Why are pro-market American economists, many of them Republican, so infuriated by President Trump? Usually the likes of former Chair of Republican President George Bush's Council of Economic Advisers Greg Mankiw are happy when Republicans win power, since they favor pro-market policies. Not so with Trump. Most hate him & he hates them. Mankiw writes, "Two Amazingly Stupid Ideas, Its hard to tell which is worse:
Today he attacks Trump's New National Economic Council Director, Kevin Hassett, who has defended tariffs as being good for GDP & based on Economics 101 classes. Mankiw writes, "Trade restrictions do not increase GDP. By interfering with the international marketplace .. they reduce productivity .. Kevin, stop invoking Econ 101 to support Trump's trade policies. It misleads the public & insults those of us who've spent our lives teaching (& writing textbooks for) Econ 101". Former Treasury Secretary Larry Summers tells US news channels the tariffs are "crazy" and "dumb". Summer's famous Nobel Prize winning uncle, Paul Samuelson, was a graduate of pro-market University of Chicago.
So what's going on? Could it be these big (and in Summer's case, super arrogant) names in US economics are wrong & Trump right? There's an argument in that direction. Trump is not doing economics. He's using tariffs to achieve political aims. Summers and Mankiw aren't businessmen, nor politicians. They're both squarely academic economists. Trump does want the US economy to get bigger, but also has political aims regards illegal immigration and narcotics entering America, super-power rivalry & ending wars. His voting base care a lot about each of them. Has he had success? Yes. By threatening Latin America with tariffs, many of those countries have now agreed to take back their migrants who entered the US illegally. By comparison, Europe has all but given up. Panama has also helped the US do a deal whereby two of the biggest ports on the Canal, owned by a Hong Kong company, are now going to be sold to US Investment Fund Blackrock (conspicuously absent from our own PM's Foreign Investment Conference being held this week). Trump's also making headway on limiting the flow of narcotics into the US by wielding his tariff threats.
Where many pro-market economists attacking Trump are off-target, including Mankiw and Summers, is they should admit they've no experience doing the deals that drive much of politics & business. Trump isn't an economic reformer. He's doing politics and political economy. His method is deal-making. He wants to move the US to a new equilibrium. He is coordinating the shift. He's implementing "game theory", trying to move from a bad (Nash) Equilibrium to a good one. His policies are not designed, at least initially, to obtain optimal free market outcomes, where there's no "interference" with market prices. Are there lessons for our PM? Yes. When businessmen gain power, voters want deals. PM Luxon is proving not very interested in doing economic reform, like Trump, such as introducing more competition between public & private health-care providers to raise quality. He's thereby infuriated many of us, just like the American economists. Instead NZ'ers wanted Luxon to have already cracked deals to sort out Treaty issues, meeting both sides half way. He has not. He has not done a deal to sort out the ferries, after nearly 2 years. He has not done Black Rock Panama Canal-style foreign investment deals - just talk. The US President has exposed our PM's weakness. To the extent our PM, like Trump, wont engage with economists (other than former NZ Initiative staffer Matt Burgess) that doesn't matter provided he cracks deals to resolve our problems. Where are they?
So what's going on? Could it be these big (and in Summer's case, super arrogant) names in US economics are wrong & Trump right? There's an argument in that direction. Trump is not doing economics. He's using tariffs to achieve political aims. Summers and Mankiw aren't businessmen, nor politicians. They're both squarely academic economists. Trump does want the US economy to get bigger, but also has political aims regards illegal immigration and narcotics entering America, super-power rivalry & ending wars. His voting base care a lot about each of them. Has he had success? Yes. By threatening Latin America with tariffs, many of those countries have now agreed to take back their migrants who entered the US illegally. By comparison, Europe has all but given up. Panama has also helped the US do a deal whereby two of the biggest ports on the Canal, owned by a Hong Kong company, are now going to be sold to US Investment Fund Blackrock (conspicuously absent from our own PM's Foreign Investment Conference being held this week). Trump's also making headway on limiting the flow of narcotics into the US by wielding his tariff threats.
Where many pro-market economists attacking Trump are off-target, including Mankiw and Summers, is they should admit they've no experience doing the deals that drive much of politics & business. Trump isn't an economic reformer. He's doing politics and political economy. His method is deal-making. He wants to move the US to a new equilibrium. He is coordinating the shift. He's implementing "game theory", trying to move from a bad (Nash) Equilibrium to a good one. His policies are not designed, at least initially, to obtain optimal free market outcomes, where there's no "interference" with market prices. Are there lessons for our PM? Yes. When businessmen gain power, voters want deals. PM Luxon is proving not very interested in doing economic reform, like Trump, such as introducing more competition between public & private health-care providers to raise quality. He's thereby infuriated many of us, just like the American economists. Instead NZ'ers wanted Luxon to have already cracked deals to sort out Treaty issues, meeting both sides half way. He has not. He has not done a deal to sort out the ferries, after nearly 2 years. He has not done Black Rock Panama Canal-style foreign investment deals - just talk. The US President has exposed our PM's weakness. To the extent our PM, like Trump, wont engage with economists (other than former NZ Initiative staffer Matt Burgess) that doesn't matter provided he cracks deals to resolve our problems. Where are they?
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
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