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Less than a month ago many of America’s biggest law firms made deals with the White House in which they promised to end diversity, equity and inclusion (DEI) practices and to devote substantial resources to pro bono work on causes the administration supports. It was a shameful capitulation.
It was also stupid. Anyone who looked either at Donald Trump’s personal history or the history of authoritarian regimes in general would have realized that there’s no such thing as a deal with this administration. Whatever you think Trump and co. have agreed to, they will feel entirely free to make new demands whenever it suits them.
Sure enough, yesterday the New York Times published an article with the headline “Law Firms Made Deals With Trump. Now He Wants More From Them.” As the article explains, Trump
has hinted that he sees the promises of nearly $1 billion in pro bono legal services that he has extracted from the elite law firms — including Paul, Weiss, Rifkind, Wharton & Garrison; Skadden, Arps, Slate, Meagher & Flom; and Willkie Farr & Gallagher — as a legal war chest to be used as he wishes.
So Big Law has just discovered what it should have known all along: Giving Trump what he wants doesn’t buy you lenient treatment. All it does is signal weakness, which leads to even more onerous demands.
And the fact that Trump never, ever keeps his promises is why he will lose his trade war, why the dollar may lose its status as a global currency, and why America may eventually face a debt crisis.
Yesterday I wrote about why China probably has the upper hand in the developing trade war. One important factor, I argued, is that U.S. efforts to build an anti-China trade alliance are doomed to failure. Why? Because nobody with any sense trusts the Trump administration to honor the terms of any deals it makes, whether they’re deals about pro bono work with law firms or tariff deals with other governments.
And as more and more people realize that Trump and his minions can’t be trusted, the damage will spread from trade to finance. The international role of the dollar and, eventually, America’s ability to service its debt are very much at risk.
Why can’t Donald Trump be trusted? Partly because he’s Donald Trump. But even if he weren’t, absolute monarchs — which is what Trump is trying to become — are fundamentally untrustworthy. The ruler may sometimes choose to honor his promises, but it’s always his choice — a choice that can be changed at any moment. And his untrammeled power makes the nation he rules weaker, not stronger.
Let me step away from current events for a moment and ask what may seem like an odd historical question: Why did absolute monarchy disappear from the Western world in the 18th and 19th centuries? How did republics or constitutional monarchies that basically functioned as republics become the norm?
There were, of course, revolutions: The Glorious Revolution of 1688 in England, the American Revolution, the French Revolution. But absolutism would have returned if experience hadn’t shown that constitutional governments subject to rule of law were more effective than monarchs who could declare “L'État, c'est moi.”
Indeed, the frustrations of Louis XIV are a case in point. Circa 1700 France seemed to be by far the most powerful nation in Europe. Yet it was fought to a standstill by England, with its newly constitutional monarchy, and the Dutch Republic, which even in combination had many fewer people and probably considerably smaller GDP. Why?
A large part of the answer is probably that rule of law was a source of strength. That’s the argument of a classic paper by Douglass North and Barry Weingast, “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England.” North and Douglass argued that the reduced power of the king and the enhanced power of Parliament “allowed the government to commit credibly to upholding property rights” — including the right of people who bought government bonds to be repaid. Over the long term this was good for economic growth, but even in the short term it meant that England could borrow cheaply to finance its war effort, while France couldn’t.
Some readers may ask how, if rule of law is so important, China has become so powerful. I am in no way an expert on China. But my understanding is that for many decades after the insanity of Mao and his Cultural Revolution, power effectively rested with the Communist Party rather than the premier. This created an environment in which the ground rules were stable enough for business to flourish. It was only under Xi that China veered back toward one-man rule — and it’s paying a substantial price.
And speaking of the Cultural Revolution, don’t the escalating Trumpist attacks on universities and science have a very Maoist feel?
Anyway, the story of how the Glorious Revolution empowered England is very old history — older than the United States. But it’s directly relevant to where we are today. Trump probably can’t make trade deals because nobody trusts his promises.
And going forward, both the international role of the dollar and the ability of the federal government to finance itself depend in part on the belief that the U.S. government can be trusted to behave responsibly. Among other things, international investors normally assume that the president will respect the independence of the Federal Reserve and refrain from, say, arbitrarily rewriting the terms of federal debt.
Do you really think those assumptions are still justified? A confrontation between Trump and the Fed is probably only a few months — maybe even a few days — away. Some people in the administration have already floated the idea of a “Mar a Lago accord” that might include a forced conversion of short-term Treasuries into long-term bonds. Just discussing this is shocking to many because it would be a form of default on US debt.
Even now, I don’t think businesses, investors and the public in general fully appreciate what it means that we’re all subject to the whims of a mad king. But they’ll learn.
MUSICAL CODA
