One of the multiple failures of the not-very-bright people who are currently running/ruining our government is their inability to connect the dots, to understand that when they set out to undermine X, the consequences of that assault aren’t just limited to X. We live in a complex and interrelated world, and failure to understand those complexities can lead to unanticipated damage.
The Trump administration consistently displays enormous ignorance of the way the world actually works. That ignorance–that disdain for pesky things like expertise and evidence–is particularly evident in Trump’s approach to economic policy. It isn’t just his insane belief in tariffs (a belief shared by no economist, conservative or liberal). It isn’t just his echoing of longstanding Republican insistence that tax cuts for “job creators” will grow the economy–despite ample evidence to the contrary. (Of course, even if those tax cuts don’t lead to economic growth, they do lead to the growth of generous political contributions…)
It isn’t even the GOP’s failure to understand the dire economic and civic consequences of further impoverishing citizens who are already struggling in order to fatten the wallets of the already wealthy, a failure once again demonstrated by Trump’s “Big Beautiful Bill.”
The most dangerous failure to connect the dots is the less-noted but even more consequential failure to understand the economic importance of the rule of law, or to recognize how Trump’s assaults on the law will dramatically and inevitably undermine the nation’s economy.
I’ve previously explained why widespread obedience to the rule of law is an essential underpinning of liberty and civic equality–why it is at the very basis of what I call “the American Idea.” But it is equally important to understand why the nation’s economic health is absolutely dependent upon a government that respects the rule of law.
Trump’s autocratic attacks on–and utter disregard for– the rule of law are a direct threat to the willingness of foreign investors to buy and hold American stocks and bonds. When those investors see Trump and his administration unilaterally defaulting on contracts, arbitrarily withholding funds that have been properly and legally appropriated, ignoring court decisions and attacking judges, deporting people without even the pretense of due process–while at the same time providing special treatment for donors, favored companies, and White immigrants– those investors re-think the safety of their investments.
Why should we care?
Among other things, foreign investors inject capital for increased production and economic expansion. They create new employment opportunities and facilitate technology transfer. Foreign investors often bring in advanced technologies and expertise, fostering innovation and boosting productivity in local industries. When foreign businesses generate profits, they contribute to U.S. tax revenues, providing American government with resources to fund public services.
That investment is at risk. As one economist put it,
The erosion of the rule of law under Trump can have enormous economic significance for a foreign government, investor, or company with stakes in our economy. They now know that the U.S. government may ignore its contracts with them or decide not to enforce their agreements with others when it serves the political or personal interests of the president. That’s the way the world works in the kleptocratic dictatorships in Russia and Venezuela, and virtually no one invests in their stocks and bonds.
By following their lead, Trump and his apprentices risk devastating capital flight that could leave many of our leading financial institutions insolvent. In addition to his deeply destructive tariffs, Trump’s sweeping campaign against the rule of law in the United States has raised the economic stakes from a rocky business cycle to a potential financial and economic meltdown with terrible consequences.
America’s respect for the rule of law is the reason foreign investors have felt safe parking their money here, and all Americans have benefitted from our role as a safe place in the global economy.
Anyone who has taken Economics 101 understands that the rule of law is fundamental to business and investment. It creates the predictable, stable, and fair environment that economic activity depends upon. Without predictability and stability,
businesses and investors are unable to make long-term plans and commitments. Unless laws governing commerce are clear and consistently enforced– and not subject to arbitrary changes– companies can’t assess risks and returns.
You would think the Republicans who fancy themselves protectors of private property and capital would understand that it is the rule of law that protects that private property from seizure or infringement, and that investors–foreign or domestic– are highly unlikely to put money into an economy where assets can be seized or destroyed without due process.
When the GOP was a party, and not a cult, it understood that.
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