How Real Estate Has Made Trump's Economic Policies so Dangerous

Probably the most insidious way that real estate has shaped 

Trump's mind is that it has given him a zero-sum worldview.

An acre next to the Empire State Building would have cost $90 million in 2006, 30,000X what an acre in Kansas costs. New York's real estate market is dominated by corporations and family wealth and if your grandfather didn't have the bravado or wisdom to buy an acre of Manhattan, you probably don't own one now. Jared Kushner and Donald Trump didn't move from Kansas as young men and buy acreage; they come from real estate families.

Trump Tower Chicago, photo from Ron Davison

Real estate is a weird industry and it colors Trump's worldview in a variety of ways. It makes him better understand family dynasties and prefer the certainty of dictators to democracies, think of wealth as something just created "out there," and - worst of all - gives him a zero-sum worldview.

Dynasties and Development

If Angela Merkel loved Trump, it wouldn't noticeably change his odds of getting a Trump Tower Berlin. If Vladimir Putin loved Trump, it enormously changes his odds of a Trump Tower Moscow.

Real estate developers need permits and dictators are better able to provide those than democracies, and this is one of the simple, often overlooked reasons why Trump pays a disproportionate amount of attention to dictators rather than presidents.

Real estate also needs financing.

In 2007, just before the mortgage crisis bust, the Kushner family paid roughly $2 billion for 666 5th Avenue. It has caused them trouble ever since. Mueller is investigating Kushner family finances. (Jared's dad has already served time in prison.) For instance, the Kushner family met with Qatar for financing for their 666 property and later, after Qatar said no, Kushner worked with the Saudi's on a blockade of Qatar. Financing is key to success in real estate and Trump and Kushner have trouble getting loans from American banks, which also explains their fondness for dictators. (For more on these stories and Jared Kushner, listen to Robert Wright's interview with Elizabeth Spiers.)

This entanglement with foreign powers - from Russia to Saudi Arabia - is key to understanding how Trump and Kushner see politics. They aren't going to offend the entities who may be a source of loans or approvals for big developments. Presidents of a democracy cannot make you rich; dictators can.

The Magical Origins of Wealth

Homes in Detroit cost $44,600 and $1.3 million in San Francisco.  For the same price, you could buy one home in San Francisco or 29 in Detroit, where you could sleep in a different home every day of the month.

People who bought an apartment building or couple of rental homes in San Francisco 30 years ago have "done well" in spite of the fact that what they actually did is no different from what people who bought real estate in Detroit did. Real estate is derivative; if it is located in a community that knows how to create jobs and wealth, its price goes up.

William J. Bernstein claims that the simplest predictor of home prices is the mortgage payments folks can afford. What someone buying or selling real estate does isn't the determinant of whether it sells for $50k or $500k; that price is determined by what the local community is doing to either create jobs that pay $15,000 a year or $150,000.

Had the Trump and Kushner families settled in Detroit and owned real estate there, they'd either be small time or even bankrupt as a result of borrowing heavily to buy property that dropped - rather than soared - in price. Given they had the good sense to be born into New York real estate families, they are rich. Or at least have really big mortgages.

If you own or develop real estate in a prosperous area, it's easy to think of wealth as something that just magically happens. Trump never mentions economic development plans that involve investment in R&D or education. In his mind, it is enough to simply deregulate and let economic development happen.


Zero-Sum

Probably the worst way that real estate has shaped Trump's worldview, though, is this: real estate is probably the most zero-sum industry in the US and success in it can easily drive a win-lose or at best win attitude.

The first economy, an agricultural economy from about 1300 to 1700, was land based and the easiest thing to see about an acre or oil well is that if you get it I won't. One of us wins and another loses. War and the emergence of standing armies, guns, cannons, and artillery defined a great deal of this time and the conquest of land was key to prosperity.

You were likely born in the third economy, an information economy from about 1900 to 2000. If I give you an acre and you give me an acre - assuming they are comparable acres - neither of us comes out ahead. By contrast, if I give you an idea and you give me an idea - assuming they are comparable ideas - we both come out ahead.

