Leland Yeager on Trump and Trade

Cato adjunct scholar Leland B. Yeager had a long career at the University of Virginia Department of Economics in its golden age and later at Auburn University. He is the author of Foreign Trade and U.S. Policy: The Case for Free International Trade (1976), International Monetary Relations: Theory, History and Policy (1976), and Free Trade: America’s Opportunity (1954). At 93 he is still as insightful and as blunt as ever, and he just published this critique of President Trump’s understanding of trade policy at Liberty magazine under the title “Profound and Destructive.” The whole thing is reprinted below.

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President Trump’s destructiveness requires few words here. Consider how world stock and currency markets have been shaken by the resignation on March 6 of Gary Cohn, regarded until then as Trump’s chief economic adviser. Although not a trained economist, Cohn apparently had some sound instincts derived from years of financial experience. His departure apparently and ominously leaves more influence, or echo, to Peter Navarro — look him up with Google.

This latest example of destructiveness follows the one touched off by Trump’s March 2 tweet bewailing America’s loss of “many billions of dollars on trade with virtually every country it does business with” and heralding trade wars as “good, and easy to win.”

I’ll spend more words on how profound Trump’s ignorance is. He considers a country’s excess of imports over exports a measure of loss. This measure applies even to trade with each foreign country separately. He counts China and Mexico among the worst offenders, deserving punishment. He does not understand the multilateral aspect of beneficial trade.

Nor does he understand how we gain in buying goods cheap from abroad. What difference does it make if steel and aluminum are cheap because of low foreign prices or because they grow cheaply on bushes at home? Money cost is a measure of opportunity cost, which means the loss of other goods when resources go instead to make the particular good in question. Opportunity cost reflects scarcity. Scarcity applies even to prosperous America, where we could enjoy still higher standards of living if food, clothing, shelter, entertainment, and other goods and services came costlessly and miraculously from heaven. Scarcity and how gains from domestic and foreign trade alleviate it are fundamentals of economics. The principle of comparative advantage goes far in explaining how.

Without understanding the academic presentation of the “absorption approach to the balance of payments,” everyone should be able to grasp its central idea, which is sheer arithmetic. If we as a country use more output for consumption and real investment than we produce, then the difference must come from somewhere — from abroad in the form of more imports than exports. A big item in this excess absorption, alias national undersaving, is government deficits. Yet Trump and Congress are complacent about increasing the deficit and debt by taxing less and spending more.

All too many politicians say that they are in favor of free trade if it is “fair trade” played on a “level playing field.” These slogans express Trump’s view of international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

Trump does not understand how the price system coordinates economic activity, making most government planning about jobs and industries unnecessary and harmful.

The profundity of Trump’s ignorance goes beyond economics. It extends to diplomacy in domestic and foreign relations and even to the behavior of a decent human being. Yet his destructive economic ignorance remains prominent.

 
 

Posted on March 11, 2018  Posted to Cato@Liberty

What If Newspapers Reported the Real News about Human Progress?

In his new book Enlightenment Now and in his McLaughlin Lecture at the Cato Institute this week, Steven Pinker made the point that we may fail to appreciate how much progress the world has made because the news is usually about bad and unusual things. For instance, he said, quoting Max Roser, if the media truly reported the important changes in the world, “they could have run the headline NUMBER OF PEOPLE IN EXTREME POVERTY FELL BY 137,000 SINCE YESTERDAY every day for the last twenty-five years.”

This is understandable. As Pinker writes, 

News is about things that happen, not things that don’t happen. We never see a journalist saying to the camera, “I’m reporting live from a country where  a war has not broken out”—or a city that has not been bombed, or a school that has not been shot up. As long as bad things have not vanished from the face of the earth, there will always be enough incidents to fill the news, especially when billions of smartphones turn most of the world’s population into crime reporters and war correspondents.

