Trump Economics?

Following the election of Trump, I became apolitical. My current view on politics is similar to my current view of the night sky – it is there but I only gaze up in wonder every now and again. I want Trump to do well because we should always root for our leaders to make the right decisions. However, it seems that whenever I do gaze up into the twinkling lights of Washington – I suddenly get a crick in my neck. In the past, I posted about Mike Rowe and his views on voting. Basically, he doesn’t think everyone should vote; only those individuals who are informed and educated enough to respect the privilege. In his article, he references a book that everyone should read to get a sound understanding of economic policy: Economics in One Lesson by Henry Hazlitt. Hazlitt wrote this book in 1946 and it has sold over 1 million copies in the past 70 years. Suffice it to say, this book’s principles are solid and are still applicable to today’s economy. I say this because economics is many times a political subject.This book is not tainted by left or right wing media and it disproves many fallacies which are commonly used to wrongly steer our decisions. I’ll explain one of the biggest and most encompassing fallacies of all – putting America first at the expense of everyone else.

Imagine a little boy playing baseball and accidentally breaking a window. His friends all crowd around with their jaws gaping and they immediately start a philosophical conversation about the economic implications of the event. The first obvious line of thought is that a new window will have to be purchased. One boy exclaims that this will be beneficial to the window installer and hence stimulate the economy. All the boys agree and use this line of argument when confronted by the angry home owner. The home owner will have to spend 100 dollars to fix the window. The man listens to the boys but then says he was just about to use that 100 dollars to buy a new golf club. The boys learn an important economic lesson. Certain policies that appear to help, actually have a reciprocal effect of hurting others. Humans have a hard time with economics because we focus on the winners and not the losers. It is easy for us to see jobs being created but it is hard for us to imagine jobs or purchasing power being lost.

Let’s imagine that America put itself first in all trade deals. From the example above it is a fallacy to think this will benefit us because there is always another group which suffers. In this example, the domestic America manufactures may have better protection and hence better sales. But what about the American manufactures who export products to other countries? They no longer can profit from the open trade agreements and hence lose out on business. Countries around the world would have less reason to buy from America and thus would take their money elsewhere. Additionally, these policies promote greater inefficiencies which in the end reduce American purchasing power, real wages, and production potential. The negatives are overlooked because it is easy to see new manufacturing jobs, but hard to see the world economy shifting. To put it another way, policies which benefit 12.3 million American manufactures, in the long run, will hurt the other 140 million American workers.

Whats’s the win-win economic policy? The best economic policy in the long run is to have open trade. This will benefit the most efficient American manufacturers and allow Americans to have the greatest purchasing power. It will also allow other countries to buy more American products which will stimulate greater production and job growth. These policies are in fact usually trumpeted by Republicans. Ironically, Trump is pushing for more Democratic protectionist views. These aforementioned economic policies are proven effective and it only takes one to read about the sad history of protectionism to quickly understand their soundness. Hazlitt, in 1946 wrote this quote several times in the book.

“…those who are ignorant of the past are condemned to repeat it.”

Unfortunately, demagogues go for the policies that appear to be sound but usually only help specific groups in the short term. We are a globalized world and we need economic policies that benefit all sectors. We can do this in a responsible way that facilitates environmental projects, new job training, and stability in developing countries. There is no first place when it comes to economics. There is no benefit of putting America first – our strength comes from the strength of others.

The Upside of Down

What makes America great? Is it the people? The beautiful landscape? The election process? I think a lot of citizens define the greatness of America through her economic and military prowess. Over the past 10 years there has been a lot of news about America’s dominance fading in the world. I hear things like, “China owns half of our country!” “Their is a new Cold War with Russia!””There are going to be taco stands at every corner!” “All of our jobs are being shipped overseas!” I never really looked into these claims before so I wanted to read a book about the true economic status of the developed world compared to the developing. I picked up The Upside of Down: Why the Rise of the Rest is Good for the West by Charles Kenny. Kenny was previously a senior economist at the World Bank and is now a senior fellow at the Center for Global Development and writes for Bloomberg Businessweek and Foreign Policy magazines. To put it simply, this guy knows his stuff.

First off, China is definitely going to surpass the United States economy very soon – some economists argue that is has already happened. The math is simple: China has 1.3 billion people and the United States has roughly 350 million people. That is a billion more workers and consumers with an ever widening middle class that is ready to spend.