In this fourth economy, an entrepreneurial economy from about 2000 to 2050, collaboration is even more important. 20 years ago, a typical product development team I worked with would sub out about 10% of its work to an outside company; now it is more likely to be a third. Specialization and the drive for the best collaborators has made teams even more reliant on outside companies, and folks working on teams who have either moved from another country or now work in another country. Customers will only buy a world-class product, whether that means incredibly cheap or incredibly good or both. To get a world-class product you need to collaborate with team members from all over the world and everyone in the process needs to benefit.

If the third economy was win-win, the fourth economy is win-win-win-win-win; investors, employees, partners, customers, and entrepreneurs all have to win for an enterprise to work. If even one of those groups thinks they'll lose, they can scuttle the whole enterprise.

Trump's zero-sum sensibilities are at odds with modern economic realities. Acreage is zero-sum. If you get that building at 666 5th Avenue, I don't. Deal-making is critical to success and Trump's deals are win-lose. The thought that Canada, Mexico AND the US could all be winning from NAFTA is laughable to Trump; in his mind, someone is either winning or losing in trade relationships. (And apparently his measure of who is winning or losing is the trade deficit, an odd scorecard that distorts so much.)

The real estate industry has to be one of the most zero-sum industries in the US. The fact that this is the industry Trump rose out of makes him far more likely to take a win-lose approach with other nations, whether in trade wars or real ones.

In his book Sapiens, Yuval Noah Harari makes an interesting point about California. If a foreign power conquered it in 1850, during California's gold rush, they would get most of the wealth. If a foreign power conquered California today, it would chase away all the wealth that now is in the form of people and their ideas, networks, companies and industries rather than in the form of gold nuggets that could be seized along with the land. Once upon a time conquest captured wealth; now it destroys it.

In this willingness to go to war to "win," Trump shows a lack of understanding of how modern economies work, a failure to understand that it is networks of trade and idea exchange that spill across borders that need to be protected and not land that neatly fits within borders. Taking a win-lose approach to fourth economy realities threatens the wealth and jobs that make a community prosperous.

The Real Story Behind Trump's Adulation of Putin (and why golden showers is a generous explanation)

Trump has been critical - even dismissive - of Reagan and George W. Bush, Obama and Clinton. Meanwhile, he's had nothing but good to say about Vladimir Putin. Trump's Secretary of State nominee, former Exxon CEO Rex Tillerson, challenged China's claims on the South China Sea in a way that led China's state controlled media to warn that this would led to war between the US and China. War. Mexico's peso has dropped since Trump's election. Trump has never said anything good about the Chinese or Mexicans or tried to appease them. Trump has had only good things to say about Putin and the Russians. Only good. The contrast between how he talks about American leaders and Russia's leader, between how he deals with China and Mexico and how he deals with Russia, could not be more stark.

So why does this matter? Isn't it true that it would be good for the US to get along with Russia, as Trump says? And isn't it an asset that Putin likes Trump?

In fact, it is alarming that Trump is so enamored of Putin.

First of all, Trump has expressed envy for Putin's ability to jail and kill political opponents and critical journalists. You might argue that there is no way that Trump can imitate Putin's dictatorial actions here in the US and I'll say that the very fact that he leans in that direction guarantees that he'll do things no recent president has done. But there is a deeper reason to feel revulsion towards Trump's adulation of Putin.

This is most succinctly captured in the Ukraine's situation.

Eastern Ukraine shares a border with Russia and many of its values. People there watch TV, are fond of strong leaders who don't confuse them with debates and subtleties, they're afraid of the disruption of capitalism and foreign trade and they distrust liberal values that challenge their religion, homophobia and misogyny.

Western Ukrainians aspire to become more integrated with Western Europe, are on the internet, like grassroots movements with all their chaos, uncertainty and debates, yearn for open markets and trade, and prefer science and minority rights.

Putin clearly wants the whole of Ukraine to again be under his influence. He's already invaded the Crimea, claiming that he has a right to do that because people there like him better. In July, the same month in which he won the Republican nomination, Trump stated that he would recognize the Russian "annexation" of Crimea, leaving the invasion unchallenged. A month later, the Trump team made only one change to the Republican platform, leaving everything else untouched. Their only change? They removed a pledge from the Republican Party to provide military assistance to the Ukrainian government against the rebels in the East, rebels supported by Putin.

