Trumponomics, the Left and the Return of Protectionism

By Mathias Vernengo, Professor of Economics at Bucknell University. Originally published at Naked Keynesianism

So if you believe a simplified version of conservative views on the economy, Trumponomics is pretty contradictory (and yes they are contradictory, even if one may doubts about why). Tax cuts should lead to growth, via supply side economics, and the recently proposed tariffs on steel and aluminum do exactly the opposite. Protectionism (not a very good name, I prefer managed trade, as I discussed here before) has made a come back, but while many heterodox economists have suggested that ‘free trade’ is not always beneficial to all, and those concerned with the fate of manufacturing and the working class in the United States have decried Free Trade Agreements (FTAs) over the years, it seems that the association of these ideas with Trumponomics has made them less keen on the recent tariff proposal.

A typical example is the recent op-ed by Jared Bernstein and Dean Baker in WAPO, and I cite them exactly for my respect for their economic views in general, and their commitment to progressive causes. In their view: “The bigger dangers to our economy are twofold. One, that our trading partners will retaliate by taxing our exports to them, thus hurting a broad swath of our exporting industries, and two, by leading an emboldened, reckless Trump administration to enact more bad trade policy.” Essentially, they agree that tariffs would have a negative effect on employment, but perhaps not as big as some Cassandras have suggested, and that this ‘bad protectionist’ policies would continue. A similar argument can be found in Brad DeLong’s op-ed, another progressive economist, in which he argues that the tariff is a tax hike for consumers. Brad, I should note, has recently published a very good book in which he praises the Hamiltonian system, that is,  the use of managed trade to promote industrial development (I discussed it here).*

It’s worth remembering that while on other issues Trumponomics is essentially Reaganomics (low taxes for the wealthy and increased military spending), on trade his views are a break with more recent Republican positions (and hence the push back in his own party against the tariffs) and closer to what many Dems, particularly those connected with trade unions, often defended. He has not signed TPP, has really started renegotiating NAFTA (something Obama promised to do as a candidate, but did not deliver as president) and now has imposed some tariffs (like, btw, Bush, so I’m not suggesting this is unprecedented; just that he has been more consistent on this topic).

Don’t get me wrong, I’m not a big fan of Trumponomics, or even in particular of these tariffs. And this will not work probably, but the reasons are not the ones adduced by progressives. Their basic argument is that retaliation by other countries will make them innocuous. In all fairness, the US is already more ‘protectionism’ (manages trade) than most people understand. The ability to use trade treaties and organizations for defending the country’s own advantage is considerably tilted in favor of advanced economies and their corporations that can use loopholes to creatively avoid rules and continue to subsidize their industries (and agricultural sector). The US use of the defense department, again used by Trump, is typical. Poor countries some times lack the basic technical capabilities (lawyers and economists) to face the trade teams of advanced economies. The complexity of the WTO dispute settlement process, the geopolitical role of the US and the importance of US markets for many developing countries render it a very ineffective tool for the interests of less developed economies.

It should not be a surprise that American corporations continue to thrive in international trade (it’s the American working class that is in trouble). Manufacturing is doing well, with the support of what Fred Block has termed the hidden developmental state in the US. So the problem is not that tariffs could not work. In all fairness, tariffs together with significant expansion of domestic spending on infrastructure (and more steel demand), with a vigorous defense of trade unions, with higher minimum wages, with policies to improve income distribution, like progressive taxes on the wealthy, to strengthen the domestic market might actually be part of a Hamiltonian strategy of economic growth. Note also that the whole point of imposing tariffs is to depend less on exports and more on domestic markets, so that to some extent retaliation should matter less. A more closed (not closed, but more so, like Keynes suggested in his National Self-Sufficiency piece of 1933) international economic order, to role back of some of the excesses of the neoliberal, pro-corporate globalization process, used to be be, and should be, on the agenda of the left.

