Singing dum dum, a deedly dum, uh huh, dum dum, a deedly dum. Sing it out, dum dum, a deedly dum, a dum dum, a deedly dum. Sing it out, dum dum, a deedly dum. I can’t hear ya, dum dum, a deedly dum. So ends the 1961 song written by Jackie DeShannon and Sharon Sheeley and performed by Brenda Lee. Add a simple B to the end of the title words, and you and a good description of President Trump’s current economic team – Dumb.
First, let’s put this in context. There really has not been a smart Presidential economic team for some time. This is in part due to the fact that most acceptable economists are orthodox Keynesians so their advice is already bound to be, well dumb. In addition, they have to work in a political environment which does not help to encourage one to give the best possible advice. So, while President Trump’s crack economic team is, well dumb, this is not uncommon.
In addition, as we have written in these pages for some time, the Administration has done some things that are smart economically. The elimination of useless and costly regulations is probably the most important thing that the Federal government can do to help the economy. And while there were a lot of problems with the Tax Cuts and Jobs Act, the restructuring of the entire corporate tax system was not one of them.
Unfortunately, all of the good things that the Administration has accomplished are being controverted by a really dumb trade policy. I think that a lot of this is driven by the President himself, as he seems to truly believe that trade is a zero-sum game. However, most of the lunacy seems to be coming from his Director of Trade and Manufacturing Policy, Peter Navarro.
In spite of his 17th century views on economics, Navarro seems to have a Rasputin like grasp on the President, and as with Czarist Russia, it does not appear as if any of the other economic advisors in the Trump court have the wherewithal to break this spell.
Like Rasputin, Navarro is something of an economic charlatan, whose views are so out of sync with other economists, orthodox as well as classical, Austrian, and even Marxist. Navarro is actually an unrepentant mercantilist, promoting the theories made popular by a 16th century director of The East India Company named Thomas Mun.
According to Mun and the general theory of mercantilism exports had to exceed imports in order to increase the wealth of a nation. More specifically, Mun suggested that all imported goods that can be produced domestically should be banned and that production should be increased to reduce the amount of imports needed from abroad. In addition, he suggested that shipping should all be done solely on English vessels. This economic nationalism is mirrored in the policies favored by Navarro.
The mercantile system was essentially designed to protect the interests of domestic merchants and producers, particularly the British East India Company, whose activities were protected or encouraged by the actions of the state – sound familiar. In effect the primary goal of the mercantilist system was to import more specie (gold and silver) than was exported, what we would call maintaining a favorable balance of trade today.
In order to achieve this, governments exempted local industries from certain rules and taxes, allowed them to establish monopolies, imposed tariffs, quotas, and prohibitions on imports of goods. In addition, the export of machinery (the intellectual property of the time) was strictly forbidden. Again, sound familiar.
In effect, the mercantilist theory of trade considered all international transactions to be a zero-sum game, in that the exporting country was always the winner, and the importing country the loser. While this, of course, makes no sense as it would generally preclude any trade between countries, or for that matter merchants and consumers, it was a generally accepted principle in 1700, just as bleeding was considered a great way to get rid of a cold, or that beatings were a great way to treat insanity. Unfortunately, Dr. Navarro is still stuck in these times and is also the main architect of the country’s trade policy.
In 1776, Adam Smith, followed in the early 1800s by David Ricardo, blew holes in the mercantilist theory that were wider than the Grand Canyon. Over the next few decades the laws undergirding the system were replaced by less restrictive ones, and economic growth boomed worldwide.
In spite of his Harvard PhD, Navarro seems to be unaware of the classic economic laws. In his mind, trade is a zero-sum game, and that rather than being partners, trading nations are competitors in a game which will inevitably lead to military confrontation. Just like Mun, he believes that domestic production should be increased to reduce the amount of imports needed from abroad no matter the cost to consumers and the economy in general.
Navarro is particularly imperious when it comes to countries with trade surpluses, particularly Germany and China. In effect, his fervent belief that trade is bad, and that nations are trying to be on top drives his policy recommendations. This is much like historical scares such as the Battleship Gap, the Missile Gap, the Red Scare, the 1980s fear of Japan Inc. Today, its China that is the bugaboo, that seeks to destroy American and all we hold dear.
It is interesting to note that during the mercantile period, countries were almost always at war. It was the most militaristic period in history. Mercantilism was actually supported by many since it provided hard currency needed to equip and maintain a large standing military. Since that time, mercantile tendencies in the United States has risen to extreme levels only three times – the 1830s, the end of the 19th century and the 1930s. Each of these protectionist periods preceded major conflicts, including the two World Wars.
No matter what one might think of China, or of the importance of America dominating every market, the record of protectionism, particularly of the type being promoted by Rasputin – er Dr. Navarro – has never benefitted an economy, a country, or the world at large. Protectionism is simply dumb, dumb, dumb, dumb, dumb dumb dumb.