Protecting Jobs

Protecting jobs sounds like a good thing to do (if you don’t think very carefully about what it means). Free markets protect jobs that are performing desired tasks better than someone else can. President Trump’s protection of steel workers’ jobs by imposing tariffs on competing sources of steel (mainly Canada) is protecting a relatively inefficient industry and thus “protecting” a lower standard of living for our country at large. “Protectionism” protects us from innovation and exciting technical changes that we eagerly embrace when offered in the market.

This week’s Economist magazine has an interesting article on the latest economic disruption (known to economists as “creative destruction”).  “Today the latest bonanza is in full swing, but instead of steel and sand it involves scripts, sounds, screens and celebrities.” https://www.economist.com/leaders/2019/11/14/who-will-win-the-media-wars

Movies (cinema or film for the more sophisticated) were only available in movie theaters when I was a kid more than half a century ago and yes they were already talkies (don’t be a smart ass). Then there was TV and we could watch movies there if we could stay up late enough. Cable TV packages greatly broadened the choice of channels.  Then video players and cassettes meant that we could choose what movies we wanted to watch and when.  We used to get CDs from Netflix in the mail.  I think I still have an unreturned diskette somewhere.  Maybe I will frame it so that my grandchildren can marvel at such historic relics.  In 1985 Blockbuster Video opened and we could skip the mail and browse thousands of films for rent.  They filed for bankruptcy in 2010 and the last two stores (in Alaska) closed last year.

“This week Disney launched a streaming service which offers “Star Wars” and other hits from its vast catalogue for $6.99 a month, less than the cost of a DVD. As the business model pioneered by Netflix is copied by dozens of rivals, over 700m subscribers are now streaming video across the planet. Roughly as much cash—over $100bn this year—is being invested in content as it is in America’s oil industry…. This binge is the culmination of 20 years of creative destruction (see Briefing). New technologies and ideas have shaken up music, gaming and now television.” The Economist

We can look at these amazing technical and business innovations in several ways:  1. A lot of jobs were destroyed as newer technologies replaced older ones and the jobs associated with them.  2. Fortunately no one succeeded in “protecting” them and we, the consumers–the targets of greedy profit seeking capitalists, enjoyed the greater benefit of more entertainment, more conveniently delivered and costing less.  3. New jobs were created to provide these new services.

“Disruption has created an economic windfall. Consider consumers, first. They have more to choose from at lower prices and can pick from a variety of streaming services that cost less than $15 each compared with $80 or more for a cable bundle. Last year 496 new shows were made, double the number in 2010. Quality has also risen, judged by the crop of Oscar and Emmy nominations for streamed shows and by the rising diversity of storytelling. Workers have done reasonably. The number of entertainment, media, arts and sports jobs in America has risen by 8% since 2008 and wages are up by a fifth. Investors, meanwhile, no longer enjoy abnormally fat profits, but those who backed the right firms have done well. A dollar invested in Viacom shares a decade ago is worth 95 cents today. For Netflix the figure is $37.” The Economist

Such dramatic disruptions can be painful for some–those whose jobs were lost or whose investments lost value. We need to adopt policies that minimize that pain. But thank God we didn’t try to protect those jobs and share values and the older ways they reflected.

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Black Marks in our History

On October 16, I attended a meeting of the Committee for the Republic at which “Defender of Liberty Awards” where presented to Fred Korematsu, Gordon Hirabayahsi, Minoru Yasui, and Mitsuye Endo for their bravery and perseverance in defending freedom in America. These Americans of Japanese ancestry had undertaken to legally challenge their internment in concentration camps during World War II ordered by Franklin D Roosevelt four months after the Japanese attack on Pearl Harbor. They generally lost their legal challenges, which went all the way to the Supreme Court.  If you are not familiar with this shocking atrocity (or even if you are), I urge you to watch these short videos and weep at the depths to which racism has driven some of us in the past: https://www.youtube.com/watch?v=0z8EHjVoN-o  https://www.youtube.com/watch?v=4MXF2302fr8

