So the social norm changed. A new breed of corporate executive, incented with boatloads of stock options, decided that the right thing to do was to cut costs at any price, including the economic health of their workers or their communities. Indeed, for a while, if a corporate executive didn’t have an aggressive plan to shift production overseas, they were criticized by Wall Street and the business press and threatened with takeovers by what we now call “activist investors.” Although the public never much liked the idea of closing plants and shipping jobs overseas, it no longer was socially unacceptable.
Now comes Donald Trump — in the public mind, a successful businessman — who as the new president, suddenly declares that the new norm is no longer acceptable, and he intends to do whatever he can to shame and punish companies that abandon their workers. It’s one thing for a company to sustain a few days of bad headlines in the local newspaper when it decides to close a facility. It’s quite another when the president of the United States is not only willing, but from a political point eager, to make a federal case out of it. Suddenly, maximizing shareholder value no longer provides the political and social inoculation that it used to.
Unlike their patron saint, Adam Smith, modern-day economists tend to ignore such shifts in social norms because they can’t quantify them in the same way they can quantify trade flows or technological innovation or changes in educational attainment. And if they can’t quantify something, they can’t include it in their complex mathematical models, or even the simpler mental models in their heads of how the economy operates. They assume that social norms change in response to economic fundamentals rather than the other way around.