Interview with my Trump-donor graduate school advisor.

When Donald Trump announced his team of economic advisors in August, many noted the thin academic credentials of the group that he selected.  The team was named in two rounds; the first thirteen people named to the committee were notably all men (five named Steve…) and UC-Irvine professor Peter Navarro was the only one with a PhD in economics.  Trump later added nine more names to the list, eight of whom were women, but the second group did not include anyone with graduate training in economics.

And on the whole, very few academics who study economics or finance (a subfield of economics) appear to be backing Trump’s presidential candidacy.  In fact, looking across all of the faculty members at Harvard and MIT, only one professor out of those thousands appears to be financially backing Trump – my friend S.P. Kothari, a professor of finance and accounting at the MIT Sloan School of Management.

In addition to being my friend, S.P. was part of my team of advisors during my graduate studies in economics at MIT, and he played a significant role in the development of my research agenda.  Although we didn’t overlap, we each spent time on leave from academia working for the investment firm Barclays Global Investors; I served as the head of the European part of the credit research group and S.P. was the global head of equity research.

I knew that S.P. was conservative, but I didn’t realize that he was supporting Trump until I noticed that he was on the host committee for the August 6, 2016 Trump campaign event at Bill Koch’s home in nearby Oyster Harbors, Massachusetts.  I was contemplating protesting at that event, maybe even throwing burritos or tacos at Trump and at the Kochs’ guests.  It was when I investigated the logistics for protesting at the Koch event that I learned that S.P. and his wife were among the hosts.  So I didn’t end up protesting – I was deterred both by the relative inaccessibility of the Koch estate and by the prospect of accidentally hitting my grad school advisor or his wife in the face with a burrito.

I did, however, reach out to S.P. with a handful of questions about his support for the Trump campaign.  He was happy to oblige, and below are my questions and his responses.  S.P. also noted that he had been interviewed by the Boston Business Journal about his support for Trump, so it is possible that you will see an interview with S.P. in that outlet as well.

 

W.R.: To start with, what is it about Trump or his proposed policies that makes the prospect of his presidency attractive? 

S.P.: Most importantly, Trump speaks to issues that real people care about.  That might not be me; I have a comfortable economic situation.  But my sense is that Trump is speaking to the issue of economic growth in a way that is more compelling than anybody else.  His diagnosis of the economic issues is more accurate than Clinton or than the other Republican candidates that he defeated.

His packaging and his delivery might be rough at the edges, but in terms of his diagnosis of the issues that surround – whether it is trade issues, or immigration, but more importantly law and order –  I think that he is on target.  And that is what appealed to me.  In general I am a Republican, so I supported Romney and McCain, but I am even more enthusiastic and more hopeful about Trump than I was about either of them.

 

W.R.: Thinking about a potential Trump presidency, what do you see as the best case potential scenario here?

S.P.: That he would put America’s interests first.  In foreign policy, he would seek out the participation of others, but move away from engaging in nation-building.  On immigration, supporting legal immigration but less illegal immigration.  On trade policy, I think that he will resist giving in on free trade.  I don’t think he is against trade – we all understand the benefits of trade.  But in the short run, there is a cost of adjustment, and I think that this cost has to be factored in when we decide the extent to which we want to have free trade or labor immigration.

 

W.R.: What policy does Trump have to address these costs of adjustment?  What specifically are you talking about?

S.P.: Let me give you an example.  Computer science engineers in India get paid $6,000, maybe less.  I know that at MIT we have several in the tech services who are individuals who are doing things like folks do in India –  helping set up the computers, these types of activities.  What if I import all the guys from India – I am not saying that they are fantastic – maybe some are, maybe not.  But they can certainly do the work now being done by the folks at Sloan who are making 40-60 thousand dollars per year.  The point is, what will happen if a million such engineers are imported from India overnight?

Another example – Chicago schoolteachers are paid $80,000, in India schoolteachers make $2,000.  Now, I am not going to compare on the basis of quality.  But certainly, you can do the math yourself.  You would be able to hire 40 schoolteachers for the cost of one schoolteacher here.  What will happen?  This is the sort of thing we will have to factor in – the adjustment cost if you change things very quickly.

At some point, we will have to recognize that the number of people abroad is so large, and the systems overseas are such that the pay differences are so gigantic, that almost all of this trade, although there is some benefit to it, will impose some costs of some people domestically.  That has to be factored in when we negotiate trade packages.

 

W.R.: I think that you can appreciate that everything is probabilistic: with a Trump presidency there is not just an upside case but also a downside scenario.  Are you worried about the potential downside scenario?  What would be this downside scenario?

S.P.: It is possible that a Trump presidency could turn out to be not so good.  But what I perceive is that a Hillary Clinton presidency would certainly make even more entitlement programs, which would turn out to haunt us even more than what we have.

The safety net argument that we make to serve the needs of the underprivileged.  But we can’t extend this to offering an even more generous defined benefit retirement program that will take the economy down – talking about expanding social security, plus entitlements to health care and higher education.