“…by 2030 the world will have four major economic players. China will be the heavyweight, with a share of global GDP around 24 percent (measured at purchasing power parity). Next will be India, the European Union and the United States – each with 10 to 12 percent of the global output. Brazil, Indonesia, and Japan will each control a little more than 3 percent of global GDP.”

Should this fact worry the United States? Not at all. It is great news. For one, the average Chinese or Indian will one day be able to buy more products from the United States. With more money flowing into America, there will be more jobs created and more services needed. Second, countries with large economies love trade agreements – allowing them to easily import and export. This increases alliances and decreases the risks of wars. Thirdly, with greater partnerships with other countries, the United States can reduce military spending and focus more on improving quality of life measures for her citizens (health care, infrastructure, worker benefits, etc.).

Now what about all the worries of immigration and jobs being taken by the “rest” of the world.

“…US offshoring may have been responsible for a 1.6 percent decline in manufacturing jobs over the period 1997 to 2007, but the impact on long-term productivity may actually increase employment (which may also be better paid). The idea is that firms save money by offshoring, which, by allowing them to sell more for less, increases both their own revenues and the revenues of those that purchase the goods they sell. As a result, they can hire more people, or their shareholders have more money to buy goods and services from other Americans.”

Yes, America has lost jobs overseas but the economy as a whole has benefited immensely from affordable goods and greater domestic purchasing power – the result being a net increase in job creation. So what about jobs at home being taken by immigrants? The United States attracts some of the best and brightest students from around the world. Our universities, with the help of foreign students, foster innovation that continues to make America a leader in patents and technology. Immigrants are vital to our growing economy, because as earlier explained, the number of people in a country is one of the biggest factors in economic health. With an aging population and a decreasing birth rate, the United States should be happy to take all the skilled labor she can get. What about the “illegal” immigrants? Shouldn’t we build a wall? It was found that immigrants from Mexico do not take jobs from Americans but rather help create new jobs (click here for clear example). By paying less for labor, businesses have more money for investments, purchases, and new job creation. Furthermore, between 2009-2014 there was net loss of Mexicans leaving the United States. This is due to an improving Mexican economy and better family reunification programs. It was found that increased border control actually increased the number of illegal immigrants in the country; due to the fact that it was harder for Mexicans to reenter their country.

All of this points to the need for more investment and economic teamwork throughout the world. We should not become a isolated country that is afraid of immigrants or the success of other countries. We need to remember that immigrants founded this country and that the rise of the rest is good for the west. If you liked this article please a related post, The World is Flat.

 

Herbert Hoover-Give the Guy a Break

Mellon pulled the whistle,
Hoover rang the bell,
Wall Street gave the signal,
And the country went to hell.

I went to the library last week and picked up a bunch of exciting books; one of the most riveting in my selection was Herbert Hoover in the White House: the Ordeal of the Presidency by Charles Rappleye. I didn’t know much about Herbert Hoover besides the Hoover Dam being named after him and Christina knew even less – asking whether he was the Hoover vacuum guy. I think the average citizen would be on par with my wife and maybe the rare few would remember he was a crappy president during the start of the Great Depression. To my surprise, Hoover was a very complex man who tried his best – with the tools he had – to fight a perfect storm of economic collapse.

This election year has a few similarities with the election of Hoover in 1928. Hoover was a political outsider who had never been elected to an office (that’s where the similarity ends). After eight years of the roaring twenties, the country was ready to sober up and elect a non-conventional candidate who had avoided political scandals in the past and could keep the economy humming along. Hoover gained his popularity through his effective work as a humanitarian in Europe during WWI and his domestic relief programs after natural disasters. He was so popular in 1920 that both parties brought his name up as a nominee for president. When he did get nominated on the Republican ticket in 1928, he barely campaigned and won by a landslide over his democratic opponent.

All was going well for Hoover in the first few months of his presidency until the greatest stock market crash in history, Black Tuesday, sent the country into an economic-downward spiral. The interesting thing about the Great Depression is that during the first year after the crash, a large majority of people didn’t think the economy was in that bad of shape. Hoover downplayed the hardships of the people because he wanted to reverse any pessimistic attitudes about the economy – which could cause even more panic. Added to this, Hoover lacked empathy for the downtrodden because he was a poor orphan who lived in complete poverty as a child; with this background he compared his upward mobility with the potential of all men.

