doesn’t understand how modern economies function. But I’ve come to see him as a canny spokesman for a different sort of economy, one that often goes by the technical name ‘‘rent seeking.’’ In economics, a ‘‘rent’’ is money you make because you control something scarce and desirable, whether it’s an oil field or a monopolistic position in a market. There is a bit of ‘‘rent’’ in nearly every transaction. When you pay rent on an apartment, some of the money is for the value the landlord has added to the property, by upgrading the kitchen, say. But much of the money your landlord makes comes from the fact that he or she controls property in a desirable location. If you think of the transactions that make people the most frustrated, they are, most likely, rent-seeking transactions in which some force is imposing a better ‘‘deal’’ for one party. Your cable service costs more and is less responsive because local monopoly allows the company to make a better ‘‘deal’’ for itself. The owner of the local pro-sports team can make a ‘‘deal’’ with the city for a new stadium, or else the team packs up and leaves town. Without real competition, one or both sides of a rent-seeking transaction lack leverage, and so decisions can be hashed out only by powerful people making deals in back rooms.

I learned a great deal about rentier economies, as they’re sometimes known, when I spent a year in Baghdad, covering the American occupation of Iraq between 2003 and 2004. I met many of Iraq’s leading businesspeople, and they always talked about ‘‘deals.’’ As one explained to me, there would be some business opportunity — building a hospital, say, or getting a license to import a new line of cars — and Saddam Hussein’s family would essentially auction off the opportunity to the handful of wealthy businesspeople whom they deemed trustworthy. Success came not from being better at building hospitals or more efficient at importing cars. It came from understanding the internal family politics of the Husseins and the power of the state bureaucracy.

As an economic journalist, when trying to explain the idea of rent-seeking, I have always used one quintessential example from the United States — a sector in which markets don’t function, in which excess profits are held by a few. That world is Manhattan real estate development. Twenty-three square miles in area, Manhattan contains roughly 854,000 housing units. But there are many more people than that who want to own property there. A Manhattan pied-à-terre has long been a globally recognized sign of wealth and status — especially in recent years, as billionaires the world over have come to see a Manhattan condo, even one rarely visited, as a vessel for laundered wealth or a hedge against political upheaval at home.

Manhattan real estate development is about as far as it is possible to get, within the United States, from that Econ 101 notion of mutually beneficial transactions. This is not a marketplace characterized by competition and dynamism; instead, Manhattan real estate looks an awful lot more like a Middle Eastern rentier economy. . .

But this descent into a rentier economy would only accelerate with a mentality like Trump’s in the White House. The native-born population of the United States is aging rapidly; without immigrants the nation would quickly face a disastrous level of debt. Middle-class workers may be struggling now in a changing economy, but a clampdown on global trade would only make that worse. Any health care reform that revolved around the president’s ability to ‘‘deal’’ would inherently be one more prone to corruption. In a rentier state, every ambitious person knows that the way to become rich and powerful is to grab the sources of wealth and hold onto them, by force if necessary. It’s no accident that, around the world, rentier states tend to be run by unelected dictators — the ultimate dealmakers in chief.