Category Archives: economic freedom

Donald Trump and Isolationism, Protectionism and Nativism

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Most of the time on this blog I write about the pros and cons of various policy measures, independently of which individuals or parties are supporting them. But, of course, the U.S. President is the most important single actor on the political stage so it does matter immensely what the President thinks on any particular issue.


The three biggest quagmires for Republican presidents are nativism, protectionism and isolationism. Where does President Trump come down on these major policy threads?

  • Isolationism. Mr. Trump is not an isolationist.  He is working with China and other Asian countries to contain North Korea. He is working with several Mideast powers to defeat ISIS. We have beefed up forces in Afghanistan to neutralize the Taliban. He has clearly backed down on his threat to withdraw from NATO.
  • Protectionism. Unfortunately, Mr. Trump is too much of a protectionist. He is not against trade per se but he wants to replace broad multilateral trade agreements with separate bilateral trade agreements with lots of different countries. This will simply create an “insanely complicated mishmash of rules.”  Instead he should focus on bargaining with China to get much better access for American products into Chinese markets.
  • Nativism. Again, Mr. Trump (and many of his supporters) apparently doesn’t appreciate the enormous contributions which immigrants make to the U.S. economy at both the high end (skilled workers and entrepreneurs) and the low end (willingness to provide hard physical labor in agriculture, meatpacking, construction and personal care). Especially with our currently low unemployment rate of 4.1% we should take the opportunity to solve our illegal immigration problem by expanding our guest worker visa program.

Conclusion. President Trump is clearly not an isolationist but smarter trade and immigration policies would help to speed up economic growth and create more jobs and higher wages for the blue-collar workers who are Mr. Trump’s main base of support.

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The Major Challenges Facing the United States

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As I frequently remind my readers I am a fiscal conservative and a social moderate. I usually write about particular economic and fiscal problems facing our country.  But every now and then I like to step back and view our overall situation at one time.  The last time I did this was here.
Let’s take another look:

  • The economy is puttering along at 2% annual growth with a relatively low unemployment rate of 4.3% and a good indication that faster growth, up to 2.5% annually, is right around the corner, see here and here.  The economy, at least, is headed in the right direction.
  • Foreign policy. Long term our biggest problem is China, which has four times as many people as we do and is growing economically three times as fast. China will soon surpass us in both economic and military strength. Our best insurance for this inevitable day is to have lots of democratic friends around the world.
  • Global warming is real and getting worse. Our best strategy for dealing with it is a revenue neutral carbon tax, rather than depending on ad hoc regulations like the Clean Power Plan and ever increasing auto emission standards. If the U.S. demonstrates its seriousness with a carbon tax, it is likely that the U.S. and China (which is highly polluted) could work together to establish world-wide carbon emission standards.
  • National debt, currently 77% of GDP (for the public debt on which we pay interest), is predicted by the CBO to keep getting steadily worse (see chart)  without major changes in current policy. Right now our approximately $14.3 trillion public debt is almost “free” money because interest rates are so low. But sooner or later interest rates will return to more normal levels and, when this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. This will inevitably lead to a severe fiscal crisis, far worse than the Financial Crisis of 2008.

Conclusion. I am relatively optimistic that we can maintain good relations with China and will have the good sense to better control carbon emissions. But our debt problem is politically very difficult to address because it will require spending curtailments.  How do we successfully address such a huge problem?

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Rising Prosperity around the World

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My last post responds to a reader who is pessimistic about the future of our country and in fact of the whole world.  He thinks that the environment is deteriorating, that rapid economic growth is unsustainable and that there is too much income inequality between high and low wage earners.
My response to him is to refer to the recent book, “The Rational Optimist: how prosperity evolves” by Matt Ridley.  Mr. Ridley persuasively argues that not only has the human race made huge strides in recent times but that this progress is intrinsic to evolved human nature and is likely to continue indefinitely:

  • Since 1800 the population of the world has multiplied six times, yet average life expectancy has more than doubled and real income has risen more than nine times.
  • Between 1955 and 2005, the average human on earth earned nearly three times as much money (adjusted for inflation), ate one-third more calories of food, and could expect to live one-third longer, all this while world population doubled.
  • The rich have got richer but the poor have done even better. For example, the Chinese are ten times as rich, one-third as fecund, and 28 years longer-lived than fifty years ago. (Also see the above chart).
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  • The spread of IQ scores has been shrinking steadily – because the low scores have been catching up with the high ones. This is known as the Flynn effect.
  • The four most basic human needs – food, clothing, fuel and shelter – have grown markedly cheaper during the past two centuries.
  • The most notorious robber barons of the late 19th century: Cornelius Vanderbilt, John D. Rockefeller, and Andrew Carnegie, got rich by making things cheaper.
  • Exchange and specialization, not self-sufficiency, is the route to prosperity.

