Bad policies sometimes lead to interesting economics. For example, the disastrous turn toward austerity after 2009 was a kind of natural experiment that led to an upwelling of good work on the effects of fiscal policy.
And I’m starting to think that the Trumpian trade war, which finally seems to have arrived, will lead to some good work on international economic policy. Like the work on fiscal policy, it will of course be ignored by people in power. But still worth doing.
In this little essay I’m going to offer some analysis and a few numbers based on a chain of thought that begins with Trump’s evident disdain for Japan and ends up in Atlanta, New Orleans, and Buffalo. What? Bear with me if you have a taste for things wonkish.
[If not flick down to "So to sum things up:". Be warned though, if you do that you will miss three possible answers re Japan, and other good stuff.]
My starting point is a peculiar aspect of Trump’s climb-down on steel tariffs. The ostensible justification for these tariffs was national security; but as was widely noted from the start – although this probably came as news to the Trumpies – most U.S. steel imports come from American allies. And now Trump has granted exemptions to allies that largely vitiate the supposed point of the exercise.
One answer may be that the Japanese aren’t, you know, white.
Another answer may be that Trump, who often seems to have fixed ideas about the world that are long out of date – like his belief that American cities are gripped by a huge crime wave – is still living in the Michael Crichton era .. https://www.amazon.com/Rising-Sun-Novel-Michael-Crichton-ebook/dp/B007UH4D86 .. when Japan was going to take over the world any day now.
Yet a third answer may be that the U.S. does run a trade deficit with Japan – actually even bigger than the headline number if you include Japanese components embedded in Chinese exports – and Trump believes that (a) a trade deficit means that you’re losing while someone else is winning and (b) trade balances are determined by protectionism.
Both propositions are, of course, untrue. In reality, trade balances are the flip side of capital flows: countries that attract more inflows of foreign capital than their own outflows must, by the sheer arithmetic, run current account deficits (that is, including investment income). Conversely, countries that are exporters of capital run current account surpluses.
And modern Japan is a country that really should be running current account surpluses, for one powerful reason: demography. Japan has a rapidly declining working age population:
This means limited opportunities for investment, which means that it’s a country that should be investing its savings abroad.
But the claim that trade surpluses often reflect weakness, while trade deficits reflect strength, is a very hard sell. And demographic drivers of trade imbalances are usually a lot less clear than this.
This, however, got me thinking: what about regions within the United States? We have sharply different growth rates across metropolitan areas, mainly driven by in- or out-migration. There are no protectionist barriers to muddy the picture, and capital is surely highly mobile within the country.
Unfortunately, we don’t have comprehensive regional balance of payments data. Thanks to researchers at Brookings .. https://www.brookings.edu/research/metro-freight-series-global-goods-trade-and-metropolitan-economies-2/ , however, we do now have a lot of information on the exports and imports of metropolitan areas – exports and imports to and from other parts of the U.S. as well as the rest of the world. I’m not sure how safe it is to use these data to estimate trade balances, but let me take a stab at it.
These data only cover goods; they don’t cover either services or income transfers like, say, Social Security receipts, which as we’ll see in a second can make a big difference. So I don’t think I can run any regressions here. But I still think looking at metropolitan trade balances can be enlightening.
So let’s look at the metros with the biggest goods trade deficits and surpluses.
First, the biggest deficits (data for 2010, in billions of dollars):
Washington: -$86 billion
Miami: -$68 billion
San Francisco: -$41 billion
Atlanta: -$35 billion
Baltimore: -$33 billion
OK, Washington runs a huge deficit in goods; basically, what it exports is garbage. No, literally: waste is the only product in which it runs a surplus. But this goods deficit is presumably offset by services, both the federal budget and stuff like payments to K Street lobbyists. My guess is that Baltimore has some of the same stuff.
Miami, meanwhile, is selling warm weather to senior citizens, who live largely off Social Security and Medicare.
The big deficit surprise here to someone with a Trumpist view of trade balances would surely be Atlanta, which has been one of our fastest-growing metropolitan areas: a 24 percent increase in population between 2000 and 2010. And we’re talking about a big deficit – about 13 percent of metro GDP. What’s that about?
The answer, surely, is that the deficit is a reflection of Atlanta’s growth: we’re talking about building lots of housing, office parks, and so on, and much of that is financed by capital inflows from the rest of the country.
