I just can't sit by and watch as "so called" Economists jump all over President Trump's proposal to put tariffs on Steel and Aluminum imports. That is what this blog is about.
My first real exposure to just how out of touch most Economists are was when I was in graduate school taking a Macro-Economics class from a professor who at, one time, was chairman of The Council Of Economic Advisers under one of our Democratic Presidents. His logic was so seriously flawed that I lost all faith in Economists. The reason is that they all have fed at the same alter out of the same book that they treat just like a "Bible". To make my point, I think that I am going to have to start back at the beginning so bear with me.
The economic professors always advocate "free trade" as the panacea for any economic system and most student eat it up. The problem is that they leave out the fact that trade needs to be "fair: and "balanced". The problem with "balanced" trade is that it almost impossible to ever achieve. It is like playing on a teeter-tauter. It is a lot of fun as long as the kids on both ends are about the same size, but when you get a big fat kid on one end, the fun stops.
Here is a good example where we have two countries who both produce corn and eggs and trade with no one. As it turns out, one country is a lot better at producing corn and the other is a lot better at producing eggs. Along comes the Economist and proposes that the one who is best at producing corn produce enough for both and the one that is best at producing eggs, produce eggs for both. This way both will have more and cheaper corn as well as cheaper eggs. How could anyone be against that? Class dismissed.
After a short time, the country that produced the eggs noticed that they were importing a lot more corn than they were shipping eggs. The money that they were getting from egg sales was much less than the amount that they were spending for corn, As a result, the country producing eggs had to dig into their savings to make up the difference while the country that was producing corn had bank accounts that were over flowing.
The problem with the concept of "free trade" is that it only works if the trade is "balanced" and we know from above that it is next to impossible to maintain "balance" over time. It is further complicated by the fact that humans are smart enough to "game" the system to their advantage and that is exactly what always happens. In a big complex economic system, you can always find individuals who are both better off and worse off due to "trade". It never turns out equal. Think of the range of possibilities from "good" to "bad" and then think about that "perfect" spot that is "balanced" in the middle. Those who are hurt always complain louder too.
What Trump is trying to do is not the "prefect" balance of trade, because he knows that is impossible. What he is trying to do is to get "close" to that "balance" point because we are so far off from it now. Remember the saying that, "close only counts in Horse Shoes and love". It also counts in trade. What the Economists were trying to sell you was a model where trade had to be "perfect" and we all should know that that is not possible.
PS--The bottom line is that a country that has a negative balance of trade is either living beyond their means or they are being screwed by a country who is gaming them. It might look sweet for a short time, but in the end you end up broke. My grandfather told me that one of the worst things that you can do is to buy food on credit. That applies to a lot of things and the imbalance of trade is one of those.
PS--There are two principles that are necessary for a successful business. A competitive product and a qualified customer. The USA has the greatest number of qualified customers of any country in the world and as a result every country in the world wants to sell us more than they buy from us. China has a lot of economic and social problems and rather than pay welfare, they build plants for welfare candidates to produce products that they can sell here so that welfare does not cost them a penny. Why don't we make people on welfare produce a product that we can "dump" in China?
PS--Try this. In the example above, let's say that the country producing eggs decided to put a tariff on corn. It is clear that the tariff would increase the cost of corn from what it would have been, but the income from the tariff would "decrease" tax owed by exactly the same amount! Did you ever hear of the word "fungible"? Why don't Economics professors ever tell students the whole story?
PS--There are two principles that are necessary for a successful business. A competitive product and a qualified customer. The USA has the greatest number of qualified customers of any country in the world and as a result every country in the world wants to sell us more than they buy from us. China has a lot of economic and social problems and rather than pay welfare, they build plants for welfare candidates to produce products that they can sell here so that welfare does not cost them a penny. Why don't we make people on welfare produce a product that we can "dump" in China?
PS--Try this. In the example above, let's say that the country producing eggs decided to put a tariff on corn. It is clear that the tariff would increase the cost of corn from what it would have been, but the income from the tariff would "decrease" tax owed by exactly the same amount! Did you ever hear of the word "fungible"? Why don't Economics professors ever tell students the whole story?