Conclusion. As long as human beings are free to engage in exchange (trade) and specialization (acquisition of skills), prosperity will continue to evolve and human life will become better and better.

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“A Better Way” for Donald Trump to Make His Case

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In my last post, “Donald Trump’s Best Chance to Win in November,” I said that the best way for Mr. Trump to broaden his appeal beyond working-class whites and to have any chance of winning the presidential election is for him to endorse the reform plan, “A Better Way,”  recently developed by the Republican House of Representatives.
Capture9Here is a brief and positive summary of the Trump platform so far:

 

  • His tax plan is highly pro-growth and will not cost nearly as much as the previously advertised $10 trillion over a decade.
  • He supports legal immigration and simply wants to solve the illegal immigration problem, one way or another.
  • He is not opposed to foreign trade per se but wants to negotiate, from a position of strength, with countries that manipulate their currencies, steal intellectual property or compel companies to disclose trade secrets as a condition of entering their markets.

His policy proposals so described are completely compatible with the House’s “A Better Way” reform plan whose planks are:

 

  • Poverty. Reward work. Tailor benefits to people’s needs. Improve skills and schools. Demand results.
  • National Security. Defeat the terrorists. Protect the homeland. Defend freedom.
  • The economy. Regulate smarter. End bailouts and cronyism. Put students and workers first.
  • The constitution. Make government more accountable and more representative. Restore constitutional checks on spending.
  • Health Care. More choices and lower costs. Real protections and peace of mind. Cutting edge cures and treatments. A stronger Medicare.
  • Tax reform. Simplicity and fairness. Jobs and growth.

 

These guiding principles are being fleshed out into complete policy documents. They do indeed represent a better way forward for our national government.  Donald Trump could do far worse than to endorse this comprehensive reform plan developed by the House Republicans.  It would show that he is serious about “Making America Great Again.”

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Economic Freedom and Economic Growth

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I have written several posts recently, here and here, about America’s current very slow rate of economic growth.  In fact:

  • From 1970 – 2000 our economy grew on average at the rate of 3.5%.
  • Since 2000 it has grown at only half this rate, 1.76% annually.Capture4

The economics journalist, Gene Epstein, writing in Barron’s, “The Real Reason Behind Slowing U.S. Growth,” points out the very strong correlation between our rate of GDP growth and the Fraser Institute’s Index of Economic Freedom in the U.S. This index is based on ratings in the five categories:

  • Size of Government.
  • Legal System and Security of Property Rights.
  • Soundness of Money.
  • Freedom to Trade Internationally.
  • Regulation of Credit, Labor and Business.

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As shown in the chart above, the biggest reductions have occurred in the (2nd) Legal System, (4th) International Trade and (5th) Regulation areas.  Examples of freedom declines in the Legal System area are:

  • Judicial Independence: political interference in the bankruptcy proceedings of GM and Chrysler.
  • Impartial Courts: expanded use of Foreign Intelligence Surveillance Courts (FISA) where government requests are rubber stamped.
  • Property Rights: eminent domain made easier by the Supreme Court’s Kelo vs City of New London decision in 2005. The expanded use of civil asset forfeiture.
  • Military Interference in the Political Process: local police officers using excess military equipment.

According to the Fraser Institute, ”The effects of the Reagan and Thatcher political revolutions … led to increases in economic freedom and convergence among OECD nations. The so-called Washington Consensus of lower taxes, lower trade barriers, privatization and deregulation is quite evident in the data in the EF index.  The last decade has not been as kind to the cause of economic freedom.”
Such a huge correlation between the rise and decline of economic freedom and the concurrent rise and decline of economic growth is unlikely to be a coincidence.  Government policies strongly effect economic growth.  To ignore this self-evident truth is to invite economic decline.