Next, the biggest surpluses:
Los Angeles: +$63 billion
Memphis: +$29 billion
Greensboro: +$18 billion
Corpus Christi: +$18 billion
New Orleans: +$15 billion
Los Angeles is a very big metropolitan area, but also one whose growth has slowed a lot: it has run out of land, and zoning restrictions have kept it from building up. So its population rose only 3.7 percent from 2000 to 2010. As a result, it has probably become a big exporter of excess savings, hence a city with big trade surpluses, around 9 percent of GDP (probably even bigger if we had data on services).
I haven’t done enough homework to know what’s going on in the middle three here. But did you know that New Orleans runs huge trade surpluses? And I mean huge: almost 20 percent of GDP in 2010.
Now, I don’t think many people would consider New Orleans an economic winner. In fact, its population declined 11 percent from 2000 to 2010, partly because of Katrina, but also because of wider problems. And that very decline means that savings generated in New Orleans go elsewhere in search of returns.
You can see the same thing in smaller cities with declining populations. Buffalo-Niagara Falls saw a 3 percent population decline in the 2000s; in 2010 it ran a trade surplus of 22 percent of GDP.
And what about the Big Apple? Greater New York ran a small goods trade deficit – 1.6 percent of GDP – in 2010, but thanks to the financial industry surely ran a huge surplus in services. (Remember, this is the metro area, not just New York, so there are plenty of goods exports from, say, the pharma complex in New Jersey.) So it’s a big surplus economy overall – not because it’s growing fast, but because despite immigration its overall population is growing slowly.
So to sum things up: within the United States we have large regional trade imbalances that don’t reflect “unfair” trade policies, because interstate trade is totally free. And running trade surpluses isn’t a sign of success, nor is running deficits a sign of failure. If anything, much of the time it’s the reverse: fast-growing regions run deficits, stagnating regions run surpluses.
The same principles apply at the international level. And I’m sure experts in the Trump administration will explain to the president why his view of such things is all wrong. Oh, wait.
To lead the World Bank, President Trump picked David Malpass, whose past economic philosophy, curiously, was at odds with the president's policies. Doug Mills/The New York Times
U.S. political discussion has been dominated by the issue of Donald Trump’s wall — an issue on which Trump's irrationality keeps surprising even his critics. So I don’t imagine that many people have heard about Trump’s nomination of David Malpass, currently an under secretary at the Treasury Department, to lead the World Bank. But it’s a story worth following.
For one thing, while the U.S. traditionally gets to choose the World Bank’s president (Europe gets the International Monetary Fund), there will be a lot of opposition to Malpass, who has a history of being hostile to international institutions .. https://www.reuters.com/article/us-usa-trump-worldbank-idUSKCN1PV2DK . Furthermore, the Malpass nomination highlights the remarkable character of Trump’s economic appointments.
Remarkable in what way? Well, remarkably bad. Every economist, yours truly very much included, gets it wrong sometimes .. https://krugman.blogs.nytimes.com/2016/11/11/the-long-haul/ . But Trump only seems to choose men who have been wrong about everything.
Beyond that, however, what’s remarkable is the extent to which this president consistently chooses economists whose ideology is at odds with his own professed views on policy.
These days, at least, Trump is an easy-money guy who wants the Fed to keep interest rates low. But he keeps appointing deflationists — men who opposed any attempt to rescue the economy from the financial crisis, who bitterly attacked the Fed for keeping rates low and demanded tight money even when we had very high unemployment.
Why does he do this? I’ll get there in a minute. First, let’s talk about who’s on the Trump team.
And then there’s David Malpass, also both a bubble denier and a Bernanke-basher. Much press commentary has noted his 2007 insistence, as chief economist at Bear Stearns .. https://www.vox.com/2017/3/15/14596938/david-malpass-treasury , that there was no reason to be worried about the financial system. A few months later his own firm imploded.
But I think his most revealing piece of commentary was a 2011 screed .. https://uneasymoney.com/2019/02/05/there-they-go-again/ .. against low interest rates and what he considered a “weak dollar” policy. A low rate policy, he declared, hurts the economy because it “discourages thrift,” while the weak dollar was bad for confidence, or something.
This was really bad economics. At the time, America had 9 percent unemployment, entirely because of inadequate private spending; to the extent that low interest rates were discouraging thrift and making people spend rather than save, that would have been a good thing, not a problem. And Malpass’s argument about the dollar was just incoherent.
What’s really striking, however, is that the policies Malpass attacked were precisely the policies Donald Trump now demands: low rates and a weaker dollar. So why would Trump want to promote him, and people like him?
