The great Austrian economist Friedrich von Hayek said ‘the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design’. In other words, much of economic commentary is white noise. It’s the modern equivalent of arguing how many angels are on the head of a pin. Just follow the fundamentals and the economy will perform as well as it can in changing circumstances. Milton Friedman, another great economist, said ‘I am in favour of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible’.
Over the second quarter of the economic year, the American economy grew by 4.1 per cent. These are, as Paul Keating would say, a beautiful set of numbers. The person responsible for the economic growth is Donald Trump. He lowered taxes and cut regulation and the American economy is thriving. The dry language of economics hides more than it reveals. What these numbers mean is that millions of Americans have hope and dignity and self-respect. They can buy a house. They can pay for their children’s education. They can go on holiday. They can heat their homes. They can buy shoes or books or ice cream — and, most importantly, they can look people in the eye. Trump has done more for poor Americans in a year and a half than all the hopey changey rhetoric of Barack Obama in his eight years as president. Wealth creation relies on the morally neutral free market rather than on the good intentions of our betters or the feel-good rhetoric of the charismatic. Today, in America, there are more jobs than workers. Self-reliance, simply having a job, is always better than charity.
There are two Donald Trumps. The good Trump is shaking up a political class that has become arrogant, sanctimonious and deaf. He’s forcing influential people to explain why we should listen to them. He’s proving that the emperor has no clothes. Every time he trolls the usual suspects, they respond like deranged zombies — all spit-flecked, bloodshot-eyed and mono-dimensional — and who, unintentionally, because they’re not as smart as they think they are, prove their incoherence and hypocrisy. It’s a joy to behold the establishment become so unhinged. This is important, because no one knows the whole truth, no matter how many feel-good charlatans tell you otherwise. The joy of liberal democracy is that it allows people to fix the other side’s mistakes. We muddle through, in other words. Which is why the hysteria surrounding Donald Trump is so unbalanced. Trump will be gone after four or eight years in power.
The other Trump, the bad Trump, though, is making a monumental mistake. It’s the equivalent in economics of Flat Earthism in science. And it’s such an extraordinarily bad idea that it could cancel out whatever good he may do.
Protectionism in any form is terrible economics. Whether it’s tariffs, import quotas, or any of the methods used to limit free trade, protectionism’s effects are detrimental to the people it’s supposed to help. It’s simply rent-seeking. In other words, it protects some workers and businesses at the expense of everyone else. The effects of protectionism are invisible to the average voter. In contrast, the negative effects of a healthy, ever-changing economy provide dramatic footage on the news for the economically illiterate or the perpetually aggrieved. Who could not be moved by images of striking workers afraid of losing their jobs? To put protectionism in perspective, though, some people benefit — the rent-seekers — but across the economy everyone else is worse off. Trades unions, while keeping a straight face (and often a clenched fist), have made it their business model for 150 years. They protect the workers in the union, while others — outside the union — are left unemployed because wages are too high.
The worst effect of protectionism, though, is the most ironic. The people it’s meant to protect pay higher prices for the same goods. If the Chinese government is subsidising firms in China and selling goods below cost to Americans, it is American consumers who are better off. It doesn’t matter if there is a trade imbalance between America and China, or between America and the European Union or anywhere else. If someone wants to sell you something cheap, buy it. People will spend the money they’ve saved buying cheap goods on other goods, thus creating more goods, services and jobs.
We can only hope that Trump is playing a sophisticated game on the issue of free trade. That what he really desires is the abolition of protectionism worldwide. Putting on an ‘antic disposition’ as Trump does is older than Shakespeare. But, for the tactic to work, everyone must believe that the protagonist is serious. A hint of uncertainty or even a wink in the right direction undermines the strategy. A poker face is essential. Trump’s strategy is to continually disarm the opposition by making an ambit claim that on the surface seems preposterous. He then rolls back on his original claim, but just as his opponents are making favourable noises he makes another preposterous claim, throwing his opponents off balance again. The result is that he usually achieves something concrete.
The danger for Trump is that the unsophisticated among us only see the mad Hamlet and not the cunning Hamlet. To put this in perspective: Obama’s great gift was framing an issue favourable to himself or his policies. The perception of Obama — being handsome, articulate and cool — was more important than anything he achieved. Obama’s already framed his legacy by telling two extraordinary lies since leaving office: that his administration was ‘scandal free’ and that he’s amazed about politicians’ lying. The best liars are those who frame an issue in a way that people want to believe. Trump, in contrast, is achieving things but he’s losing the propaganda war. Perhaps he doesn’t care about perception. If Trump really believes in trade barriers, he will turn the clock back over 200 years to 1776, the year of American independence and the year that Adam Smith’s great book, The Wealth of Nations, was published. Smith demolished the economic fallacies of Mercantilism, which, along with protectionism, is the best description of Trump’s current trade policies.
Got something to add? Join the discussion and comment below.
You might disagree with half of it, but you’ll enjoy reading all of it. Try your first 10 weeks for just $10