This year’s winner of the Nobel prize in economics says
U.S. President-elect Donald Trump’s economic program is worrying as the former reality TV star threatens to dismantle trade agreements and trigger a protectionist era that would ultimately “be bad for the world economy.”
Harvard University’s Oliver Hart, who won the 2016 Nobel economics prize together with Bengt Holmström of the Massachusetts Institute of Technology for laying the groundwork for contract theory, said Trump’s proposals on trade would also hurt the world’s largest economy.
“The idea of tearing up trade agreements or imposing tariffs is not a good way forward, so I’m worried about that,” Hart said in an interview in Stockholm on Wednesday. “Maybe it is all talk. It would be bad for the world economy and it would be bad for the U.S. to proceed along those lines.”
Hart said a better approach would be “to find other ways to help the people who have been left behind by globalization.” These would include training programs and income redistribution, he said.
“But trying to bring back jobs that have been lost, it’s an extremely inefficient and expensive thing to do,” Hart said. “So we should be looking at other ways forward. I don’t think the rich should be paying less in tax, they should be paying more, in my opinion.”
Holmström, who together with Hart is in Stockholm to collect the award they both won in October, said the populist movement spreading across parts of the developed world is a new phenomenon without parallel in history.
“What is it that’s happening when we have Brexit, Italy, maybe France -- something is on the way that’s totally different from what we’ve seen before,” he said in an interview. “We have a frustrated group of people, they have new technology with which they can express themselves faster. We have globalization that’s actually created problems for large groups of people.”
The upshot is that “people blame the political leaders for not being able to handle these problems.” Ultimately, “it’s very hard to say” what Trump’s victory will mean for the economy, Holmström said.
Hart said a fiscal spending spree like the one Trump is proposing could be good for the economy, especially if it focuses on infrastructure. But evidence to date suggests the real estate mogul is likely to make some unorthodox deals in an effort to achieve his goals, according to the Nobel laureate.
“I think we do need improvements in infrastructure, and there’s a lot that could be done. But whether it’s done in the best way is another matter,” he said. “The way he’s planning to carry it out, it sounds as if it could amount to some sweet deals for companies, rather than getting the infrastructure we need.”
Hart warned against expecting that “Trump will be performing miracles. He could mess things up, but I don’t think he’s going to suddenly increase the growth rate in some extraordinary way, I think it’s beyond his control.”