The problem, then is less the tariffs per se, and more the fact that the Trumpian agenda is empty, and has nothing for the working class. That was my biggest concern reading the progressive economists complaints about Trump’s trade views. Their solutions are to stop protecting patents and professionals, that is more ‘free trade,’ and a more depreciated currency (I’ll leave my skepticism about this one for another post, at any rate I discussed this before). While I’m more sympathetic to the skepticism on property rights, note that China, in part, thrives, exactly because they do explicitly infringe the rules on patents (the first Geely car was a knock off of a Mercedes, and they bought Volvo to have access to foreign technology; there are many examples; it’s worth noticing that the US did that in the past too). That would not necessarily be good for American corporations. To weaken doctors, lawyers and other middle (and upper middle) class professionals is certainly not the way out of the hole for the American working class.

The political danger of these views, which I think still dominate the liberal wing of the Democratic Party, is considerable. I think, that even if his policies turn out not to be very helpful (for the reasons I outlined, meaning lower wages and protections for workers, lower taxes for the wealthy and corporations and so on) his true dislike of globalization and free trade policies would strengthen his position with working people in the Rust Belt, which were central for his victory (maybe you think it was Russia… oh, well). As I noticed before the election, this would make things so much hard for Dems in elections. I said back in September 2016 that: “Note that this doesn’t mean he [Trump] is going to win the election. Demographic changes make it harder for Republicans to win now, since Dems get more of the electoral college to start with. And I hope he doesn’t, btw. But there are good reasons to be afraid. This is going to be way closer than it should be.” And so it was.

I’m afraid that his trade policies, and the Dems position that effectively are to his right (like Hillary, but not Bernie) would make it more likely (hopefully not enough) for a longer period of Trumponomics than is acceptable. This suggests that a good chunk of Dems are stuck in the model that Mark Lilla has referred to as identity liberalism (see his book here), and have become vulnerable to right wing populism. It’s getting increasingly difficult to have hope in the dark.

PS: For discussions of trade policy see this two previous entries which provide a simple discussion of the Ricardian and neoclassical models of trade and its limitations. I would also recommend the paper by Robert Wade linked here.

* There are many others that have written on this in the last couple of days. Paul Krugman could, arguably enter the list of progressives here, but he has been consistently more of a free trade guy. Krugman complain is more macro than the others. In his view, the Fed would hike rates, since we are close enough to full employment and any additional gains from the tariffs will be eroded, even without retaliation from other countries. In part, that would happen because higher interest rates would lead to inflows and an appreciation of the dollar (see here).

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  1. gearandgrit

    “In all fairness, tariffs together with significant expansion of domestic spending on infrastructure (and more steel demand), with a vigorous defense of trade unions, with higher minimum wages, with policies to improve income distribution, like progressive taxes on the wealthy, to strengthen the domestic market might actually be part of a Hamiltonian strategy of economic growth.”

    In theory that could all work, but higher minimum wagers, wealth redistribution via increased effective tax rates on the wealthy, etc… all seem to be pipe dreams. Neither the left nor right have any interest in actually giving aid to the middle and lower class. At least globalization offers some guarantees of increased national security.

    1. jsn

      “globalization offers some guarantees of increased national security.”

      In what conceivable way? Exports demand, concentrates benefits in the multinational corporate sector, attenuates supply chains, makes US dependent for strategic goods on foreign suppliers, justifies global military presence and depresses wages. What am I missing?

      1. Louis Fyne

        if you subscribe to the assertion that “wars are legalized theft” (Jacob Bronowski) then globalization means that western elites are too busy plundering the bottom 85% to send pawns to fight each other.

        Thomas Friedman holds this view (see the Pax Mcdonalds-Starbucks hypothesis).

        but not all international conflicts are monetary in nature. and that’s even before considering how globalization destabilizes wages, forces subsistence farmers into cities, increases instability, etc.

        1. HotFlash

          Yeah, but what if the 85% doesn’t have what They want, like an oil pipeline route or coltan? Isn’t that worth a war?

          Resources are local, the 85%, as has been noted, are always with us ( Matthew 26:11).

  2. TiPs

    Interesting, I’ve been thinking about this very issue–progressives should support, or at least not be critical of, trump’s protectionism. When Wall Street protests (Cohn resignation), then it can’t be a bad thing. One could argue Bill Clinton (and the Dems) embracing Wall Street is one of the major causes of middle class destruction–free trade and finance carving up corporate assets for short-term profits.