What we know is that if you look at Puerto Rico, Californa, Illinois, and firms like General Motors, defined benefit programs and entitlement programs have led to financial ruin, even though they are well intentioned.  Policies that do not hold people accountable and responsible for their actions will eventually lead to financial ruin.

Policies that, for example, I wholeheartedly support – Bill Clinton’s welfare reform – if you are healthy, then I don’t believe that welfare can be an indefinite source of support.  That might be hyperbole in explaining what is going on now, but it does seem that our labor force participation rate is falling, and entitlement programs are growing.

I would like the policy to move to the right.  So, while I recognize that there are some potential bad outcomes for a Trump presidency, I consider the downside scenarios worse with when we consider the prospect of a Clinton presidency.

 

W.R.: What about Clinton history of welfare reform?  Isn’t Clinton the only candidate connected to a presidency that actually shrunk welfare? 

S.P.: With Bill Clinton there is an enthusiasm for cutting welfare, but it’s not obvious that with Hillary there is any suggestion of that.  And I certainly don’t hear her talking like that.  And you might say that because of Bernie Sanders she had to move to the left, and she hasn’t moved back.  In general I think her instincts are towards bigger government, which you saw in the first two years of Bill Clinton’s presidency, with her push for an expanded government role in health care.

 

W.R.: As you mentioned, Trump can be rough at the edges.  Surely he has said something in the context of this campaign that has made you uncomfortable.  What one statement of Trump’s makes you the most uncomfortable?  What do you really wish he hadn’t said?   Statements related to Muslims?  To Mexican-Americans?  Women? 

S.P.:  Several statements I would have couched differently.  The things that you mentioned.  It happens that my son-in-law is Muslim, I don’t have any problems with Muslims.  But it is true that most of the Middle East countries where you are seeing ISIS and such, you want to be more careful with letting people in, rather than carte blanche.  But I would have been comfortable with a more nuanced and thoughtful statement by Trump.

First of all, what Trump is saying is that we want to vet immigrants.  We want to understand the history in terms of parts of the world that people are immigrating from.  I have no problem with that.  All countries do that – look at Singapore.  Singapore is very selective, and there is nothing wrong with that.  When I tried to enter Canada, they put me through a ringer.

There is a student from MIT who went to India.  She had a visa, and she overstayed four days.  They didn’t let her leave the country.  Countries do impose immigration laws.  When we have millions of people coming in, the substance of what Trump is saying, I don’t disagree with.  Some of the packaging might be somewhat rephrased, and I think over time he has been better at that.

 

W.R.: For me, the truly unacceptable comment that Trump made during this candidacy was his statement of approval for the (apocryphal) story about General Pershing executing Muslim prisoners of war with bullets dipped in pig grease, which is extremely offensive for many Muslims. 

S.P.: I hadn’t known that.  I do have a vague recollection.  Would I choose different words?  Answer is unambiguously yes.  But – both sides say things that can be used to put their supporters into uncomfortable spots.  I can put you in an uncomfortable position by citing a series of things that Hllary has said or done.  I don’t question that.  Both are decent individuals.  Where they are different is their outlook, their diagnosis for what has caused the economy to be where it is, and what needs to be done to take it forward.  There are plenty of checks and balances such that neither one would be able to be too extreme if they were actually president.  That is the sense in which Trump would move the needle a little bit to the right, Hillary a little to the left.  Between those scenarios, I prefer to move to the right.

 

W.R.: What is it like to be at MIT, in liberal Cambridge, Massachusetts and be a well-known Trump supporter? 

S.P.: I don’t know that it is that well-known.  Sometimes, people say “Oh my god!  You are silly!”  There is not as much hostility.  Then there are a fair number at the business school – perhaps it would be different in humanities.  But at the business school there are several who are neutral or who are supporting Trump.  They may not want to be public about it, but they are out there.

I am not one of those people jumping up and down saying “prison for Hillary.”  What I believe is that Hillary would lead to bigger government, more entitlement programs.  Trump will try to go a little bit back on these, make regulation more business-friendly.  Immigration that is more legal;  trade policy that factors in the benefits as well as the short-term pain that is experienced by the working class.  Not as much nation-building.  When it comes to nation-building, both sides, Democrats and Republicans  – are well intentioned.  But when it comes to building nations, people just have to do it themselves.  It is foolish to think that the US rebuilt Japan after World War Two.  The Japanese did it themselves.  Same with South Korea, after the Korean War  If it was not for the hardworking character of the Korean people, they would not have done as well as they have.

Think about China – Mao decimated the country, but now they are doing well.  Notwithstanding the authoritarian regime, I am not talking about that.  But the people – working hard, market-oriented policies, and the economy is going well.  Ultimately, people have to do it themselves.  Nation-building from outside has failed.

I think that Trump sees that more clearly than others do, and for all of those reasons I think he would be better than Hillary.

 

W.R.: Thank you so much for your time – it is great to talk to you and I appreciate it.

S.P.:  My pleasure.

---

(Artwork: Egon Schiele (Austrian, 1890-1918)  1914  1914)