Thursday, October 27, 2016

Don Boudreaux: "It Literally Hurts My Brain to Read the Economic Idiocy Emitted by Trumpkins"

A Don Boudreaux letter to the Wall Street Journal:
Wilbur Ross’s and Peter Navarro’s defense of Donald Trump’s economic policies is mostly a mash of bunkum (“A Vote for Trump Is a Vote for Growth,” Oct. 26).  Consider this claim: “Donald Trump will cut taxes, reduce regulation … and eliminate our trade deficit through muscular trade negotiations that increase exports, [and] reduce imports….”
Cut taxes?  Bunk.  Trump famously promises to raise taxes on Americans who buy imports.  Reduce regulation?  Rubbish.  Trump promises moregovernment intrusions into Americans’ commerce with foreigners.
As for ‘eliminating’ our trade deficit, Trump might indeed succeed on that front.  But such ‘success’ would be regrettable, for it would be the inevitable outcome of the American economy being made an unattractive destination for investment.  (Ross and Navarro seem to be unaware that to “eliminate our trade deficit” – such as was done, for example, during the Great Depression – is to eliminate net contributions by foreigners to increasing the size of America’s capital stock.)
But Trump’s most absurd promise is to enrich Americans by increasing exports and reducing imports.  Imports are what we voluntarily buy and exports are the price we pay.  Therefore, a policy meant to increase exports while decreasing imports is a policy meant to force Americans to pay more to foreigners and to receive less in return – a decidedly unartful deal the architect of which would deserved to be fired.
But the Trump camp’s confusion runs even more deeply.  Exporting for Americans is worthwhile only because it supplies us with the means to purchase imports, either currently or in the future.  So a policy that aims both to increase exports and to decrease imports is akin to a policy that aims both to increase people’s spending power and to decrease it.  It’s a policy meant to give Americans greater means for acquiring imports as it simultaneously strips Americans of the freedom to use those means.  It’s the economic policy equivalent of an attempt to square a circle.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek

13 comments:

  1. Boudreaux is unfairly selective in his criticism of Trump. I agree with his points above, but let's be fair to Trump. His platform calls for removing 2 regulations for every 1 regulation added, he calls for a freeze in federal hiring, as far as I can tell he only wants to impose reciprocal tariffs of equal weight (still bad, I know, but not as bad as across the board tariffs).

    I don't understand Boudreaux's final paragraph where he states "Exporting for Americans is worthwhile only because it supplies us with the means to purchase imports, either currently or in the future." Correct me if I'm wrong, but doesn't exporting also supply us with the means to purchase domestic goods?

    Furthermore, if raising tariffs on imports gave politicians cover to eliminate direct subsidies of domestic production - couldn't that be a net benefit for American taxpayers (current and future)?

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    1. Re: Stuffed Pimento,

      ─ I agree with his points above, but let's be fair to Trump. ─

      Yes, lets be fair to him. El Trumpo is a incredible economic ignoramus so he can't help it if what he says is idiotic.

      ─ Furthermore, if raising tariffs on imports gave politicians cover to eliminate direct subsidies of domestic production - couldn't that be a net benefit for American taxpayers (current and future)? ─

      You mean by making taxpayers buy the more expensive local goods? Yeah, that helps....

      ... Helps the subsidized Buggy Whip industries, that is.

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    2. ─ Correct me if I'm wrong, but doesn't exporting also supply us with the means to purchase domestic goods? ─

      Sure, but why would you? Dr. Boudreaux's point is that exports in and of themselves are NOT the end but a means to an end, and that end is to obtain the foreign currency that others can use for imports. To illustrate the point: I trade my labor outside my home so that I can then import the goods I need from outside my home. I use some of my income from my exports to pay my kid for vacuuming the living room and the den but most of my income from my exports is used on imports. You may say that this is an oversimplification of what goes on on a larger scale but you have to remember that El Trumpo's ideas are based on infantile oversimplifications as well, which is probably required for his teeming supporters, all of them economically illiterate themselves, so I am under no relevant requirement to present a more sophisticated example. Or am I?

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    3. I understand the point of export/imports. What I'm saying is that exporting is not ipso facto "worthwhile only" a means to import. It can be a means to buy and produce more domestic goods.