    Had the tax cuts been focused on the bottom 90%, we’d really be getting someplace…

    1. L

      I think that the tax cuts are a piece with this. They were pitched as a middle class cut and supported with economic analyses that conveniently assumed that they were. In the end they were nothing of the sort and never will be.

      Trump talks about doing things for the middle class (as all politicians do) and like others he champions polices which in sum and substance harm them. I may be an outlier in this but I don’t see him as much of an outlier politically. Most presidents have spent years doing one off things to help the middle class but mostly siding with the financial class and letting them sink. These tarriffs are just a continuation of that in another venue. In general I am not sure if he knows that he is doing that or if the tweets are just part of an empty-emperor act that he is playing and in the end I don’t are. What he does matters.

  3. Seamus Padraig

    It’s worth remembering that while on other issues Trumponomics is essentially Reaganomics (low taxes for the wealthy and increased military spending), on trade his views are a break with more recent Republican positions (and hence the push back in his own party against the tariffs) and closer to what many Dems, particularly those connected with trade unions, often defended.

    Actually, Reagan was a bit more of a protectionist than is usually acknowledged on the left, much to the chagrin of the Libertarians:

    This fact might also explain at least some of his popularity among the so-called ‘Reagan Democrats’, even though his protectionism obviously benefited the corporations more than the unions.

    Along the same lines, there was also the Plaza Accord (1985), where Reagan got America’s vassal states (Japan, Germany, etc.) to revalue their currencies upward in order to help US exports.

    1. HotFlash

      Didn’t that work out not exactly as planned? Or perhaps he meant for foreign firms to spend their large holdings of — well, not actually worthless, but, in their country, certainly less-worthful– USD on what still had value, such as US firms, eg, the US movie industry.

  4. Jim A.

    I think that it is a mistake to continue to regard economics as the main, or even a secondary division between the two major parties in the U.S. Sure, in 1950 that was definitely the main division, and both parties had factions that were relatively liberal or conservative on social/racial issues. But after the Civil rights act, and then the Clinton presidency, both parties have greatly converged on economic issues. Free trade, relatively de-regulated banks, are the types of policies that dominate the main wings of both parties. And now, both parties have a populist economic wing. The Bernie/Sanders progressives have a place (but not much power) in the Democratic Party. And Donald Trump has wandered out in front of an incohate mob of the economically disenfranchised of the Republican party. (I’m reminded of the scene in Modern Times when Chaplain wanders in front of an angry mob and a truck in front of him loses the red “extended load” flag, so he picks it up and starts to wave it to ge the driver’s attention) They’re both big-business parties, but the GOP is a more shameless.

    1. Jim A.

      —And the Democrats seem to be better at “managing” their economically liberal wing, and keeping them away from the levers of power.

    2. crittermom

      Jim A.
      “,,, both parties have greatly converged on economic issues. Free trade, relatively de-regulated banks, are the types of policies that dominate the main wings of both parties.”
      These are some of the reasons I’m finding it increasingly difficult to distinguish between them.

  5. steven

    It would appear that sometime shortly after the collapse of the post-WWII Bretton Woods international monetary system TPTB in the US realized they could get away with exporting debt and bombs (free to its ‘enemies’, at a healthy profit to its ‘friends’) in the place of products the world wanted or needed. At that moment “working people in the Rust Belt” became expendable. Trump’s political ‘genius’ was the realization they could still be useful in a political system that retained at least the trappings of democracy.

    Working people want – and NEED in a system where ‘(s)he who does not work neither shall (s)he eat’ – jobs. The Democratic Party (DP) was willing to trade those jobs away so its new Wall Street constituency could continue to export what Michael Hudson describes as its “product” – debt. In the process the DP gave away not just working class jobs but the bedrock of the New Deal legacy – Social Security.

    How do you fund a system founded on the principle that one generation pays for the care of its elders in exchange for the promise they will be taken care of when the time comes if there are no jobs?

    1. Left in Wisconsin

      The U.S. was never a big exporting country (except big ag). The model through the 1970s, even for giant multi-nationals, was foreign direct investment: make it in the markets you want to sell it in. But even then, there were hardly any firms where exports and FDI combined were a significant fraction of total sales. I guess the one exception could be machinery – U.S. firms exported a lot of machinery in the post-WW2 era, to help rebuild Europe and Japan and for mining, big construction projects, etc.

