I recently started following Donald Boudreaux at Cafe Hayek and he has been writing some incredible stuff.
Here is a letter Boudreaux sent to Peter Navarro, president Trump’s alleged “trade guru”.
15 March 2018
Dr. Peter Navarro
White House
1600 Pennsylvania Ave., NW
Washington, DC 20500
Dr. Navarro:
Interviewed this morning on CNBC you said that according to “some estimates” – estimates that you obviously take seriously – for every $1 billion in U.S. trade deficits, America loses 6,000 jobs. Let’s do the math, and let’s increase the plausibility of your “estimate” by looking only at the years since China joined the WTO – that is, the years from 2001 forward.
In each of these 17 years (2001-2017) the U.S. ran trade deficits in the hundreds of billions of dollars. For this entire 17-year span, the U.S. trade deficit was $9.259 trillion. According to the “estimate” that you wish us to take seriously, therefore, the number of jobs that America “lost” as a result of these trade deficits is 55,554,000 – a number of jobs more than one-third of today’s entire U.S. labor force, and nearly nine times larger than is the number of Americans who are today unemployed!
Your “estimate” doesn’t pass the smell test; indeed, it’s beyond laughable. Can you tell us then, given your proneness not only to fall for such absurd “estimates” but to perpetuate them as if they’re a sound basis on which to formulate policy, what reason have we Americans to take you seriously? Why should we pay any heed to your economically and arithmetically illiterate bloviations?
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Boudreaux’s email comment: “Entrusting trade policy to Peter Navarro makes less sense than entrusting your life savings to Bernie Madoff.“
How can one not like that?
Kindergarten Arithmetic 101
In Kindergarten Arithmetic 101, a Mish reader offers a real-world example of what happens when trade collapses.
If Trump extends his wall to cover the entire border, instead of just the one shared with Mexico, and then bans or punitively tariffs every single good that uses steel as an input, recursively, as well; he just may succeed in driving up the domestic price of final goods, to the point where both nominal labor compensation and nominal raw materials prices can be increased at the same time.
In doing so, he will ensure that not a single American made product of any kind, will be internationally competitive over time. This is exactly what the Latin American import substituting “structuralists” did, back in the 50s and 60s.
Mathematical Explanation of Deficits
Professor Steve Hanke provides a more rigorous example of trade math: Trump’s Tariffs Show He’s “Clueless About Trade”.
Root Cause
Once again, the roots of this problem date back to August 15, 1971.
That is when Nixon closed the gold window, ending foreign redemption of dollars for gold.
For further discussion, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
Self-Inflicted Wounds
By the way, those tax cuts, not balanced with spending cuts, will increase the trade deficit.
It seems Navarro and Trump need more than one math lesson.
Mike “Mish” Shedlock
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Forgot one more thing, the USA has the most obese population on earth.
There is a new set of articles in JAMA that outlines some of the drivers of high healthcare costs in the US: Drug prices, imaging prices, higher high volume procedure prices and administrative prices. Paradoxically physician salaries were not proportionaltely more in the cost curve. Mainly because we average 3.3 physicians/110k pop. vs 4.3.
And the USA has a lower life expectancy. And Cuba has a larger share of people of African heritage in their population.
Don’t worry with all the crap they put in our food thats approved the govt as a result of crony capitalism, e.g. roundup etc we will be dying off prematurely anyway. Its their way of getting out of the social security train wreck they created by stealing the money to fund vote buying social programs. I was no fan of Gore but I remember him saying he wanted to put the social security money in a “lock box” during his debates with Bush. Many of the chemical products used in our food chain are banned in most other countries. As far as euthanasia is concerned it will be allowed at some point, again to save money not out of kindness. I do believe that one should be able to specify when they are of sane mind to determine when they can be euthanized instead of living as a human vegetable.
I seems fairly obvious that Navarro means a $1 billion annual trade deficit results in a loss of 6000 jobs for that year; thus the $500 to 600 billion deficit the US has been running since 2000 results in about 3 to 3.6 million lost jobs. Boudreaux and his calculation are the ones that do not pass the smell test. Mish and most economists like to claim the big benefits of trade, such as lowering the cost of certain goods and providing a way for developing countries generate income to develop their economies. What they do not seem to consider is the negative effects of the very large persistent trade imbalances. Ricardos claimed benefits of comparative advantage says that if you accept in imports that cause your countries production and employment to drop in one area you will get offsetting benefits when the other country spends their export earnings buying some other products that you are better at producing. This can be valid at times, but contains the unstated assumption that your counterparty actually spends the money (i.e. spends their export earnings on other imports). When this does not happen (i.e. persistent trade imbalances) the promised benefits are not fully realized. Boudreaux calculates a $9+ trillion US trade deficit since 2000. What happened to all that money? It has come back to the US primarily via debt (e.g. foreign purchase of bonds) or buy up of US assets by foreign entities (e.g. stocks, companies, farmland, real estate). I believe the US should continue a commitment to reasonably free trade, but in the context of relatively balanced trade (on average over time).
The USA spends 25 times per capita on healthcare versus Cuba.