Trump is doing everything Putin would want while continuing to praise a man Marco Rubio recently suggested was a war criminal (citing not only the massive number of civilians Russian bombs have recently killed in Syria but the 300,000 citizens Putin killed in Chechnya years ago). I actually think the notion that he's doing all of this because the Russians are blackmailing him over sexually compromising videos is one of the more generous interpretations of why he's so enamored of Putin. For people who really like the West and its direction over the last 500 years, the idea that our new president shares their appreciation for Western values but doesn't want people to know about his sexual perversions is a better explanation than that he thinks more like Eastern Ukrainians than Western ones.

I don't know if the Russians are blackmailing Trump. I think it's scarier if they are not, if the real explanation is that Trump truly prefers Putin's model of governance to that of Reagan, Bush, Clinton and Obama's. He's already shown contempt for a free press that would challenge him and expressed an on again, off again desire to "lock up" the woman who dared to run against him. He's got a narcissistic personality and sense of himself as uniquely special; these two qualities alone make him more like dictators than the traditional American president.

Will we ever find out whether Trump's actually being handled by the Russians? That outcome would actually make me feel more relieved than what I currently suspect: Putin doesn't have to do anything but be Putin to win Trump's admiration and friendship.

There is a Japanese proverb that translates to, "When the character of a man is not clear, look at his friends." Out of 200+ world leaders, Trump has already made it clear which one he feels a special affinity for. That should scare everyone more than sexual perversion.

Bush: Wall Street Got Drunk and Drove The Country Into Ditch

If you need further proof that language need not actually make contact with reality, look no further than the following.

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The King of Poland and a retinue of dukes and earls went out for a royal elk hunt. Just as they approached the woods, a serf came running out from behind a tree, waving his arms excitedly and yelling, “I am not an elk.”
The king took aim and shot the serf through the heart, killing him instantly.
“Good sire,” a duke said, “why did you do that? He said he was not an elk.”
“Dear me,” the king replied. “I thought he said he was an elk.”

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From Unfinished Life: John F. Kennedy, 1917 – 1963, Robert Dallek:

In George Smathers’s 1950 Senate nomination campaign against incumbent Democrat Claude Pepper, Smathers successfully exploited Pepper’s reputation as a doctrinaire New Dealer and forceful advocate of the welfare state, which opened him to attacks as a Soviet sympathizer and “Stalin’s mouthpiece in the Senate,” or “Red” Pepper, as unscrupulous opponents called him. Whimsically taking advantage of the climate of suspicion and the extraordinary ignorance of his audience, Smathers shamelessly described Pepper in a speech as an “extrovert,” who practiced “nepotism” wit his sister-in-law and “celibacy” before his marriage, and had a sister who was a Greenwich Village “thespian.”

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"Of course I am an absolute, pure democrat. But you know the problem? It's not even a problem, it's a real tragedy. The thing is that I am the only one, there just aren't any others in the world."
- Russian president Vladimir Putin

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From NY Times
When he talks about why the economy is ailing, President Bush often turns to euphemism, citing “challenges in the housing and financial markets.” But Mr. Bush offered a far blunter assessment last week at a closed Republican fund-raiser in Houston: “Wall Street got drunk.”

“Wall Street got drunk — that’s one reason I asked you to turn off your TV cameras,” the president said at the fund-raiser, held at a private home on Friday to benefit Pete Olson, the Republican who is challenging Representative Nick Lampson. “It got drunk, and now it’s got a hangover. The question is, How long will it sober up and not try to do all these fancy financial instruments?”

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And finally, this bit from Jon Stewart and his writers. Be sure to watch the first couple of minutes at least - up the ping pong between Bush and Bernanke describing the economy.

Putin's Antidote to Global Warming? A Small Dose of Cold War

From Yahoo News
MOSCOW (Reuters) - Russian President Vladimir Putin launched a scathing attack on the West on Thursday, accusing Washington of imperialism and of starting a new arms race.