These atrocities were not the first, nor unfortunately the last, abandonment of our principles in the name of security in times of heightened fear (think of the so called “Patriot Act” following 9/11 and President Trump’s failed efforts to ban travelers from six Muslim countries more recently). While these reactions are manifestations of racism and cowardice, it is to our credit that we (generally) ultimately acknowledge our periodic abandonments of our love of freedom and justice under the law for barbaric acts that we think will make us safer. https://wcoats.blog/2016/10/20/terrorism-security-vs-privacy/ 

The Defender of Liberty Awards to Fred Korematsu, Gordon Hirabayahsi, Minoru Yasui, and Mitsuye Endo were accepted on their behalf by their surviving children who shared with us their experiences. Several of them learned what their parents had done in school as they never mentioned or discussed the shame and hardship of their three years of internment in despicable facilities.  Growing up in California I had one Japanese classmate in grammar school. When I learned that FDR had put him and his family in a concentration camp for several years, I overcame my shock and shame to ask him about it, but he would not discuss it. It reminds me a bit of the typical reaction of rape victims.

While a cowardly public silently acquiesced to the rounding up and the imprisonment of their Japanese American neighbors, an underlying motive was the desire of some farmers to eliminate the competition of Japanese American farmers. From Wikipedia: “The deportation and incarceration were popular among many white farmers who resented the Japanese American farmers. ‘White American farmers admitted that their self-interest required removal of the Japanese.’ These individuals saw internment as a convenient means of uprooting their Japanese-American competitors. Austin E. Anson, managing secretary of the Salinas Vegetable Grower-Shipper Association, told the Saturday Evening Post in 1942:

‘We’re charged with wanting to get rid of the Japs for selfish reasons. We do. It’s a question of whether the White man lives on the Pacific Coast or the brown men. They came into this valley to work, and they stayed to take over… If all the Japs were removed tomorrow, we’d never miss them in two weeks because the White farmers can take over and produce everything the Jap grows. And we do not want them back when the war ends, either.’”   https://en.wikipedia.org/wiki/Internment_of_Japanese_Americans

Quoting again from Wikipedia: “In 1980, under mounting pressure from the Japanese American Citizens League and redress organizations, President Jimmy Carter opened an investigation to determine whether the decision to put Japanese Americans into concentration camps had been justified by the government. He appointed the Commission on Wartime Relocation and Internment of Civilians (CWRIC) to investigate the camps. The Commission’s report, titled Personal Justice Denied, found little evidence of Japanese disloyalty at the time and concluded that the incarceration had been the product of racism. It recommended that the government pay reparations to the internees. In 1988, President Ronald Reagan signed into law the Civil Liberties Act of 1988 which apologized for the internment on behalf of the U.S. government and authorized a payment of $20,000 (equivalent to $42,000 in 2018) to each camp survivor. The legislation admitted that government actions were based on “race prejudice, war hysteria, and a failure of political leadership.” The U.S. government eventually disbursed more than $1.6 billion (equivalent to $3,390,000,000 in 2018) in reparations to 82,219 Japanese Americans who had been interned and their heirs.”

At the Committee for the Republic ceremony the amazingly talented Bruce Fein recited from memory the following:

Athens had Socrates.

King Henry VIII had Sir Thomas More.

And we have the Mount Rushmore of moral courage to honor this evening:  Fred Korematsu, Gordon Hirabayahsi, Minoru Yasui, And Mitsuye Endo.  They are largely unknown American heroes and heroines of World War II.  It can be said without exaggeration, seldom in the annals of liberty have so many owed so much to so few.