      As I understand it corporations exchange the foreign currency for US dollars. They aren't actually paid in yuan or rubles so I'm not sure I see your point. You are using the word "import" as a synonym for "outsourcing" or "purchasing."

      I understand why tariffs hurt both producers and consumers in a vacuum, but I don't think this is always true on aggregate in the real world. For example, a sound dollar policy may increase our ability to import goods even after a tariff is placed on those goods. A weak dollar policy may cause (in theory) importing goods to be more expensive than tariffs on those goods.

      To my point above, if the US placed a tariff on sugar rather than subsidizing sugar farmers, doesn't that shift the taxation burden to sugar buyers, producers and consumers and away from general taxpayers?

      Is this use fee not the better alternative if we must have government interference in the market?

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    4. Re: Stuffed Pimento,

      ─ As I understand it corporations exchange the foreign currency for US dollars. They aren't actually paid in yuan or rubles so I'm not sure I see your point. ─

      These corporations exchange the foreign currency in a market. That market depends on cash flows from currency issuers to buyers. Even if you turn your dollars into yuan and your yuan into dollars, the currencies have to be purchased somewhere.

      ─ I understand why tariffs hurt both producers and consumers in a vacuum, but I don't think this is always true on aggregate in the real world. ─

      Then stop making aggregate analysis, because it always leads to wrong conclusions. Tariffs are a TAX - and TAXATION is THEFT.

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  2. ─ Trump's most absurd promise is to enrich Americans by increasing exports and reducing imports. ─

    Which is the exact same fallacy that motivates the current rhetoric against NAFTA and other trade agreements.

    A quick perusal of the comments section of some of the conservative blogs and Facebook pages who support the GOP candidate (Donald Trump) shows that the arguments for supporting the policy proposals from Trump and the level of hostility towards trade can be reduced to the following:

    a) Trade is bad because your patriotic duty is to ensure your neighbor remains employed, and
    b) Trade is bad because cheaper products make us poorer.

    Unfortunately, a lot of people and especially Donald Trump supporters believe those arguments.

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  3. I won't argue for or against Trump's economic policies. I'll only point out that we can't criticize Hillary's policies because she doesn't say anything about them except in broad platitudes. Although WikiLeaks does give us quite a few clues about her economic vision and it is mainly about enriching herself and her cronies.

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  4. The problem is the loss of entire industries, things we knew how to manufacture have been lost as well as the capacity and factories to produce them. That alone is a threat to our safety and future.

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    Replies
    1. Re: Athena Clark,


      Are you seriously grieving for Buggy Whip industries? What, you think the country should be turned into a museum?

      This longing for times when "we used to build things with our bare teeth!" is ridiculous and pathetic. You seem not to realize that industries come and go as consumer preferences change. You seem to think that jobs are ends in themselves instead of means to an end. It's not trade that destroys businees; it's THE MARKET.

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    2. No I grieve for Boeing Industries that cannot complete a jet without 30 other countries input for parts. Try reading about it. That is not THE MARKET, that is "most favored nation treaty" with countries that dont pay their workers anything and fail to protect our own.

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    3. Re: Athena Clark,

      Why would it bad that Boeing sources parts? What's your rationale? And YES, sourcing parts from other places IS the market.

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    4. This is a good article explaining that managed trade is not free trade. It is political and negotiated trade. And therefore, even if managed trade benefits consumers in the aggregate, it most certainly harms certain producers that are not politically connected. The worst of it, from the article, is that free trade is blamed on the unwanted outcomes of managed trade agreements. The blame should rest at government intervention and the political horsetrading that goes into these agreements. Instead we get calls for tariffs and other forms of protection.

      https://mises.org/blog/trade-agreements-or-political-independence-false-choice

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    5. Re: Stuffed Pimento,

      ─ This is a good article explaining that managed trade is not free trade. ─

      Mr. Boudreaux's contention is not that managed trade is free trade or not but that El Trumpo's policies have nothing to do with trade at all.

      ─ even if managed trade benefits consumers in the aggregate, it most certainly harms certain producers that are not politically connected ─

      That may be so but the alternative that El Trumpo is proposing amounts to benefiting certain producers, politically-connected or not, by harming consumers. I don't understand why this is supposed to be better or why this makes El Trumpo's proposals more sound. Just because he points out the obvious - that managed trade is not yet free trdae - does not mean his policies are the answer, because, so far, El Trumpo has been very hostile to trade per sé.

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