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The Donald vs. Economics

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By Peter Scharf“Last quarter it was just announced our Gross Domestic Product, a sign of strength, right?  But not for us, it was below 0.  Who ever heard of this?  It’s never below zero.”While I try to make my writing as non-partisan as possible and eliminate all trace of bias, this piece will not follow these rules.  Currently a completely unqualified authoritarian occupies the highest office in the land.  He spent his whole campaign feeding nativist fears and making up statistics, or spewing “alternative facts” to dupe enough people into putting him into office.  This piece will attempt to demonstrate that Donald Trump’s economic ideas are disastrous and downright idiotic.  Just one week before the election more than 300 academic economists, including 8 Nobel Prize Winners, signed an open letter urging the American public not to vote for Donald Trump. It listed 13 charges against the then Republican nominee and finished with: “Donald Trump is a dangerous, destructive choice for the country. He misinforms the electorate, degrades trust in public institutions with conspiracy theories, and promotes willful delusion over engagement with reality. If elected, he poses a unique danger to the functioning of democratic and economic institutions, and to the prosperity of the country. For these reasons, we strongly recommend that you do not vote for Donald Trump.”On election day more than 60 million Americans either did not see the open letter or disagreed with the economists and elected Trump anyway.  The point of this piece will be to demonstrate that Donald Trump’s economic thinking is approaching conspiracy theory levels of ridiculous.  Having the Donald as president is concerning because he either: a. thoroughly believes that all these ridiculous protectionist policies will work or b. he knows they are terrible and is purposefully lying to his voters.  This piece can be considered a modern day “list of economic grievances.”  This is an incomplete list.Phony Numbers or Phony Accusations?The Donald has attacked some of the most sacred and trusted institutions in economics.  Notoriously he has been critical of the Bureau of Labor Statistics.  The narcissist-in-chief has called the unemployment rate “a phony number to make the politicians look good.”  The then candidate Trump claimed that “When you hear 4.9 and five-per-cent unemployment, the number’s probably twenty-eight, twenty-nine, as high as thirty-five in fact, I even heard recently forty-two per cent.” When the labor market was sitting at full employment and not matching up with Trump’s core message of doom and gloom he charged that “The five-per-cent figure is one of the biggest hoaxes in American modern politics.”  Donald Trump either needs to devise a more rigorous economic model for unemployment (it cannot determine whether the unemployment rate is in the 20 or 40 percent range) or he needs to stop pulling scary numbers out of Kellaynne Conway’s “handbag”.Trump’s baseless claims against the Bureau of Labor Statistics are beyond laughable idiocy.  Unfortunately, because of his position of power he degrades a decades old labor market research institution.  The United States’ unemployment rate is arguable the most important statistic in economics.  It is a signal that we get about the world’s largest economy.  It is not some far removed sum that is irrelevant to the working man, but a percentage that cues to the status of the American worker.  This figure is mined like a precious jewel, teams of economists, statisticians and general math nerds conduct a random survey of over 60,000 households asking almost everything besides the household’s name.  After collection and dissemination of the data the final estimate is kept under close guard until its release on the First Friday of each month at 8:30am to the waiting journalists, economists, and political advisers. Trump’s fabrication of illegitimacy behind this result is an insult to the whole process and all workers of the BLS.  It undermines trust in this invaluable institution.The Bureau of Labor Statistics was not the only agency to have its legitimacy questioned by the president.  The monument to the might of the U.S. Dollar, The Federal Reserve and its Chairwomen, have suffered unfounded accusations of “doing political things.” In many cases, both historically and in the present day, central banks have fallen under political pressure and terrorized the monetary system of their respective countries.  Owing to its independence, the Federal Reserve has never fallen under such unfortunate circumstances.  Although chairs are appointed by Congress and the President, once in power they are free to do as they wish.  To preserve independence, presidents never criticize the Federal Reserve.  Of course, the Donald has the toddler-like desire to be the first for everything and attempted to delegitimize the backbone of the U.S. financial industry.  Thankfully investors agreed with Chairwomen Yellen when she had to clarify “Partisan politics plays no role in our decisions”.Unfortunately, Trump is going to have some control in monetary policy decisions.  First, he will have the opportunity to appoint a new Federal Reserve Chair with Janet Yellen’s term ending in 2018.  Second, he and his Republican majority are debating passing an “audit the fed” bill.  Third, with the resignation of Daniel Tarullo Trump will have yet another position to fill with someone totally unqualified.  Any of those actions could led to more distrust with the Fed than any of his accusations have.Trade Deficit or Mental Defecit?The Nobel Laureate economist Paul Krugman has said “If there were an Economist's Creed, it would surely contain the affirmations "I understand the Principle of Comparative Advantage" and "I advocate Free Trade."  Former Chair of the Council of Economic Advisers Greg Mankiw polled economists and found that 93% of them agree that “Tariffs and import quotas usually reduce general economic welfare. Once again Trump wholly disagrees with the intellectual community and has his own ideas on complex issues.  