What is more American than fidelity to Thomas Jefferson’s injunction that resistance to tyranny is obedience to god?  Our defender of liberty award recipients resisted the racist tyranny of president Franklin Roosevelt’s executive order 9066 issued unilaterally without congress on February 19, 1942, a date that should live in infamy.  Provoked by racism in the west coast battleground states, EO 9066 summarily dispatched 120,000 innocent Japanese Americans because of their ancestry alone into internment camps.  Remember their names.  For they are first cousins of Bergen-Belsen, Buchenwald, Dachau, and Sachsenhausen, Nazi concentration camps, not extermination camps like Auschwitz.  Roosevelt’s camps were ten:  Manzanar (CA), Poston (AZ), Gila River (AZ), Topaz (UT), Granada (CO), Heart Mountain (WY), Minidoka (ID), Tule Lake (CA), Jerome, (AR), and Rohwer (AR).

Risking ostracism or worse, our four award winners challenged the constitutionality of president Roosevelt’s racism.  The president and his mandarin class colleagues echoed the Orwellian bugle of general John Dewitt 80 days after pearl harbor: “the very fact that no sabotage has taken place to date is a disturbing and confirming indication that such action will be taken.”  I am reminded of Mark Anthony’s mocking funeral oration in Julius Caesar:  but president Roosevelt was an honorable man, so were his assistants all honorable men.

Korematsu, Hirabayashi, Yasui, and Endo took their cases to the United States Supreme Court with mixed success.  The high court sustained FDR’s executive order based on knowing lies about military necessity made by the Department of Justice.  Dissenting justice Robert Jackson presciently warned that the court’s decision in Korematsu v. United states would lie around like a loaded weapon ready for use by a future Caligula, Claudius, or Nero in the White House who claimed an urgent need.

But the four did not surrender.  They continued to fight over long decades for vindication and defense of the constitution both for the living and those yet to be born.  In triumph, our defender of liberty award honorees brandished the lofty principles of the greatest generation—the constitution’s architects—against its traitors. Korematsu and Hirayabahsi had their convictions overturned in coram nobis proceedings.  The civil liberties act of 1988 denounced the racism and unconstitutionality of EO 9066.  And the United States Supreme Court overruled Korematsu in Trump v. Hawaii.

Defending liberty is always unfinished work.  Tyranny knows only offense—like a football team with Tom Brady playing all positions.  We cannot escape our moral responsibility as American citizens to equal or better the instruction of American patriots Korematsu, Hirabayashi, Yausi, and Endo.  It is for us, the living, to ensure that their courage was not in vain.  It is unthinkable that we fail to try.  Gordon Hirabayashi was right at the young age of 24: “it is our obligation to show forth our light in times of darkness, nay, our privilege.”

When you awaken each morning, be haunted by Edward Gibbons’ epitaph on Athens:

“in the end, more than freedom, they wanted security.  They wanted a comfortable life, and they lost it all—security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility then Athens ceased to be free and was never free again.”

It is altogether fitting that my closing lines will be delivered at this time and place [the Metropolitan Club] within shouting distance of the white house to thunder like a hammer on an anvil.  In  the eyes of the United States constitution, there is only one race, it is American; there is only one religion, it is American; there is only one ancestry, it is American; there is only one gender, it is American; there is only one sexual orientation, it is American.

E pluribus unum Out of many, one.

______________________________

Walking out of the Constitutional Convention in Philadelphia, Benjamin Franklin was asked what kind of government we got: “A Republic,” he replied, “if you can keep it.”  I am worried.

 

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What are corporations for?

Peoples and cultures are largely defined by the rules and institutions they have created to manage their relationships and interactions with their fellow man. Speaking in the broadest terms, I tend to think of the political struggles of our time as between those who trust individuals to make the decisions that best serve their own interests and those who do not thus preferring to give such power to higher authorities.  Safety nets consisting of a minimum guaranteed income to be used as its recipient sees fit vs government designated expenditures targeted at what the government thinks is best represent the two extremes of these attitudes.  All societies exist somewhere between these polar cases.  Those of us who trust individuals to make decisions for themselves rather than for others, look to government to provide a secure legal framework for individual liberty (the establishment and protection of property and human rights) and to provide frameworks for developing and communicating the information that can help inform individual decisions.