      What changed everything was the Japanese economic invasion of the 1970s and 1980s. The Japanese manufacturing firms paid lower wages, got higher work effort, had higher quality, less waste, lower overhead, leaner management. Talk about your proverbial perfect storm. Until then, the U.S. firms were more than happy to keep their Rust Belt operations going – most of the plant and equipment was already completely depreciated so operating costs were relatively low – as long as the workers didn’t get too uppity and they could sell the stuff these plants made. But once the Japanese could make everything better and cheaper, that in retrospect was it. All of a sudden, there is global excess capacity and, as the high cost producer, ALL OF IT IS YOURS. The last 40 years has simply seen the slow playing out of the inevitable.

      1. steven

        The U.S. was never a big exporting country (except big ag).

        What you left out was all the guns and bombs from two world wars (and of course the food and clothing the US supplied so the nations of Old Europe could employ every available body in slaughtering each other).

        The Japanese manufacturing firms paid lower wages, got higher work effort, had higher quality, less waste, lower overhead, leaner management. Talk about your proverbial perfect storm.

        I remember reading a book on Detroit by David Halberstram some years back. He references conversations in which executives thought the Japanese were stupid to be marketing quality products thus undermining the markets for what they made and their future revenues.

        The take away from all this has to be something along the lines of:
        1- what does the US need to be able to make for itself to be relatively independent, if necessary?
        2- what can the US provide to the rest of the world – without sacrificing the prosperity and health of its people?

        1. Jim A.

          Before the Japanese automakers started exporting to the US in earnest, the oligarchy of the big three automakers and the fact that the UAW was the union for all three, meant that the automakers did not compete with each other in any meaningful way for labor. Every few years, when the contracts were up for re-negotiation, a different automaker would take the lead in negotiating with the UAW and after that was done, the other two automakers would sign very similar contracts. This allowed for good compensation, and relatively few big strikes. Huge barriers to market entry kept anybody else from coming in and undercutting the UAW wages.

          Most of the world was not a big exporter to or from the U.S. Tariffs were relatively high, and shipping expensive. Some nations had exports that were significant to them and their relatively small economies. (eg fruit from central and South America) but almost none of that added up to a great deal compared to the US economy. Before the Common Market, even intra-European trade was a relatively small part of their economies.

        2. Paul Whittaker

          Maybe company size has a bearing, around the late 70’s after owing a VW bug we bought an AMC “Gremlin” still cant believe any company would label their product with that name. American Motors pretty much took a chainsaw to the back end and called it a “small car”. Then frying pan into the fire we tried a Chevy Vega with its 30,000 mile throw away motor, anodized cylinders no liners. After that we gave up on domestic stuff.

      2. steven

        The U.S. was never a big exporting country (except big ag).

        You missed a few things, like the guns and bombs the US sold to Europe for two world wars and the food and clothing required so it could employ every last body slaughtering rivals in other countries.

        The Japanese manufacturing firms paid lower wages, got higher work effort, had higher quality, less waste, lower overhead, leaner management. Talk about your proverbial perfect storm.

        I remember reading a book on Detroit some years ago by David Halberstram. He references conversations between Detroit executives to the effect that Japanese businessmen were stupid to make things that lasted so long they undermined their future profits.

        It seems to me the takeaway from all this is:
        1. what does the US have to be able to make for itself to be relatively independent if necessary?
        2. what can it supply the rest of the world without a ‘race to the bottom’ forcing its workers to compete with its most desperately poor competitors and sacrifice the nation’s health and environment?

  6. Altandmain

    I think that the brutal reality is that the left needs to acknowledge that the US needs manufacturing to remain middle class.

    To his credit, Bernie Sanders and other leftists opposed NAFTA, the TPP, and similar corporate giveaways.

    However, there hasn’t been the discussion about why nations like Germany and Japan and Switzerland can have manufacturing, while the US has a declining share outside of the military. There are other damaging effects, such as the Wall Street obsession with short term profit and private equity looting companies.

    Clinton Liberals mocking Trump voters may have a point about Trump betraying his economic despair base, but they at heart do not have the interest of the working class at heart either.