Boudreaux employed a clever, while completely misleading trick with numbers. He took 17 years of CUMULATIVE data and “annualized” it into a number of jobs, which he then claimed was an impossible number. Yep, sounds like a PhD economist to me. What a bunch of B.S. This is what you consider brilliant stuff, Mish? I mean, if you want to argue trade issues, fine, but don’t LIE WITH NUMBERS. It makes Hayek look bad.
The answer is to introduce euthanasia for the dying and stop wasting so much money keeping dying people alive. Also build more medical schools so doctors must actually compete with each other in fees and services. We need more doctors.
Most of the jobs that the government claims are created(or lost) every month via the Labor Department are really nothing more than guesses. The government doesn’t actually count new job creation, they make guesses.
You are so right. Great post.
The way to fix healthcare is to introduce genuine competition and stop wasting hundreds of billions of dollars prolonging people’s lives for a year. Start there. Single payer does neither! I have made many proposals but am open to others.
con’td The Canadian system isn’t perfect but they voted the politician responsible for universal healthcare in CA as the most popular politican in Canadain history. I always ask Canadians how they feel about their healthcare system and the majority are satisified, like around 90%. I know physician salaries are less than the US but overall it works. In the US the system is run by special interest like everything else over here. Take a look around we are over hospitalized, drugged etc. No one has the balls to do whats right just keep taking the bribe money from the healthcare industry until it eventually hits the fan
Re universal healthcare. In Canada education isn’t free I don’t know about the rest.
link to s3-us-west-2.amazonaws.com
(Kudlow reacts)
Try controlling doctor and nurse salaries coupled with “free” education. What do you think would happen?
Other nations make it “work” because there are caps on doctor salaries, there is “free” education, there are caps or set prices on services. In the US we have none of that. Nor do we allow drug imports. If we went to single payer, costs would skyrocket. There are no price controls or even any incentives to control price anywhere.
BTW we have the highest per capita health care expenditures in the world and the worst health, dead last among the industrialized nations, 38th. Warren Buffet stated we spend 18% of our GDP on healthcare vs around 10% world average in advanced industrialized countries. That is a huge competitive disadvantage no matter how a big a tax cut companies get.
Looks like you are so ignorant that you don’t realize that health care is universal (there is no such thing as “free” health care – only the moron status quoists take that line of argument) in all the Western democratic developed countries as well. So you take your BS talking points and shove it where the sun doesn’t shine.
I don’t think so, Shamrock. Navarro on FOX: “Some analysts calculate that for every billion dollars in trade deficit we have, that’s 6,000 jobs we lose – so a $150 billion trade deficit with Europe means we’re sending over a million jobs.” But think about it. Jobs abroad, maybe not in Europe but certainly in places like China and Mexico, cost far less than they do in the United States. You can buy an awful lot of labor with US dollars. Just since 2012 China has added 65 million new jobs, so over the long haul of US trade deficits the 55 million number Boudreaux uses to mock Navarro is hardly unimaginable globally, even if it is here. That said, Jeffrey Snider of Alhambra routinely writes of a 16+ million below trend labor utilization gap in the US.
Reaganism has been the norm beyond his term until even today. Even Democratic administrations have pushed his agenda further – like NAFTA and other trade deals, deregulation, non-enforcement of antitrust etc. It destroyed the American working class and one of the coping mechanisms for those people was to get into debt. It worked great for the Reaganites too, as it continued the illusion well beyond his tenure.
Your choices going forward will be either Corbyn/Sanders style left-wing economic populism, or Trump/LePen style fake right-wing economic populism, mixed with nationalism, racism and bigotry, while still continuing the status quo for the well-heeled. I am quite sure you and your ilk will opt for the latter.
Given that the #1 reason for bankruptcy in the US (and thus presumably of unmanageable debt) is medical bills your statement would translate to something like “all these people had cosmetic plastic surgery”? I mean it can’t be for things like heart attacks . . . or cancer right?
link to twitter.com
Maybe Navarro means for every $1B in annual trade deficits, not cumulative, which makes a lot more sense. In that case divide the Professors 55 million jobs number by 17 or 18 to get a much more believable 3 million jobs lost.
That is the neoliberal Reagan-Thatcher “solution” – giving credit cards to people whose jobs were lost. That has run out of steam now. Neoliberalism is collapsing all over the world.
20 countries with trade surplusses
link to statista.com
The EU, Japan, and China have trade surplusses. Germany has a huge trade surplus. So what other countries are you talking about? How big and how meaningful are they?
Well, it is very likely that the third of today’s labor force that is so poorly paid is the one that was impacted by the job losses. And everyone knows that unemployment numbers are rigged – if you are on unemployment benefits this month, you are counted as unemployed; but if your benefits run out next month, you are no longer counted under any column. You may be alive still but the stats treat you as if you are dead.
Mish, on many topics you are a perceptive and insightful commentator. But the topic of trade seems to cause you to blow a fuse. You keep recycling the same dubious points, and never address the obvious questions — Since other governments have fiat, not-backed-by-gold currencies, and manage to have trade surpluses, why did Nixon going off the gold standard cause the problem? And if other countries run budget deficits and trade surpluses, why is the US trade deficit caused by a budget deficit? It seems that there are important factors left out of your analysis, such as the fact that this world does not have Free Trade, only Managed Trade. Is it possible that the usual suspects managing the US side of Managed Trade deals have the same level of competence demonstrated by, say, the FBI?