Between the state (municipal, state, federal) and individual families (the fundamental unit of existence), every society has developed intermediate groups/institution to facilitate cooperation and coexistence with other families. We come together in groups of common interest (clubs, churches, cultural centers, etc.) for fun, learning, cooperative undertakings. The rules and quality of these institutions profoundly influence the nature and quality of our societies and thus of our individual lives.

Importantly, in the area of production, the advent and expansion of specialization and trade has enormously increased what individuals could produce and thus our standards of living. This led to new structures of cooperation in which individuals worked together to enhance their productivity (cooperatives, partnerships, companies, corporations).  As collaborative production became more and more complex (and productive) and benefited more and more from the use of equipment (machines, factories, i.e. capital), new forms of organizations emerged including a distinction between the owners of capital and the suppliers of labor. These were codified in laws of the state to document the rights of each. Ronald Coase’s foundational work on this subject is well worth rereading: “The Nature of the Firm”

The owners of capital were responsible for its uses and workers were responsible for their labor.  The establishment of a limited liability company–a corporation–fundamentally altered the relationship between owners of capital and renters of labor (workers). It was a new institution that weakened the responsibility and role of owners in the operation of firms but greatly broadened access to ownership. The owners of companies often no longer managed them.  Ownership shares were held by people with little direct involvement in the firms they owned (e.g. pension funds). They were sometimes traded from one owner to another frequently.  This weakening of owner oversight and control increased the quasi-independent control of businesses by corporate managers, creating the so called “managerial class.”  The challenge became how to incentivize corporate managers to act in the interest of the owners for whom they worked.  “When corporations changed their social role and upended our politics”

Tying the interests of managers to those of a company’s owners is a work in progress. Incentives were created, such as stock options, to reward managers for serving the interests of the owners as reflected in share prices. When poorly structured they incentivized short term gains at the expense of the long-term profit and value of firms.  Lessons were learned and are still being learned. But key to the harnessing of the managerial class was acceptance that the goal of a firm (of any economic activity) is to maximize the profits of its owners.  Attention focused on how best to do that in the long run.

A profitable firm is one that has created and produces products valued by customers at the least cost. Costs are minimized by using capital and labor efficiently. Labor costs are minimized by providing a work environment that attracts and keeps workers with the relevant skills at the least cost. This often involves firms providing training in the skills needed, etc.  Approaches vary between countries and are reflected in different business cultures and institutions.

In Japan, for example, until recently firms offered their employees lifetime employment with wages and promotions based on seniority. Choosing a university and course of study was simultaneously the choice of a career in a particular firm.  While providing great security for Japan’s labor force, it did not encourage innovation and entrepreneurship and made corporate adaption to changes in market preferences and conditions difficult.

Germany has taken a different approach in which workers are more formally involved in how labor is reduced during recessions or more permanent declining product demand. As reported by the Wall Street Journal, “rather than resorting to mass layoffs or plant closures, they will often reach for instruments created by government and unions that allow executives, often with considerable state support, to weather economic storms, or reduce their workforces through voluntary methods….  Sparing staff in a short downturn can allow companies to ramp up activity quickly when demand rebounds without having to hire and train new workers. But it can also slow necessary adaptations when companies are faced with structural changes, resulting in some businesses sticking to outdated business models for too long.”  “Germany offers a model to corporate America on labor relations”

U.S. labor practices are very different. Jobs are less secure, and promotion is based on performance. More of the burden of corporate adjustments to new products and/or new conditions fall on workers who thus rely more on governmental programs to facilitate the transition to new skills and/or firms. The inadequacy of such programs may have contributed to anti-immigrant and anti-trade sentiments fanned by President Trump.  Trade is often unfairly blamed for the loss of manufacturing jobs (the primary cause is increased productivity allowing fewer workers to produce the same output), though a strong majority of American’s still think that trade is a good thing. “Trends in international public opinion”