Donald is likely the most anti-free trade president to hold office.  He has supported insane ideas like a 20% import tax and accused Mexico of somehow taking advantage of the United States because of a VAT.  He has threatened a trade war with China and a withdrawal from The World Trade Organization, NAFTA, and has successfully shut down the Trans-Pacific Trade Partnership. NAFTA has been one of Trump’s biggest targets.  This over 20 years old free trade agreement establishes the largest free trade bloc in the world.  The president has railed against the agreement calling it “the worst trade deal maybe ever signed anywhere” and defective.  He has blamed NAFTA for decline in United States manufacturing and argues that the agreement allows Mexico to benefit at our expense.  The evidence points to the contrary.  While Mexico has in fact benefitted from the trade agreement, trade is not a zero-sum game.  All three countries involved have benefitted greatly from the deal.  While some workers have been displaced, the new jobs created by trade greatly outweigh the costs.  It is estimated that 6 million jobs were created and depend on the trade bloc.  Ending it would not only result in higher prices for consumers but also possible action by the World Trade Organization.  Trump’s position of power unfortunately grants him the ability to effect U.S. trade.  Under article 2205 Trump’s administration could withdrawal from the agreement as long as they gave the member nations 6 months notice.  What would unfold would be unprecedented in the modern era.  The Donald has already used his presidential position to restrict trade.  One of his first actions upon entering office was scrapping the Trans-Pacific Trade Partnership or TTP.  With the United States being the world’s largest income, withdrawals not only hurt the U.S. economy but could also influence other countries to leave their trade organizations, such as the European Union.Fiscal Delusions.The United States government is currently running a $500 billion fiscal deficit.  While appealing to fiscal conservatives during his campaign, Trumps tax plan is a paragon of fiscal irresponsibility.  The Tax Foundation, a conservative D.C. based think tank, estimates that Trump’s tax plan will reduce federal revenues by $4.4 trillion to $5.9 trillion over a 10 year period.  Surprisingly, this is an improvement upon an earlier tax plan which was going to decrease revenue by as much as $12.3 trillion.  Trump gives even further evidence that he is an inter-dimensional being living mainly in an alternative reality by saying, despite all the tax cuts, he plans to pay off the entire nearly $20 trillion national debt in just 8 years.  When asked how he plans to accomplish this, which would require setting aside at least 2 trillion every year to pay debt holders, Trump said “ I could do it fairly quickly, because of the fact the numbers”.  He plans to not include a single tax increase and believes the $2 trillion can be made up solely on renegotiating trade deals.   To such an idea everyone, from academic economists to the guy who only skips Econ 104 on Fridays, says WRONG!If one were looking to build a blueprint or design for a monument to human ignorance Trump’s proposed border wall would be a good start.  While still in the conceptual process, the wall is estimated to cost around $750 million dollars on an extremely conservative estimate and will continue to cost hundreds of millions of dollars a year to guard and maintain.  This proposed wall will face various physical challenges such as a reservoir that is nearly 4 miles across, mountains, and the basic challenge of keeping the wall far enough away from the Rio Grande River to avoid flood but not too far that it puts U.S. homes on the wrong side.  The wall would also be one of the largest, if not the largest, use of eminent domain in U.S. history.  As a GAO report stated: “federal and tribal lands make up 632 miles, or approximately 33 percent, of the nearly 2,000 total border miles. Private and state-owned lands constitute the remaining 67 percent of the border, most of which is located in Texas”(p.5).    With the wall, the hallmark of Donald Trump’s campaign, being so costly, we must ask, is it worth it?  While the president may paint a picture of an economy and society ravaged by waves of Mexican “illegals”, net immigration on our southern border has been negative for many years.  On top of that, around 45% of the current undocumented population came here legally, through border checkpoints or at airports, and simply overstayed their visa.  Also, the largest increase in undocumented immigrants have been from Asia, particularly China and India, and a wall will obviously not halt this flow.  Although the wall will do little to prevent undocumented immigration, is that even a proper objective?  I have written on the Optimal Bundle blog before that immigration, whether legal or illegal, is at worse a small positive for U.S. workers.  All that I truly believe the wall will accomplish is two horrible results. First, send an awful signal to our southern neighbor that their people are not wanted.  Second, feed the hungry racists who wanted a concrete wall to prevent their neighbors from being non-white or speaking another language.We have truly entered the post-truth era.  Evidence based policy has been replaced by alternative facts, and the hateful feelings of nativism decide government action.  Our current president was elected, despite his constant lies.  His economic naivety is only a small fraction of his profound ignorance to reality.  Honestly, nothing saddens me more than to see years of economic research put aside in favor of a loud talker.  Hopefully, after this step back we can take 5 more forward.  This election, like nothing else, has demonstrated the economic ignorance of vast numbers of the electorate.  As students of economics we are given one duty, educate our peers.