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The Best Way to Stop Donald Trump

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The main sources of background information for my posts are The New York Times and the Wall Street Journal. I read the Economist but most of the time it is either too esoteric or else too far  removed from the specifics of U.S. fiscal and economic policy which I am interested in.  But this week they have hit the nail on the head regarding Donald Trump and his fellow right-wing populists around the world.
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Says the Economist:

  • Populists differ but the bedrock for them all is economic and cultural insecurity. Stagnant wages hurt a cohort of older working-class white men whose jobs are threatened by globalization and technology. Jihadist terrorism pours petrol on this resentment and extends populism’s appeal.
  • Nobody should underestimate how hard it is to take the populists on. It is a huge mistake to dismiss their arguments by calling them fascist or extremist. Such disdain risks suggesting that political leaders are uninterested in the real grievances the populists play on.
  • The best way to overcome resentment is economic growth – not putting up walls. The best way to defeat Islamist terrorism is to enlist the help of Muslims – not to treat them as hostile.
  • Voters are often more reasonable than the populist leaders who are trying to appeal to them. Most of them would sooner hear something more optimistic than rage against a dangerous world.
  • Politicians also need to deal with the populists’ complaint that government often fails them. Reluctance to deploy more troops against the ISIS caliphate in Syria and Iraq does not appear to be a serious strategy to defeat it.

Conclusion: There is a clear path forward for candidates with a positive message of openness and tolerance and realistic plans to make the economy grow faster. Who is best situated to deliver such a message?  Stay tuned!

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“The Dung of the Devil”

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My last post, “The Moral Case for Free Enterprise,” was motivated in part by a recent speech of Pope Francis comparing the excesses of global capitalism to the “dung of the devil.”
Capture2The scholar Mark Perry of the American Enterprise Institute has just published an interesting chart (just below) demonstrating an 80% reduction in world poverty in the 36 year period from 1970 to 2006.  He quotes AEI President Arthur Brooks that “if you love the poor, if you are a good Samaritan, you must stand for the free enterprise system, and you must defend it, not just for ourselves but for people around the world.  It is the best anti-poverty measure ever invented.”
CaptureIn a previous post, a year and a half ago, “A Global Perspective on Income Inequality,”  I referred to another chart (just below) to demonstrate the massive growth of income in the developing world.  To a large extent this is the result of economic globalization shifting low-skill employment from the developed world to the developing world where the cost of labor is less expensive. As Arthur Brooks says, “It was globalization, free trade, the boom in international entrepreneurship.  In short, it was the free enterprise system, American style, which is our gift to the world.”
Capture1So, yes, the world as a whole is now much better off but American workers have paid a price for the global shift in low-skill work.  The answer is not to impede globalization but rather to:

  • Speed up the growth of our own economy in order to raise wages and provide more jobs for the unemployed and underemployed.
  • Improve K-12 educational effectiveness and expand career educational opportunities to better prepare present and future workers for the many new high-skill jobs being created all the time.

The world is changing rapidly but there are effective ways for the U.S. to adapt if only we have the good sense to move forward!

The Land of the Free and the Home of the Brave

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As we celebrate the 239th anniversary of the signing of the Declaration of Independence in 1776, Americans have much to be thankful for.  It is often said that the United States is the strongest, wealthiest and freest country the world has ever known.  Although this may be somewhat of an exaggeration (see below), it is still indicative of how fortunate we are compared to the rest of the world.
CaptureAs we celebrate our good fortune, we need to be acutely aware that our continued success as a great nation is not automatically assured.  In fact we face a number of troubling and persistent problems which are not likely to disappear unless we take strong action to address them.  For example we have:

  • A stagnant economy with only 2.2% annual growth since the end of the Great Recession. And the Congressional Budget Office predicts no speed up over at least the next ten years, based on current policy. Such slow growth condemns 20 million unemployed and underemployed citizens to unfulfilling lives, as well as lackluster pay raises for many more tens of millions.
  • Massive debt. Our public debt (on which we pay interest) is now at 74% of GDP, highest since the end of WWII, and predicted by the CBO to grow rapidly under current policies. When interest rates return to the normal 5% level, interest payments on the debt will skyrocket, making it much more difficult to fund all of the federal programs we depend on for our quality of life.
  • Increasing Income Inequality is real even if overhyped in the media. America is still a land of great opportunity but basic fairness demands that all citizens be able to share in our national abundance.
  • Threats from abroad. ISIS now controls much of Iraq, Syria and northern Africa and must be defeated. NATO needs our very strong support, all the more so with the Eurozone and European Common Market under increasing pressure from within.

 

As the strongest nation in the world we have much responsibility for continued world peace and prosperity.  We can’t fulfill this role adequately unless our own internal fiscal and economic policies are in fundamentally sound shape.
Let’s be thankful for what we have and bear down hard to insure that we keep it!