Until recently discussions of corporate governance focused on how best to maximize share holders’ value. As The Economist magazine recently put it: “In a free market, pursuing shareholder value would in and of itself deliver the best goods and services to the public, optimise employment and create the most wealth—wealth which could then be put to all sorts of good uses.” “Big business is beginning to accept broader social responsibilities”  This was recently challenged by the prestigious Business Roundtable, which stated in August that hence forth the objective of American corporations should be “to create value for all our stakeholders.” “Lobbying group powerful CEOs is rethinking how it defines corporations purpose”

“On August 19th the great and good of CEO-land announced a change of heart about what public companies are for. They now believe that firms should indeed serve stakeholders as well as shareholders. They should offer good value to customers; support their workers with training; be inclusive in matters of gender and race; deal fairly and ethically with all their suppliers; support the communities in which they work; and protect the environment.”

Many of these goals are fully compatible with and contribute to maximizing shareholder value.  But obviously, there are some potential business behaviors beyond producing desirable products cheaply that can impact society as a whole, such as one form of pollution or another. These externalities are rightly dealt with through taxes and subsidies or legal restrictions. But should companies keep some of the shareholders profits to support or promote other social objectives? Directing the resources of a firm to all stakeholders, the community and general public in essence, sounds like a very decent thing to do.  For example, should a company donate to the political campaign of a candidate expected to support policies favorable to the company or to the local YMCA?

“The most quoted assertion of the primacy of shareholder value comes from Milton Friedman, an economist. In 1962 he wrote that ‘there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.’” (The Economist 8/22/2019)

The prevailing model has been for companies to maximize their profits from the production of the products they were established to provide and to leave to their owners the choices of how to use those profits for the betterment of the community. Diverting shareholders’ profits to other worthy causes chosen by firm managers would be a bad idea for several reasons:

  • A firm that has succeeded in profitably suppling things the public likes might not have the expertise to make the best choices about using the company’s resources to serve the community in other ways. Put that way it should be obvious that the talents needed for the one are not very likely to be the same ones needed for the other.
  • Some corporate donations will almost surely go to support and protect business interests of the donating company thus invariably reducing economic competition. This incentive has very likely contributed to the increased concentration of corporate empires.
  • In an excellent oped Phil Gramm and Mike Solon note that: “Seventy-two percent of the value of all domestically held stocks is owned by pension plans, 401(k)s and individual retirement accounts, or held by life insurance companies to fund annuities and death benefits. This wealth accumulated over a lifetime and benefits all Americans…. Eliminating corporations’ duty to serve investors exclusively and forcing them to serve political interests would represent the greatest government taking in American history.” “Warren’s assault on retiree wealth”

The following articles explore these, and other dangers posed by the pollyannaish appeal of serving the interests of stakeholders at the expense of shareholders: “A reexamination of ownership in the age of the public corporation”,  “Stakeholder capitalism-business roundtable”  In claiming to set out how it should be done, none other than Larry Summers knifes the idea to death: “If business roundtable CEOs are serious about reform here’s what they should do”

 

 

 

 

 

 

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Where does the desire to explore come from?

Long ago I had the pleasure of introducing a young friend to types of food he hadn’t tasted before.  He was quite comfortable with his American style hot dog and hamburger meals and wasn’t certain he wanted to try new and strange dishes.  People differ in this regard.  Some are eager to try new cuisine, see new places, and encounter new people and cultures. Some are not.  And some are even rather intimidated and reluctant to leave their familiar comfort zone. There is a lot to be said for the predictability of the familiar, perhaps similar to well-worn shoes.

