Navarro? Bizarro!
Saturday, 7/29/2017 10:02
Like, how does free trade work again Pete...?
LET US begin where we left off, on the subject of wealth, the future, and the director of the White House National Trade Council, Peter Navarro,
writes Bill Bonner in his Diary of a Rogue Economist.
There are, of course, many people with Harvard PhDs who are ignorant of French wines. Many couldn't decline a Latin verb if their lives depended on it.
Still others have no idea what Heisenberg was so uncertain about or why Wittgenstein decided to pass over his most precious thoughts "in silence."
But it is rare to see someone with a PhD in Economics from Harvard reveal that he knows so little about...economics.
It makes you wonder about his boss, too.
The theory of comparative advantage came to light in the 19th century. Adam Smith, David Ricardo, and others noticed that dates and nuts could be more efficiently produced in Algeria than in East Anglia, whereas British factories could turn out broadcloth faster and cheaper than almost anyone.
The world would be a richer place if each producer did what he did best...and traded with others for what they did best. Win-win.
In other words, if it takes us 100 hours to do something someone else could do in 50 hours, we're almost always better off spending our 100 hours doing something else.
It doesn't matter whether we're talking about trade across borders or across town, the principle is the same: People get richer as win-win deals expand. And taken together, people never got richer faster than they did in the last 50 years.
Here's science author Matt Ridley:
"In that half-century, we have gone from 75% of the world living in extreme poverty to just 9%. We have increased human productivity by some 3,000%."Nobody seems to know this. The late Hans Rosling conducted a poll in which he asked people if the proportion of the world living in extreme poverty had doubled, halved, or stayed the same in the past 20 years. Just 5% of people thought it had halved – which is the right answer."
Why such spectacular progress?
Comparative advantage. And win-win. Cooperating with others all over the globe, people are able to make things that none on his own even knows how to make.
Copper from Chile, tin from Indonesia, steel from South Korea, electronics from Japan, rubber from Vietnam, plastics from China – put them together and you have a dishwasher!
As far as we know, the principles of comparative advantage and win-win have never been seriously contested.
But Navarro doesn't seem to believe it. He writes:
"Reducing a trade deficit through tough, smart negotiations is a way to increase net exports – and boost the rate of economic growth."
How does that work again? What exactly do you do? And what happens?
Here's Politico with an update on Mr.Navarro's career in Washington:
"Peter Navarro, one of the White House's top trade advisers, is widely viewed throughout the West Wing and Capitol Hill as a prickly personality with extreme policy ideas."But he has nonetheless emerged as an influential force in the White House who appeals to President Donald Trump's protectionist impulses...[R]ecently, Navarro has scored several policy wins. In late April, the administration announced that it planned to impose tariffs on softwood lumber imports from Canada. The United States and Canada have been feuding about softwood lumber for decades, and Trump's decision to hit Canada with tariffs infuriated the country's leaders. Navarro declined to comment on his role in it."
Pete, could you run through that one more time...?
You impose your win-lose deals – tariffs on lumber, raising housing prices. Households get their faces ripped off, paying more for the roofs over their heads. Then they have less to spend on other things.
A few cronies in the lumber business score a few bucks. A few US-based lumberjacks may or may not get wage increases.
Overall, lumber will cost more...thereby reducing output per Dollar...thereby reducing real economic growth.
The law of comparative advantage tells us that we will be worse off, not better.
And what's all this about toughness and smartness? What makes you think you're any tougher or smarter than the Canadians?
"Why do I care how tough and how smart you are?" asks the importer. "It's not about you. It's about the lumber."
Mr.Navarro hankers to control America's commerce.
Instead of carefully observing the win-win deals that make the world richer, he wants to impose his own claptrap win-lose deals...and hold it back.
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