And among the things that do happen, the positive and negative ones unfold on different time lines. The news, far from being a “first draft of history,” is closer to play-by-play sports commentary. It focuses on discrete events, generally those that took place since the last edition (in earlier times, the day before; now, seconds before). Bad things can happen quickly, but good things aren’t built in a day,  and as they unfold, they  will be out of sync with the news cycle. The peace researcher John Galtung pointed out that if a newspaper came out once every fifty years, it would not report half a century of celebrity gossip and political scandals. It would report momentous global changes such as the increase in life expectancy.

I’ve noted this myself. I think the mainstream media such as NPR, which I listen to morning and evening, fail to adequately examine the most important fact in modern history—what Deirdre McCloskey calls the Great Fact, the enormous and continuing increase in human longevity and living standards since the industrial revolution. If you listen to NPR or read the New York Times, you’ll be well informed about the news in general and about problems such as racism, sexism, and environmental disaster. But you won’t often be reminded that we are the richest, most comfortable, best-fed, longest-lived people in history. Or as Indur Goklany put it in a book title, you won’t hear about The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet.

Pinker does point out, “Information about human progress, though absent from major news outlets and intellectual forums, is easy enough to find. The data are not entombed in dry reports but are displayed in gorgeous Web sites, particularly Max Roser’s Our World in Data, Marian Tupy’s HumanProgress, and Hans Rosling’s Gapminder.” But of course those aren’t the major media. Which is why, he says, “And here is a shocker: The world has made spectacular progress in every single measure of human well-being. Here is a second shocker: Almost no one knows about it.”

So what if the media did report the most important news, the Great Fact? I asked Cato intern Thasos Athens to help me envision that:

New York Times mockup

Posted on March 8, 2018  Posted to Cato@Liberty

David Boaz discusses the city of Baltimore paying for students to attend the upcoming March for Our Lives rally on ABC KRCR News Channel 7 at 5 PM

Posted on March 8, 2018  Posted to Cato@Liberty

David Boaz discusses the city of Baltimore paying for students to attend the upcoming March for Our Lives rally on FOX WBFF’s 45 News at Ten

Posted on March 7, 2018  Posted to Cato@Liberty

David Boaz participates in the debate, “Libertarianism vs. Conservatism with David Boaz and David Azerrad,” sponsored by Young Americans for Liberty

Posted on February 26, 2018  Posted to Cato@Liberty

Republican Promises

Restore honor and dignity to the White House

Free trade

Comprehensive immigration reform

Prudent diplomacy

Defend freedom of speech

Rein in executive abuse of power

Balance the budget

Support the president

Posted on February 12, 2018  Posted to Cato@Liberty

Germany’s Free Democrats Are More than “Pro-Business”

The effort to form a coalition government in Germany may finally be coming to an end. Chancellor Angela Merkel’s original plan after last September’s election fell apart when the liberal Free Democrats (FDP) decided to not join a coalition due to the fiscally irresponsible demands if other parties. It’s unfortunate that major American media regularly refer to the FDP as “pro-business” (or occasionally “business-friendly”). See, for instance, the New York Times, the Wall Street Journal, the Washington Post, the Associated Press, and Reuters. It’s not exactly wrong, but it’s incomplete and misleading. The party would be better described as pro-market rather than pro-business, and it’s also liberal on such issues as gay marriage, marijuana legalization, the dangers of surveillance. It pushed its coalition partners, Merkel’s Christian Democratic Union and the allied Christian Social Union, to end conscription in 2011. 

In the United States such a party would be called libertarian, or maybe “fiscally conservative and socially liberal.” In the rest of the world it’s called liberal. A helpful description for American readers might be “the free-market liberal FDP.”

In this case Wikipedia does a better job than the journalists: “The FDP strongly supports human rights, civil liberties, and internationalism. The party is traditionally considered centre-right. Since the 1980s, the party has firmly pushed economic liberalism, and has aligned itself closely to the promotion of free markets and privatisation.”