After some gentle persuasion, my friend agreed to sample a few dishes.  I reassured him that nothing would be forced on him and that he might even discover some exciting new tastes.  If he found that he didn’t like a dish he would not have to finish it.  But he would never know what he might be missing if he didn’t explore a bit.  Once he started, however, it was hard to stop him.  He was pleasantly surprised at how interesting and tasty some dishes were.  He was particularly reluctant to try foie gras knowing it was goose liver, though he fell in love with it by the second bite.

As I noted earlier, people differ in their tastes for adventure.  We might just leave it at that but for two reasons.  The first is that being rich is more interesting and exciting than being poor.  I am speaking here of experience rather than money.  Seeing and engaging new and different places, meeting new and different people of different cultures, listening to new and different music can make life richer.  The core of a liberal arts education (as opposed to acquiring professional skills) is the introduction to and broadening of our understanding and appreciation of ours and other cultures. It makes our lives richer.

The second is that openness to change is a necessary aspect of economic progress.  Technical progress disrupts the established order but increases our productivity and standards of living.  Global trade not only significantly increases our material standard of living but confronts us with other people and cultures as well.  Both–technical progress and global trade often impose changes on us (such as the job skills demanded in the market) that we might otherwise not choose or want.  If people can choose to live where their opportunities are greatest and if firms are able to employ people with the skills that best fit the firms needs, economies will be more efficient and will raise the standard of living for everyone.  By allowing the disruption of innovation and trade we will have the opportunity to, or be forced to, confront and deal with strangers more often.

This can have a negative side for those who do not easily embrace adventure—those who prefer the familiar (hot dogs and hamburgers). If new neighbors come from different backgrounds and cultures, adventure lovers can enjoy the excitement of learning more about other places and people.  But those uncomfortable with strangers can be – well – uncomfortable.  Economic advances can also have negative impacts on those whose skills are no longer needed and we would be wise to develop and support government measures to soften and facilitate the needed adjustments.

A predisposition to seek and embrace adventures or to shun them is given to us by nature. However, civilization and its advance builds on nurturing more social skills and openness. Failure to teach/convince our fellow citizens of the rewards of adventure (or merely accepting and adjusting to change) can lead to disastrous results.  In extreme cases unease can turn to fear/hate as in the recent white nationalist terrorist attack in El Paso by Patrick Crusius.  As-his-environment-changed-suspect-in-el-paso-shooting-learned-to-hate.  The nature of public debate on race relations, religious freedom, globalization, etc., and the words of role models can have a profound impact on how those confronting change formulate their views on these subjects.

The world is a better, richer place when all of its people respect one another and live peaceably together. We and our education systems (school, churches, clubs, jobs) should do our best to encourage those reluctant to welcome strangers of the positive experiences it can open to them.  By learning to understand different ways of thinking and doing, we not only enrich our lives but can strengthen our own ways of doing things (our own cultures). Such interactions can show us what we like and value about our own ways and what we might adjust in light of the interesting practices of others. This is what the American melting pot is all about. It has produced a vibrant, dynamic and economically flourishing country. However, it is more friendly to the adventuresome types than to those resistant to change. We would do ourselves and our country a favor to kindly encourage those “left behind” to open up more to the wonders of our changing world.  With regard to a difference subject of misinformation Anne Applebaum explores multiple approaches to this task: Italians-decided-to-fight-a-conspiracy-theory-heres-what-happened-next?

 

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Health Care in America

Late night’s Democratic Presidential debates hit us in the face with how complicated the healthcare debate is. Trying to address it in one-minute sound bites is unpromising so I don’t blame the candidates for failing to be clear. We spend twice as much on healthcare as Canada or our European friends with similar or worse results. We must reduce spending without compromising outcomes while ensuring that everyone receives the care they need.