Here’s how I understand it: The first thing Trump looks for in an appointee is someone who shares his values — above all, his absolute lack of compassion for those less fortunate than himself. And if you want an economic official who doesn’t care about the poor or the unlucky, you must perforce go for a right-winger.
But Trump also has another criterion: He wants people who will be personally dependent on him, who don’t have any kind of professional reputation to defend and therefore won’t take a stand on principle. That is, he only wants hacks.
And here’s the thing: Right-wing hack economists are, with hardly any exceptions, hard-money, hyperinflation-is-around-the-corner types. So Trump ends up with officials whose past views are diametrically opposed to what he says now. Sign up for Frank Bruni's newsletter
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Does this mean that the men he has chosen will stand in the way of his policies? No, not at all. They are hacks, after all, and will tell Trump whatever he wants to hear.
But it does mean that Trumpian economic policy is being made by men who, almost by definition, don’t know what they’re doing. To have gotten their jobs, they not only had to have track records of talking nonsense, but to have suddenly started talking completely different nonsense — reversing their long-held positions to curry favor with the Very Stable Genius.
So what will happen if and when this economic team has to deal with real problems, like a global slump? Somehow, I’m not optimistic.
Trump Versus the Socialist Menace [...] What Americans who support “socialism” actually want is what the rest of the world calls social democracy: A market economy, but with extreme hardship limited by a strong social safety net and extreme inequality limited by progressive taxation. They want us to look like Denmark or Norway, not Venezuela. https://investorshub.advfn.com/boards/read_msg.aspx?message_id=146794552
Have We Had Enough of the Imperial Presidency Yet? Even a feeble president can impose his will on the nation if he lacks any sense of restraint or respect for political norms and guardrails. [...] ndeed, the line between the Trump White House and conservative media outlets has become blurred beyond recognition. The former CNBC host Larry Kudlow now serves as head of the National Economic Council, while the former “Fox & Friends” host Heather Nauert has been nominated to serve as ambassador to the United Nations. Bill Shine, a former executive at Fox News, now runs the White House Communications Office. https://investorshub.advfn.com/boards/read_msg.aspx?message_id=146062099
What not Ivanka? At least she will sit on Trumpty’s lap. [...] After Ayers turned the job down, Trump tried to recruit Treasury Secretary Steven Mnuchin, United States Trade Representative Robert Lighthizer, top economic adviser Larry Kudlow and North Carolina Republican Congressman Mark Meadows, all of whom declined, one source said. https://investorshub.advfn.com/boards/read_msg.aspx?message_id=145443712
Trump’s Potemkin Economy [...] And the early phase of the trade war that was supposed to be “good, and easy to win” isn’t generating the kinds of headlines Trump wanted. Instead, we’re hearing about production shifting overseas to escape both U.S. tariffs on imported inputs and foreign retaliation against U.S. products. It’s really worth reading the submission by General Motors .. https://www.regulations.gov/document?D=DOC-2018-0002-1991 .. to the Commerce Department, urging a reconsideration of a tariff policy that “risks undermining GM’s competitiveness against foreign auto producers” and “will be detrimental to the future industrial strength and readiness of manufacturing operations in the United States.” In other words, “Don’t you understand global supply chains, you idiot?” [...] Meanwhile, reports say .. https://www.nytimes.com/2018/06/07/us/politics/white-house-tariffs-growth.html .. that the Council of Economic Advisers did an internal report concluding that Trump trade policy will cost jobs, not create them; Kevin Hassett, the chairman, pressed on these reports, said that he could neither confirm nor deny them .. https://www.cnn.com/2018/06/29/politics/hassett-report-trump-tariffs-cnntv/index.html ; in other words, they’re true. But meanwhile Hassett is declaring that last year’s corporate tax cut has led to a “massive amount of activity coming home .. https://www.marketwatch.com/story/white-house-advisor-foreign-investment-is-skyrocketing-even-with-harley-davidsons-move-overseas-2018-06-26 ” — which is just false. Some companies are rearranging their accounting, producing what looks on paper like money coming back to the U.S., but this has no real effect on investment or employment. P - But the most Potemkinesque story of the past week was the declaration by Larry Kudlow, the administration’s top economic official, that the budget deficit is “coming down rapidly” as “those revenues come rolling in .. https://www.marketwatch.com/story/this-is-how-larry-kudlow-defines-a-falling-deficit-2018-06-29 .” P - Actually, the deficit is rising fast, mainly because of a plunge in corporate tax receipts — the direct result of the tax cut: https://investorshub.advfn.com/boards/read_msg.aspx?message_id=143311261
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