A merely pro-business party might join the European People’s Party (along with most Christian Democratic parties) or the Alliance of Conservatives and Reformists in Europe (along with the Conservative Party of the United Kingdom) in the European Parliament. Instead it’s part of the Alliance of Liberals and Democrats for Europe, as well as the broader Liberal International.

The FDP has been part of a governing coalition for most of Germany’s post-1945 history, usually in coalition with the CDU/CSU but during the 1970s with the Social Democratic Party. It is the most pro-trade party in Germany, strongly endorsing projects such as the Comprehensive Economic and Trade Agreement between Canada and the European Union, and the Transatlantic Trade and Investment Partnership agreement between the United States and the EU (on hold since President Trump’s inauguration). It supports the EU but wants to demand more fiscal responsibility among EU member states. It rejects federal minimum wage laws, advocates more competition in heavily regulated industries and professions, and promotes a smaller and more efficient welfare state, perhaps with a negative income tax and individually funded health and retirement systems.  Because of its liberal social policies and support for entrepreneurship and globalization, the FDP did better among 18-to-24-year-old voters in last fall’s election than any other age group.

Unfortunately, the United States lacks a (classical) liberal party, one committed to freer markets and more personal freedom. Germany has one, and “pro-business” doesn’t capture its ideology or its appeal.


Fred Roeder is an economist from Berlin and chief strategy officer of Students For Liberty.

Posted on February 6, 2018  Posted to Cato@Liberty

How Washington Power Might Corrupt Google

Two news items from recent days are reminders about the dangers of mixing business and government. In 2017 Google outdid itself (and all other companies) in its efforts to influence Washington, spending more on lobbying than any other company that year. Meanwhile in Brazil, the largest-ever corruption investigation in Latin America’s history has spread to 14 countries, due to bribes paid by Odebrecht, a Brazilian construction firm, in efforts to secure government contracts. What’s already known is that Odebrecht paid $29 million to Peruvian officials in return for $12.5 billion in contracts.

These stories are very different. The United States is not Latin America, and Google is not Odebrecht. Nevertheless, they do have something in common. When a government has a lot of money and power, individuals, businesses and interest groups will expend their money and effort to get a piece of it — or simply to be left in peace.

Such aims couldn’t be more different. Notably, much if not all of Google’s lobbying is defensive. It wants to be left alone to innovate and serve consumers. It seeks to resist restrictions on immigration, excessive taxation, antitrust suits and regulation of its advertising. Odebrecht, on the other hand, seeks to get billion dollar government construction contracts, sometimes by bribing high-ranking officials.

But both firms may simply see these expenditures as the cost of doing business. Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing and all the other processes that bring goods to consumers and, they hope, lead to profits. But businesses can also invest in political processes that may yield profits. If more money can be made by investing in Washington — or Brasilia or Lima — than by developing a new app or drilling another oil well, money will be spent there.

Money spent by politicians in Washington, as with most national capitals, is taken from the people who produced it all over America. Washington produces little real value on its own. National defense and courts are essential to our freedom and prosperity, but that’s a small part of what the federal government does these days. Most federal activity involves taking money from some people, giving it to others and keeping a big chunk as a transaction fee.

Every business and interest group in society has an office in Washington devoted to getting some of the $4 trillion dollar federal budget for itself: senior citizens, farmers, veterans, teachers, social workers, oil companies, construction companies, labor unions, the military-industrial complex — you name it. The massive spending increases of the Bush-Obama years have created a lot of well-off people in Washington. Consulting and contracting exploded after 9/11. New regulatory burdens, notably from Obamacare, the Dodd-Frank financial regulation bill, are generating jobs in the lobbying and regulatory compliance business.

But both firms may simply see these expenditures as the cost of doing business. Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing and all the other processes that bring goods to consumers and, they hope, lead to profits. But businesses can also invest in political processes that may yield profits. If more money can be made by investing in Washington — or Brasilia or Lima — than by developing a new app or drilling another oil well, money will be spent there.

