<<< THIS PIECE WAS CO-AUTHORED BY MICHAEL CAUVEL, A PH.D. CANDIDATE IN ECONOMICS AT AMERICAN UNIVERSITY >>>
With Donald Trump generating new headlines almost daily and recently overhauling his campaign management, little of the conversation surrounding the Republican presidential nominee has focused on his self-proclaimed qualifications to lead the country. To the extent that his credentials are discussed, Trump argues that his business experience will make him a great president, while his opponents simply try to poke holes in his business record. Hillary Clinton has even enlisted other wealthy businessmen to reinforce her argument that Trump's career has not been nearly as successful as he suggests.
Although this may be an effective political strategy, it misses the larger point and perpetuates a dangerous idea that has spread during the past few elections: the myth that a good businessperson will automatically make a good president. Though he is just one of many recent candidates with business backgrounds, his campaign is the best illustration yet of how business experience does not translate to policy expertise or the ability to govern effectively.
Those who appreciate candidates' corporate experience assume that running a business will equip candidates with strong knowledge about economic policy. Nothing could be further from the truth. Although business executives make economic decisions every day, operating within an economy and responding only to individual incentives is far different than creating national policy to foster conditions that benefit everyone.
Trump's comments prove that you can amass wealth in the private sector without possessing a basic understanding of the macroeconomy. His inability to distinguish between the level of GDP and its growth rate, the claim that the U.S. economy had never experienced an economic contraction, and his fabrication of unemployment rates show that he has no more knowledge of economics--and likely less--than the average person.
The argument that individual employers have superior knowledge of how to improve labor market conditions is similarly fallacious. Although businesses do play a role in creating jobs, they also play a role in destroying them. These hiring and firing decisions are driven not by regulatory or tax policy, but by changes in consumer demand. Businesses simply hire as warranted by macroeconomic conditions.
In other areas, having business experience may actually be a harmful quality in politicians, as it may lead them to bring the wrong approach to problems. This is evident in Trump's suggestion that the U.S. should not protect fellow NATO countries if they are behind on payments and his view of trade as a zero-sum competition. It is possible that viewing everything as a competitive transaction might have made him wealthy, but it is the wrong mindset for the challenges facing a president.
The perspectives of policymakers and businesses differ drastically in many other important areas. One example involves investment. Businesses invest only when the returns are likely to be profitable in the near-term, and only in projects that directly benefit themselves or their shareholders, foregoing investments in projects like infrastructure and general education that have positive spillover effects but won't yield an immediate profit. Conversely, the government must make investments in these public goods that are critical for a healthy economy, even though they take a long time to pay off.
Governments and businesses similarly diverge in their responses to difficult economic climates. Firms typically seek to cut costs by reducing hours, cutting wages, and laying off workers. Although this might make sense at the individual firm level, the effects are crippling in the aggregate. Widespread wage cuts reduce total productivity, and mass layoffs reduce aggregate spending, leading to further layoffs and even lower demand, creating a vicious downward spiral. Meanwhile, the role of government in such situations is to enact policies that prop up employment and productivity, and to increase spending to boost demand.
Many of Trump's policy proposals illustrate this disconnect. For example, his view on tax reform reflects his primary experience with taxes as a businessman--avoiding them. Like many in the private sector, he focuses on the burden of taxes and ignores the crucial role that they play in funding essential government services. His tax plan makes it clear that this mindset would guide his policy approach, as he intends to make it easier for people like him to continue paying little in taxes. As a result, this plan would add trillions to the national debt.
Of course, Trump has a business-style solution for the national debt as well. Even though U.S. government debt is around the average for developed countries, he would force debt holders to accept a haircut by threatening to default. Though this would have disastrous consequences, it is easy to see why he thinks it is a good idea. After all, declaring bankruptcy and negotiating with creditors, as Trump has done several times, are normal solutions to debt problems in the business world.
In addition to his policy positions, Trump has received strong criticism for his temperament, which many have said makes him unfit to be president. The irony is that the personality traits that may ultimately cost him the presidency, such as his recklessness and narcissism, are likely the same traits that have helped him in business. Research shows that CEOs tend to be risk loving and impatient, and those who are narcissistic earn more than those who aren't. However, these characteristics of successful businesspeople aren't generally desirable in a president.
The incongruence of the qualities that lead to success in business and those that are needed to run the country may help to explain why presidents with business experience generally have not had successful presidencies. Despite this, a majority of Americans think business executives are well prepared to serve as president, and for many, business experience is more desirable in a candidate than experience as a governor, congressperson, or cabinet member.
No president has ever been elected without a reasonable claim to expertise in at least one area of their job description, gained from experience in government or an extensive military career. As the type of decision making and leadership needed by business executives and presidents differ drastically, there is no reason to expect that a successful career in business can prepare a candidate to be president. Hopefully, Trump's disastrous campaign will put this myth to bed once and for all.