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 World is Flat

When I was a 9 year old kid my Mom bought me a Y2K clock that counted down the days, hours, minutes and seconds before the calendar read 1/1/00. In the months prior to the impending Y2K apocalypse, my Mom and Dad stocked up on bulk spices and bags of water in preparation for society’s collapse (oddly enough they didn’t stock any food for the spices to go on). The Y2K disaster was, as we all know, adverted, but how did we prevent all those computers from malfunctioning? I read the answer to that question in The World is Flat: A Brief History of the Twenty-First Century by Thomas Friedman who is a New York Times writer and author of several books on globalization. We were saved from Y2K because of a sequence of technological advances which promoted connectivity around the globe. Firstly, the advancement in the usage and monetary value of the internet in the 1990’s led to huge investments in fiber optic cables. This laying of cable spread all over the world and opened up lines of communication that were never before available. This new communication was tested with the Y2K conundrum because the US did not have enough engineers to fix all the computers because the cost and time investments would have been astronomical. Enter India. India, after 50 years of investing in technical education, had a untapped labor force ready to get their teeth on any technology work available. Since connectivity had increased so much in the 90’s, India was ready to take on all the Y2K work remotely. This was the first time many US companies worked with engineers in India and was the proverbial handshake of friendship for a healthy future of business relations. Shortly after the Y2K scare, the dot.com bubble burst and tech companies that survived the implosion now sought to cut cost as much as possible. Where could they go for reduced labor costs? You guessed right….India. The country of over 1 billion people began receiving contracts for work and the era of tech outsourcing was given running shoes.

Today, the world is flatter then ever with outsourcing occurring not only in India but in China, Malaysia, the Philippines, and a whole host of third-world countries. Before I read this book, I thought outsourcing was a bad thing…now I have a different opinion on the matter. Outsourcing is the natural result of a hyper-connected world in which companies are trying to reduce waste and optimize every step of their supply chain. The United States has lost many manufacturing jobs because of these optimizations but in the end it has meant a decrease cost for goods by consumers and a shift in career outlooks. Students are now pushed to get technical or college degrees because they can’t get a manufacturing job right out of high school. A more highly educated society will push invention, creativity, and innovation more than a society based on workers that perform menial tasks. Complex thoughts and ideas cannot be outsourced and a country that is made up of engineers instead of line operators will compete much better with other advanced nations. The flattening of the world has showed how the US has gotten lazy and fallen from its once great educational supremacy-best highlighted during the cold-war space race. We need to push the next generation to excel in math, science, engineering, and my personal favorite…history. Globalization is here to stay and the more interconnected we become the more we will have opportunities to triumphantly succeed or catastrophically be left behind. Let’s stop complaining about jobs getting outsourced and start educating ourselves so our skills can never be cheaply replicated.