Our approach to covering the cost of care is to provide insurance to pay for some or most of privately provided care. Insurance spreads the financing of medical costs, whatever they are, among a defined group. Those lucky enough to stay healthy help cover the costs of those not so lucky. Defining the “group” whose costs are thus shared is important. In the U.S. typically the employees of large companies define the group (the risk pool). In this way, there should be a random distribution of lucky and unlucky health-wise within each group. The government subsidies employer provided health insurance by excluding it from the employees’ taxable wages. This creates problems when a worker is fired or wishes to change jobs.  If those with preexisting medical issues join an insurance pool, its overall medical expenses will predictably increase as will its insurance premiums needed to cover the higher cost. If the risk pool is the entire population, as it would be with Medicare for All, it would be the tax payer who pays the cost. These features flag only a few of the challenging issues that healthcare policy needs to address.

The elephant in the room is the high cost of care.  How insurance is structured profoundly influences the bloated cost of care.  Requiring patients to pay at least a bit of the cost (copays) introduces an element of cost consciousness on the part of patients and their doctors that can influence the care chosen.  But there are also other factors, such as restrictions on who can provide what care (MDs, nurses, teleconferencing, etc.) that influence the cost of care.

I have explored some of these issue in the past in more detail and am providing several links here for those of you who are interested. The first blog was written ten years ago: https://wcoats.blog/2009/07/29/econ-lesson-the-rationing-of-medical-care/.  The second link is to a blog written two years ago:  https://wcoats.blog/2017/07/31/finally-health-care-reform/

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Is Trump killing his own re-election?

The Fed (Federal Open Market Committee) is meeting this week to review and set or reset monetary policy.  I don’t know whether it should increase its policy rate, leave it the same or reduce it. https://www.adamsmith.org/blog/returning-to-currencies-with-hard-anchors  The market expects a one quarter percent reduction in the rate.  President Trump is quoted yesterday as saying it should be reduced more than that. WSJ: the confusing Fed

There are several problems with Trump’s statement. One is that if the Fed reduces the rate, its claim to be reacting to the data and its mandate is undercut by the President’s interference. Is the Fed doing what seems best or responding to political pressure?

But if the U.S. economy is heading South, as it may be, it is probably because of the damaging effects on the U.S. and world economies of Trump’s trade wars with almost everyone but especially with China. Trump’s tariffs have imposed significant costs on the American consumers who pay them with higher prices for targeted imports. More importantly, his trade wars have injected significant uncertainty into the continued viability of the global supply chains that have helped lower costs here and abroad and increased world output.  Their retrenchment is lowering world income and pushing many economies, including potentially the U.S. economy into recession. A U.S. recession a year from now will seriously damage Trump’s chances of reelection.

Trump’s wars on trade seem to be motivated by his mistaken belief that the U.S. trade deficit with China, Germany and others reflects unfair trade practices on their part. His misuse of a national security concern to impose protectionist tariffs and restrictions on foreign competitors (protecting inefficient U.S. industries we would be better off allowing competition to shrink) seems motivated by vote buying. https://wcoats.blog/2018/09/28/trade-protection-and-corruption/  The result is a reduction in our income and potentially his electoral defeat. Our trade deficits largely reflect the use of the U.S. dollar in international reserves (which require a deficit to supply them) and our large and growing fiscal deficits (much of which is being financed by China and other trade surplus countries). Trump’s abandonment of government spending restraint is the cause of those twin deficits https://nationalinterest.org/feature/who-pays-uncle-sams-deficits-26417

It’s not that we don’t have real issues with some of China’s trade related practices, but Trump’s approach to addressing them is not productive. Rather than working with the EU and Japan and others who share our concerns to confront China together, he is attacking all of them with threats of more tariffs. Rather than strengthening the WTO, he is weakening it. Rather than using the Trans Pacific Partnership (a significant advance in modern trade agreements) to encourage China to adopt its rules, Trump withdrew the U.S. from the agreement– a huge mistake. The real question is how much more damage will Trump inflict on the world economy before he surrenders and declares victory or is voted out of office. https://wcoats.blog/2019/06/07/the-sources-of-prosperity/

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