Money spent by politicians in Washington, as with most national capitals, is taken from the people who produced it all over America. Washington produces little real value on its own. National defense and courts are essential to our freedom and prosperity, but that’s a small part of what the federal government does these days. Most federal activity involves taking money from some people, giving it to others and keeping a big chunk as a transaction fee.

Every business and interest group in society has an office in Washington devoted to getting some of the $4 trillion dollar federal budget for itself: senior citizens, farmers, veterans, teachers, social workers, oil companies, construction companies, labor unions, the military-industrial complex — you name it. The massive spending increases of the Bush-Obama years have created a lot of well-off people in Washington. Consulting and contracting exploded after 9/11. New regulatory burdens, notably from Obamacare, the Dodd-Frank financial regulation bill, are generating jobs in the lobbying and regulatory compliance business.

Walk down K Street, the heart of Washington’s lobbying industry, and look at the directories in the office buildings. They’re full of lobbyists and associations that are in Washington for one reason: because, as Willie Sutton said about why he robbed banks, “That’s where the money is.”

President George W. Bush increased annual federal spending by a trillion dollars, so it’s no wonder that more money was spent on lobbying in 2008 than in any previous year. And then even more was spent in 2009, when President Obama pushed for a nearly trillion dollar “stimulus” bill and a health care overhaul. With a complicated tax reform bill, along with health care and threats to global trade, lobbying surged again in President Trump’s first year.

Government contracts for construction, IT services, health care delivery, and the like are a particular target for lobbyists. I once got a pitch for a newsletter described as “Your bible for infrastructure spending—where the money is going and how to get your share.”

And as the Odebrecht example illustrates, that’s especially true in countries where government is an even bigger share of the economy. That’s why Odebrecht had a whole department, the Structured Operations Division, dedicated to bribing politicians in Latin America. They spent $788 million on bribes. That was a good investment. According to a court filing, it generated $3.3 billion in profits. Cheap at twice the price!

But at what cost? Some companies benefit by manipulating the levers of power. By definition, that means other companies lose. If Odebrecht has to bribe politicians to get contracts, that suggests that other construction companies might deliver better service for less money, and Odebrecht needed to get an unfair advantage.

And even if a company such as Google starts out lobbying defensively, it can get sucked into Washington’s parasite economy and start using its new lobbyists to game tax laws, tariffs, regulations and subsidies to get an edge on its competitors. And that’s a real problem because the most important factor in America’s economic future - in raising everyone’s standard of living - is not land, money or computers; it’s human talent. And when that talent is spent negotiating with the government for protection or for special favors, that’s a loss for the people such talent really should serve: consumers.

Posted on February 4, 2018  Posted to Cato@Liberty

Embarrassing the Country

Rachel Campos-Duffy, the wife of Rep. Sean Duffy (R-WI), cohosting “Outnumbered” on Fox News Friday, complained that Democrats “make our country look bad” by revealing what President Trump said in a meeting with members of Congress:

“I still have a problem with people in a private meeting going out and saying what the president said….It makes our country look bad. I think the Democrats, in this case, should have used some discretion. And even if he did say something like that, not repeat it for the benefit of the country.”

Her comments reminded me of one of my favorite parliamentary exchanges. 

Helen Suzman, the longtime leader of the parliamentary opposition to apartheid, rarely won any votes in the South African parliament. But she did use her position to advocate for human rights and to ask tough questions. 

In a famous exchange a certain minister shouted: “You put these questions just to embarrass South Africa overseas.” To which she coolly replied: “It is not my questions that embarrass South Africa – it is your answers.” 

Republicans who don’t want the country embarrassed by the president’s insult to dozens of countries and millions of Americans should encourage him not to issue such insults.

Posted on January 13, 2018  Posted to Cato@Liberty

David Boaz discusses Washington’s focus on Sinclair Broadcast Group

Posted on January 8, 2018  Posted to Cato@Liberty

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