Moscow has been alarmed by U.S. plans to deploy elements of its global missile defense system in Poland and the Czech Republic. Washington says it wants to avert attacks from "rogue states" such as Iran but Russia sees a threat to its own security.

"There is a clear desire by some international players to dictate their will to everyone without adhering to international law," Putin said. "International law has been replaced by political reasons."

"In our opinion it is nothing different from diktat, nothing different from imperialism," he added.


From Harper's Index

Percentage of top Soviet(or Russian) officials who were drawn from the armed forces or security services
under Mikhail Gorbachev: 5
under Boris Yeltsin: 47
under Vladimir Putin: 78

Boris Yeltsin, Continuing the Tradition of Wretched Russian Government

"Under capitalism, man exploits man. Under communism, it's just the reverse."

Boris Yelstin is dead. He was like a drunk driver who drives the car out of the ditch, shoots across 9 lanes of traffic, and gets stuck in the ditch on the other side. His is a story of wasted opportunity.

For one thing, we sent economists to advise Yeltsin and his country, economists who knew all about how to manage an economy assuming one had savvy business people. We also sent business consultants, people who knew all about how to manage a business assuming a stable economy. It wasn't obvious that anyone knew how to create chickens without eggs or eggs without chickens. In that sense, Russia would have struggled with this, its latest attempt to circumvent the gradual progress of the rest of Europe, a tradition that began with Peter the Great.

Secondly, Yeltsin gave away the state, privatizing large chunks of the economy in a way that favored an elite few. Today, 36 men own 25% of Russia's wealth - a ridiculous concentration of wealth that seems a caricature of the inequality found in the West. This is not the result of entrepreneurship - it is a result of government-sanctioned theft. It is this more than his role as the first elected president of Russia that will be Yeltsin's legacy.

These two issues would have been enough to make Russia a mess. But I suspect that there is a third no one talks about: capitalism died about the same time that communist communities realized that they had a non-working model. Yeltin tried to lead Russia from communism to capitalism late in the 20th century, the equivalent of moving a society from 8-track to cassette just as everyone was buying mp3 players.

The battle between communism and capitalism wasn't a battle over the importance of capital. Both sides saw it as paramount to a working economy. It was Marx's, not Adam Smith's, landmark book that was titled Capital. The battle between capitalists and communists was a battle about who should control capital, the state or the banker. It is true that the banker proved superior to the state and the tyranny of robber barons was harder to maintain than the tyranny of police states. In that sense, Russia was overdue to transform away from communism. But the question is, towards what?

In today's $40 trillion global economy, capital is no longer the limit to progress. In the period of time when the average worker is now a capitalist - when even Sears and GM have become huge bankers - trillions of dollars of capital are sloshing around the globe in search of returns. Capital is essential, but it doesn't limit the development of today's leading economies.

What the leading G-7 communities have done in the last century is create hybrid economies. Most citizens are vested in social security and a 401(k) or pension plan. The state regulates some business activity yet businesses are free to do things that regulators haven't even thought about. Laws that prohibit child labor and regulate work place safety have transformed the world from the late 19th century world of Dickens’s and the robber barons who hired Pinkerton men to beat up or kill union organizers. But these laws do not prohibit bankers and entrepreneurs from creating a greater number and variety of businesses than ever before. The best communities have made government and businesses both accountable by using each, in turn, to call the other into account. The point is not to submit to the tyranny of either, but to play each off against the other in a way that gives the individual a fighting chance. It is, finally, the individual who should be empowered and protected by institutions. Failing that, the community itself eventually fails. It isn't communities that are subordinated to bank or state that succeed but those that manage to subordinate both to the average person.

Russia has a history of contempt for the average person. The imperialism of the Tsar's, the communism of dictators and the democracy of Yeltsin and Putin are governments that share a basic contempt for the rights, freedom, and plight of the individual. Whether Russia adopted communism or capitalism is almost unimportant in comparison to this. Until Russian institutions show genuine regard for the individual, Russian society will continue to be a threat to its citizens and its neighbors. Sadly, that doesn't look likely to happen any time soon.