    Barring that, those who did lose their jobs will gravitate toward right wing populists like Trump. It is critical that the left acknowledge the importance of manufacturing m

    1. marku52

      Yes, the Dem’s decades long proposal of “Let them eat training” is rather past its pull date. It never worked in the first place, and now is justifiably despised.

      Bernie and Trump recognized this…..

      1. oh

        The so called “training” only helps the companies who perform the training, not the recipients.

      2. Altandmain

        If there is no job waiting at the end of training, then it is all for nothing.

        They are training and ending up unemployed.

        Ironically the Atlantic of all places has 2 decent articles on this:

        “Retraining is held up as some sort of savior to displaced workers,” said Didier, the former head of the Newton Development Corporation, who now works at Des Moines Area Community College where she helps the college link up with businesses that have training needs. “But without a specific job at the other end, no one is going to waste their time retraining just to retrain.” Because when it comes to learning and work, the most important thing is work itself.

        We need another stimulus and a plan for reindustrialiation.

        1. animalogic

          Some of that stimulus might be targeted, directly or indirectly at Business to do its OWN training. Cut out the middle man, as it were.

    2. steven

      You are probably tired of hearing this again but I have trouble getting past Frederick Soddy’s Three Ingredients of Wealth – “Discovery, Natural Energy and Diligence ” in discussions like this. You can probably pretty much substitute the presence and ability to make use of “Natural energy” for ‘manufacturing’. “Discovery” now that humans are crowding out other species is pretty much ‘science’. In Soddy’s day, “Diligence” was basically machine tending. These days, with computers, diligence is probably ‘education’ (Marku52 – **NOT training**), a populace smart enough to realize there is something wrong with the programming. Or, more important, when nothing but self-serving lies come from the mouths of their ‘leaders’.

    3. HotFlash

      However, there hasn’t been the discussion about why nations like Germany and Japan and Switzerland can have manufacturing

      Well, maybe nations like Greece and Portugal and Spain and Ocough) the US? Hello, not every nation can be a net exporter!

      1. altandmain

        Perhaps. But then there goes the argument for free trade altogether.

        It’s a good argument for bilateral trade and against free trade.

    4. drumlin woodchuckles

      Clinton Liberals betrayed that base first, and worse.

      Clinton herself promised more such betrayal by promising to put Bill in charge of the “economic recovery” when she was elected. Everyone who remembered what NAFTA Bill stood for understood that betrayal.

  7. Summer

    Sort of related, but looking at the austerity/disaster capitalism in Puerto Rico and I don’t see any changes in overarchimg economic dogmas. The worst plans are still being implemented globally.

    As for the end of the article and claims about “reaching full employment,” that’s evidence that the worker participation rate and long term unemployment (a main driver behind low employment numbers that stop counting people after benefits expire) do not matter to the establishment for the purpose of perpetuating the fantasy.

  8. Jim Haygood

    [Progressives’] basic argument is that retaliation by other countries will make [tariffs] innocuous.

    Uhhh … what? This is the exact opposite of the progressive arguments summarized in the second paragraph — “our trading partners will retaliate by taxing our exports to them, thus hurting a broad swath of our exporting industries.”

    Presumably the word he wanted was pernicious. Okay, that’s all the free editing I can do on Vernengo’s meandering dog’s breakfast of an essay. Tenure is a well-known risk factor for cognitive decline. :-(

    1. Jeremy Grimm

      The Trump tariff tempest impresses me as meaningless posturing. Tariffs on steel and aluminum will do little to bring back the industries that produce steel and aluminum. Labeling the tariffs as Protectionism or managed trade aggrandize actions of puppet theater to undeserved heroic proportions. I suppose this makes them worthy of analysis by an economist. Trumponomics serves as a broad label for a multi-sector free-for-all of looting with Trump as a diversion and entertainment.

      The measure of this essay as a “meandering dog’s breakfast” suggests an unkindness to dogs.

      1. John B

        The post did meander and was not carefully edited. However, I do agree with what was (as far as I could tell) its main point — that tariffs by themselves have many problems, but could make sense as part of a broader policy, which neither Trump nor anyone on the left has carefully articulated yet.

