What happens to the economies of large nations that abandon democratic principles and veer toward more authoritarian rule?
Just take a look around the world and you begin to get some answers. Venezuela? Just when it seems Venezuela can't sink any lower economically, it goes lower.
Turkey? Mounting debt under strongman Recep Tayyip Erdogan has eroded the country's currency and sent economic ripples throughout the developing world.
Russia seemed to get a new breath of economic life in the 1990s with the collapse of communism and a new commitment to democratic and capitalist reforms. But over the last 15 years, as Vladimir Putin has accumulated ever greater power, the Russian economy has contracted, with GDP sinking by 30% from $2.3 trillion in 2013 to $1.6 trillion in 2017.
The question is especially relevant to the United States, as it veers ever closer toward tyranny. Paul Krugman, the liberal economist at City University of New York, put the situation this way a few days ago: "Make no mistake: if Republicans hold both houses of Congress this November, Trump will go full authoritarian, abusing institutions like the I.R.S., trying to jail opponents and journalists on, er, trumped-up charges, and more -- and he'll do it with full support from his party."
While Krugman doesn't speculate on the economic implications of the U.S. going "full authoritarian," it doesn't take a Ph.D. economist to project serious negative consequences from a truly Supreme Leader Trump. He's already telegraphed several of his likely targets for the time when he has free reign; several times now he's expressed unhappiness with the Federal Reserve Bank for hiking interest rates to control inflation, and he's singled out Amazon and Facebook, two of America's fastest growing companies and largest employers, for their management practices (Amazon, for supposedly getting unfair tax treatment and negotiating sweetheart deals with the U.S. Postal Service, and Facebook for supposedly discriminating against conservative organizations in its campaign to weed out "fake news").
He's also signaled his anger with companies that don't endorse his economic policies, most especially his targeting of Harley Davidson for moving some production overseas to escape the higher production costs that result from Trump's tariffs on foreign steel.
How would all this play out economically? Here are four likely economic results:
1. Prosecution and jailing of our most successful entrepreneurs and job creators. Trump has signaled particular annoyance with Amazon's president, Jeff Bezos, likely because he also owns the Washington Post, which has published unfavorable stories about Trump. Don't think Trump is unaware of Putin's jailing of the head of Yukos, Russia's largest oil company, in 2003, for ten years. Such moves would place a chill on American innovation and entrepreneurship by signaling that only companies that are politically in favor with the dictator will be tolerated.
2. Neutering of the Fed. The Fed's strength lies in its independence, removing it from the political mainstream. As soon as a dictator gains undue influence over the management of interest rates and money supply, as Erdogan has done in Turkey, then (more) significant debt buildup and rampant inflation are invariably not far behind.
3. A spreading trade war. The unprovoked tariffs on steel initiated by the Trump administration earlier this year have already spread to include countless items from China and other countries. It was a worldwide trade war in the late 1920s and early 1930s that helped bring about and prolong our Great Depression, during which time unemployment rates spiked to nearly 25%.
4. More corruption. The tyrant and his/her cronies expect to benefit financially from their power grab. Thus, Russia now ranks as the eighth most corrupt country in the world, according to USNews. You could expect the U.S., currently at #61, to make a big move up in the ranks once the rule of law is replaced by the rule of the tyrant.
America's economic strength stems in significant measure from its free enterprise and from its rule of law. That's why companies like Facebook and Amazon launch in the U.S. and create thousands of jobs in the process. Because the rule of law is ever more rare in today's world, it helps provide worldwide credibility to our financial regulatory institutions like the Fed and the Securities and Exchange Commission, and has helped make our currency the reserve currency for the entire world. Giving a single ruler the authority to undermine those key economic strengths would be to open the door to a degree of financial turmoil we don't even want to begin to consider.