A Trump Technology Boom Is About to Begin

 | Jan 25, 2017 | 4:00 PM EST
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In the past 40 years, as globalization and liberalized trade policies have accelerated, there have been two almost diametrically opposed theses pushed by public policy makers, capital owners and human labor. They are the compensation and efficiency theses.

I discussed these in more detail three years ago in a two-part column series, "Globalization, Technology and Politics," which should be read for the rest of this column to make sense.

In short, the compensation thesis states that elected officials must support public policies that ensure economic viability of human labor or risk not being elected. The efficiency thesis, on the other hand, states that elected officials must support policies that are attractive to capital owners or risk capital flight that brings with it economic malaise and the loss of electability.

Globalization and liberalized public domestic and trade policies worldwide have been almost exclusively dominated by the logic of the efficiency thesis.

This has erroneously led to the belief that globalization and the efficiency thesis are inseparable and opposed to the equal inseparability of nationalism and the compensation thesis.

Britain's Brexit, Trump's election and the rise of Marine Le Pen in France, as well as other events unfolding around the world, has led many to mistakenly believe that they share a commonality of purpose and imply a commonality of public policy responses.

That commonality of purpose is the importance of a nation's citizens, with the implied policy responses being protectionist and generally in alignment with the compensation thesis. Although there is some truth to this in Britain and more so in France, it is not the case in the U.S.

It is critically important to understand this.

Trump's economic agenda is overwhelmingly in support of the efficiency thesis, capital owners, true economic liberalism and real globalization. This is evident in the "carrot" part of his agenda, which is heavy on tax cuts and deregulation. In essence and reality his agenda is based on the supposition that one of the principle reasons for the lack of U.S. economic growth has been the handicapping of wealthy individuals and companies with high tax burdens and regulation, especially when compared to other parts of the world.

The corrective measures of reducing both are not indicative of nationalist, populist or protectionist remedies. They are, in fact, the exact opposite; they aim to increase liberal economic policies that comport with real globalization and the lowering of national borders to promote trade.

This has been lost on almost everyone having been confused by the "stick" portion of his agenda. Those "sticks" are potential trade tariffs, the threat of tax penalties for domestic companies operating overseas for export to the U.S., and renegotiated trade agreements.

However, those "sticks" support real globalization.

Both his domestic and foreign economic policies are predicated on the belief that the reason globalization has failed to produce the net effect of increased income and wealth for all is that it hasn't been real.

On the domestic U.S. front, lowering taxes and regulation to levels seen outside the U.S. is not nationalism; it's globalism.

On the foreign front, negotiating fair trade agreements and fair treatment of U.S. capital invested overseas is also not nationalism; it's globalism.

The most germane issue for investors to be aware of now is that there is a timing difference between these two initiatives. Lowering domestic taxes and cutting regulations can be implemented much more quickly than restructured foreign trading relationships.

That timing difference will inevitably lead to more capital staying in the U.S. than would have otherwise been invested elsewhere, and in more foreign capital flowing to the U.S.

The catalyst to get companies to make substantive capital investments in the U.S. will be the implementation of an infrastructure program.

This is resonating with investors now as the surge in Jacobs Engineering (JEC)Fluor (FLR) , Chicago Bridge & Iron (CBI) , over the past week, which I last discussed in the column, "Virginia Project Shows What's Possible With Privatized Infrastructure."

That catalyst will support companies increasing their investment in technology to increase productivity of domestic labor.

The two broadest ways to invest on this occurring are the Technology Select Sector SPDR ETF (XLK) , and the Vanguard Information Technology ETF (VGT) .

Although all of the fundamental economic issues have been supportive of increased capital investment in technology for many years, and as I wrote about four years ago in the column, "The Real Tech Boom Is Just Beginning," the Trump agenda is going to accelerate that process.

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