As the country came to grips with its economic situation, Hoover began to enlist the help of private institutions like the Red Cross to provide aid. Hoover, like most presidents before him, believed the government should not dole out money for things like hunger or poverty; those services were historically always covered by private institutions. This mentality framed his strategy for lifting up the American citizen by limiting direct welfare subsistence and instead using government funds to help lift up the major pillars of the economy – businesses and banks. The Great Depression saw a record number of bank closures which strapped credit, froze assets, and dramatically slowed business growth. To reverse these developments, Hoover created government loans to get the banks back on their feet (similar, but much smaller, to the bailouts in 2008). This made sense economically but it was a PR nightmare for Hoover because it looked like he cared only for the rich.

Added to this image was the fact that Hoover hated the press and in turn he isolated himself from the public. He appeared cold, stern, unsympathetic, and harsh to the average American during a time when a charismatic leader was needed to reassure the suffering public. His policies were extremely conservative and his vice grip on the gold standard helped to prolong the Great Depression. Hoover was in the crosshairs of an old and new government – one in the past that had limited influence, due to the size of the population and economy, now needed to step in and fill the holes that private institutions could no longer fill. Hoover did his best with the tools that he had. He had the work ethic but could only get so far with a wooden hammer when he really needed a jack hammer. Yes, his style of isolated-cold leadership was not helpful in the crises. But I don’t believe any man at that time in history could have done much better with the economy. I see Hoover as a president who came into office either 4 years too early or 4 years too late. Hoover was too conservative and too detached of a leader but he was never a president who didn’t try or didn’t care about the greater good of the people or the country as a whole.

Flintoid

I live in Flint, MI-a place that many people would not like to call home. Flint is home to a large amount of violent crimes and it ranked among the top 5 most dangerous cities in America between 2007-2013. In the past couple of years, Flint has seen a drop in crime but the city still has a large amount of blight, infrastructure problems, and petty crimes. Is there anything good about Flint? I would argue that Flint is actually a pretty sweet place to live: there are a ton of walking trails, great restaurants, libraries, colleges, and fun people. Flint is in a revitalization stage and I think in another 10 years it will be a sought after destination for jobs and recreation. To better understand the current dismal state of Flint, I had to look back to its great past and how far it fell from grace. This history was provided in the book Rivethead by Ben Hamper. Hamper worked in the General Motors Truck and Bus Factory for approximately 10 years between the mid seventies and mid eighties. As the title of the book alludes too, he was a riveter on the assembly line, responsible for building suburbans. The book is an excellent look into the life of an assemblymen: lots of alcohol, rock and roll, parties, drugs, and monotonous work. Hamper eventually was sent to a plant in Pontiac, Michigan but his career as a GM man ended due to severe panic attacks and anxiety. I highly recommend reading this book because it allows a glimpse into the life of a very blue-collar man; usually the type of guy who is not inclined to write or express their emotions: Harper is funny, edgy, and most importantly down-to-earth.

In 1977, Harper was making, as a fairly new assemblyman, the equivalent of 50 dollars an hour in today’s money. This amount of money was to be had by all people working at the automotive factories and the middle class was thriving. Flint was the birth place of Buick and had multiple GM, Chevy, AC Spark Plug, Delphi, and Fisher-Body factories. The peak of the automotive industry in Flint began in the late 30’s and continued until the late 60’s. Beginning in the 1970’s the auto industries began slowly closing factories and moving jobs overseas. Today there is one GM factory left and compared to Flint’s population peak of over 200,000 in the 60’s its current population is less than half that amount. With the exodus of people and jobs, the remaining population of Flint was forced to take lower paying jobs and support an infrastructure that was designed to survive on twice the tax revenue. This led to three financial emergencies in the 21st century and the placement of an emergency manager by the governor of Michigan. Flint’s peril mirrors that of other Michigan auto-cities such as Saginaw, Pontiac, and obviously Detroit. Flint is on the long road to recovery but other cities should learn from its mistakes. To be successful is the long run, cities must have diverse economies that depend primarily on highly skilled and highly educated laborers. Flint is getting better but let’s not have anymore Flintoid cities in the future.