        Trump’s tariffs on steel and aluminum by themselves will tend to invite retaliation, and cause more jobs to be lost in downstream industries that use basic steel and aluminum products than may be gained by US steel and aluminum producers. On the other hand, a managed trade policy, which many countries including the US have used at various times, would use tariffs and other measures to protect high value-added manufacturing, and prevent a race to the bottom on wages and regulations. It would complement pro-equality and pro-worker policies, by preventing businesses from circumventing them by moving production overseas. It might also consider ensuring that international trade paid for its pollution costs.

        Trump has no coherent strategy for accomplishing this, nor much evident desire to, and Bill Clinton expressly bargained away the United States’ ability to adopt such a tariff policy in the 1994 Uruguay Round. George W. hammered more nails in its coffin with China’s WTO accession in 2002. European leaders did the same. A lot more thinking needs to be done about whether and how we can try walk this back, or just have to accept that coherent tariff policy is dead in the developed world.

  9. Mickey Hickey

    Jobs for the lower and middle classes has not been a priority in America beginning with Ronald Reagan. The biggest disappointment was Barack Obama and the Democrat majority he enjoyed. Then the lower and middle classes opted for Donald Trump and the Republicans who are certainly taking care of the upper classes. Two disappointments in a row might not be enough to get a replay of 1917 in Russia or 1879-82 in France but it is moving the ball in that direction. Most likely would be a Mussolini, Franco or Hitler like regime. Remember Hitler campaigned on jobs for Germans and delivered on that which allowed him to do the damage he did subsequently. As mentioned in numerous Comments tariffs, progressive taxation, unions, diminution of monopolies and oligopolies, patent rollbacks, opening the professional closed shops and many other changes are necessary. In the Sputnik era when the shock of Russian breakthroughs hit, education became a priority. These days the education system is being privatized so as to brainwash them cheaply while they are still malleable.

  10. Heraclitus

    I think the David Halberstam book referred to above is ‘The Reckoning’. My memory of it is not that Detroit thought the Japanese were dumb for building higher quality cars, but that they thought they were dumb for building smaller cars with smaller profit margins. Then, of course, the oil crisis came and everybody wanted a small car. Once the public got used to higher quality Japanese small cars, they were open to higher quality Japanese larger cars once oil prices came down again.

    1. SteveB

      The early Japanese cars were not high quality they were rust bucket throwaways (remember Datsun?)

      The gas crisis of the early 70’s caused working class to try them in order to avoid waiting in long lines on the odd/even days… The yen was 350 to the dollar back then and the Japanese were smart enough to invest in the product… At the time GM was run by accountants, Congress mandated gas mileage and pollution controls…. for which GM engineering was unprepared… The cars they produced in the 70’s were horrific further forcing consumers elsewhere…. Big 5 mph bumpers, air pumps, a nest of rubber air lines….
      Roger Smith was the wrong guy….. When what was needed was a Duntov/Earle replay.. Car guys, not bean counters… But the exchange rate was the windfall that made Japan Inc possible..

      And they were predatory… My division was selling a component to GM for $5.00.. The Japanese were quoting $2.00 for the same part… We’d lower our price… They’d lower theirs… eventually they were tested and approved…. When the price got below our cost, we withdrew… They got the business… the buyer got promoted for the cost savings… 3 yrs later the price was back up to $5.00… buyer was long gone as were the machines and people that made those parts…. rinse and repeat…
      The first of 3, million sq foot factories in our division was sold to it’s employees in 1981.. it lasted until August 1987…… I still have my engineering manuals and detailed drawings of those parts..
      No longer useful, but I just can’t throw them away….

      1. Yves Smith Post author

        Do not diss Datsuns! That was effectively my first car. It was my parents’ second car. I don’t recall exactly when they bought it, but I drove it hard regularly in the summer of ’74. It wouldn’t go faster than about 85 MPH. I am sure they had it for at least ten years, maybe even 15 (admittedly many of them in Alabama, so the car largely escaped winter salt). And they sold it for cheap to a student. We were all fond of it and happy not to junk it and see it go to someone who could get some more use out of it.

        1. animalogic

          I second that: my first car was a ’73 Mazda 808. Mechanically it was excellent. Its only fault ? Rust…rust …& more rust.

