Friday, March 2, 2018

In case you forgot, Trump is an economic flat-earther

Remember mercantilism?  It was that economic model debunked by Adam Smith.  The Wealth of Nations.  Published in... 1776!  Love that year!  If you don't love 1776, you hate America!  (It's going to be some Roland Kirk for tonight's jazz post).

Mercantilism is mostly dead.  Why?  Because it's stupid.  And if you believe in it today, you're stupid.  Kind of like a flat-earther.

You have probably forgotten mercantilism because it has been relegated to the dustbin of history.  Short version:  your goal is to accumulate wealth, so you set up a system to extract resources from everywhere you can in order to accumulate gold.  Whoever has the most gold wins.  Resources are mostly extracted and moved around and whoever has the ability to extract and move the resources around is the one who gets the gold, and hence winds up ahead.  Trade, then, is problematic because everything is basically zero-sum.  Someone winds up with more gold, and that person is the winner, so trade agreements can only exist within mercantilist systems because don't touch my gold!

This is the short version of mercantilism, and it is written specifically to focus on the aspects that make you think of Donald J. Trump, stable genius, oh-he-of-the-bigly-hands.  Unfair!  Sad!

Adam Smith debunked mercantilism.  Trade is not zero-sum.  I buy a candle from a candle-maker (or, really, an Olight S1R because it's a great EDC flashlight!), and the candle-maker prefers the money to the candle, while I prefer the candle to the money.  We are both better off from the voluntary trade.  The candle-maker didn't beat me by getting my money.  We're both better off.  Adam Smith was right.  This is how capitalism works, and why it still works.

At the level of groups, trade works in other ways.  Comparative advantages are important.  If one country can produce Good A better than it can produce Good B, then everyone is better off when that country produces Good A and trades it.  Otherwise, that country's productive capacity goes to waste.

This is really basic economics.

Trade works.  Capitalism works.  Mercantilism doesn't.  That's why mercantilism collapsed.

The Earth is round(ish), and the math on that is way older than the European explorers/genocidal psychopaths.  Still, one can understand a person in a certain circumstance, looking at the Earth from a certain perspective, and assuming the Earth is flat.

Today, you don't get a pass.  Supposedly, flat-earthers still exist.  I don't know any.  I work on a university campus.  A math-focused university campus.  Somewhere on my campus, there may be a flat-earther.  If there is, and you are reading this... leave me alone.  Like the hypothetical people in Adam Smith's parables, we'll both be happier.

Prior to The Wealth of Nations, the fall of mercantilism and the attendant rise of capitalism, one can understand the appeal of the idea of mercantilism.  Accumulation of gold, and the idea that trade is zero-sum... sure.  This is comprehensible from the perspective of someone lacking the post-Adam Smith knowledge that we have.

The problem is... Donald Trump has no excuse.

There are people with little to no education.  There are people who don't graduate from high school.  High school economics education is not particularly extensive.  Colleges don't require economics.

Donald Trump... loves to tell you that he went to an "Ivy League" school.  Whenever someone tells you that, it means University of Pennsylvania.  (If they say, "in Boston," that means Harvard, and they want you to probe so that they can do it as a humblebrag and pretend they don't like to talk about it).  Why the phrasing?  Penn is technically Ivy League, but it is the lowest-ranked Ivy League school, and most people don't know it is an Ivy League school, so he wants you to think he went to either Harvard, Princeton or Yale.

Of course, first he went to Fordham because he couldn't get into Penn until daddy pulled strings, but he did graduate from the Wharton School of Business at U Penn.  It is one of the top business schools, for whatever that's worth.  He really wants you to know it, though.

If you go to Wharton, you have no excuse for believing in mercantilism.  None.  This shit was debunked centuries ago.

And so, yesterday, our mercantilist President announced his plans for tariffs.


Of course, tariffs survived long after we reached the point at which no one had any valid excuse for believing in mercantilism.  Part of it is that trade wars can start even between non-mercantilist countries with slow escalation, and perhaps we will see that.  Part of it is that domestic political pressures can exist within industries without any grand economic theory.  I could keep going, but that's not my point for today.

My point for today is that Trump is proposing tariffs because Donald J. Trump is a mercantilist, and nobody today has any excuse for mercantilism.  Particularly not someone so proud of having transferred to Wharton.

Adam Smith won.  Mercantilism is economic flat-eartherism.

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