  11. Heraclitus

    Germany, Japan, and Switzerland may not have their manufacturing base in perpetuity. Worldwide capacity continues growing faster than demand, which means prices continue to decline. Eventually we wind up with profitless prosperity, which won’t last forever. The US may have been wise to downsize manufacturing. Maybe we’ll know in twenty years.

  12. Sound of the Suburbs

    “History suggests that protectionism delivers only losers on all sides.”

    As long as you leave out US and European history.

    Today’s economist uses Ricardo’s law of comparative advantage to support free trade.

    In the 18th and 19th century the UK was the workshop of the world and the home of the industrial revolution.

    Did Western Europe and the US stick to Ricardo’s law of comparative advantage?
    Of course not, it would have been completely mad from an economic point of view.

    They put up tariffs until they had caught up with the UK’s technological advances.

    Ricardo had an idea about comparative advantage, but it wasn’t very good in practice.

    Where would the US be today if it had listened to Ricardo’s idle ramblings?

  13. steven

    Gee! “profitless prosperity”! Is that so bad? I mean what is the point of economic activity anyway – producing what people want and need or making money? My guess is the world’s supply of money has grown several orders of magnitude faster than its manufacturing capacity. When the music stops I would prefer to be left the machinery to sustain my “profitless prosperity” rather than a bunch of worthless money.

    P.S. I guess I stand corrected on Halberstam and The Reckoning – sort of. I remember the general takeaway was that Detroit (and probably far beyond) was trying to jam down consumers’ throats products they and the rest of the world could no longer afford. The bit about exchange rates was interesting. Could it be that America’s businessmen and bankers were too clever by half? For them it was all about money – and now they are out of business.

    P.P.S. This may be a double posting. How long should one wait to receive an acknowledgment or see a posting show up?

  14. Nancy E. Sutton

    Very readable expose of the fallacy of free trade – Ha-Joon Chang’s ‘The Bad Samaritan’ (the rest of his books are also recommended)

  15. Sound of the Suburbs

    Globalisation went wrong for a reason.

    Globalisation was to be governed by the laws of economics.

    The economics was the problem, neoclassical economics.

    A couple of fundamentals are missing that have very big implications.

    1) It doesn’t understand how banks work or the monetary system

    Monetary theory has been regressing since 1856, when someone worked out how the system really worked.

    Credit creation theory -> fractional reserve theory -> financial intermediation theory

    “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

    2) It doesn’t consider debt

    3) The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”. The importance of the cost of living in economics had also gone as this exposed rentier activity in the economy.

    Macron is pursuing policies in France that we know only delivered austerity in the UK. There is something wrong with the liberal elite, and they have locked into an ideology that has not produced the results that were expected.

    There are rare members of the liberal elite that have not lost the power of rational thought like George Soros. He realised the economics was wrong due to his experience with the markets.

    What the neoclassical economists said about markets and his experience just didn’t compare, and he knew it was so wrong he never even bothered to look into what the economics said.

    George Soros ”I am not well qualified to criticize those theories, because as a market participant, I considered them so unrealistic that I never bothered to study them”

    Here is George Soros on the bad economics we have used for globalisation.

    He had been complaining for years and at last in 2008 the bankruptcy of the economics proved itself. With more widespread support, he set up INET (The Institute for New Economic Thinking) to try and put things right.

    Globalisation’s technocrats, trained in bad economics, never stood a chance.

    The INET videos are available on YouTube and while the majority of the liberal elite are bound in a strait jacket of failed ideas, you can move on and keep abreast of the latest thinking.

    We need enough people to move on before the far right really take control; Trump is just a warning.

    (Not taking anything away from Naked Capitalism that has done a very good job, but there is a Commission on Global Economic Transformation (CGET) that has come out of INET

    You won’t be hearing about them in the mainstream media)

    1. Sound of the Suburbs

      I am no fan of George Soros normally and I had heard that he had set something up before, but I paid little attention to it.

      I read the mainstream media and thought no one in the mainstream had any idea, and then I came across Adair Turner who was thinking pretty much what I was thinking.

      Joseph Stiglitz is on my track, with other ideas I got from Michael Hudson.

      I looked into things after 2008 and they have found what I have found, so I think it’s good stuff.

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