Donald Trump and Adam Smith: Who is the economic genius? (Hint: It’s Not Donald Trump)March 8, 2017
If you think there is actually a real debate about the answer to this question, you should probably spend a little bit more time studying economics.
“The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”
-Adam Smith, The Wealth of Nations
“Smith vehemently opposed mercantilism—the practice of artificially maintaining a trade surplus on the erroneous belief that doing so increased wealth. The primary advantage of trade, he argued, was that it opened up new markets for surplus goods and also provided some commodities from abroad at a lower cost than at home. With that, Smith launched a succession of free-trade economists and paved the way for David Ricardo’s and John Stuart Mill’s theories of comparative advantage a generation later.”
“Among mercantile fallacies were such notions as the balance of trade required to be positive in favour of exports, so that a nation could accumulate stocks of gold and silver (which the King could use to fight wars against neighbours – you can see why kings were easily converted to the nonsense!).
From this fallacy, policies of protection against imports were developed, supported by tariffs and prohibitions, even though this meant that large numbers of goods cost domestic consumers much more from higher prices (and profits) than importing them would have allowed – you can see why many ‘merchants and manufacturers’ were enthusiastic true believers in this fallacious idea, and still are!”
Smith opposed such government interventions because they held back mutually advantageous trade from which peaceful trading countries could increase the opulence of their peoples. Many of the trade items added to the long lists (which grow ever longer) of protected trade were derived, not from economic principles or national secureity but from the lobbying of legislators and the hiring of influencers (with not a little bribery) on behalf of domestic ‘merchants and manufacturers’, who profited by narrowing the supply and widening the higher-priced market for their goods.”
–Professor Gavin Kennedy, University of Edinburgh
Enter Donald Trump
“I know from talking to business people that no major firm wants to be a subject of a Trump tweet,” says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. He says companies realize Trump controls the Justice Department, the Defense Department, the IRS, Treasury and regulatory agencies, and “the amount of control that intersects with what companies are doing is enormous.”
“There is no precedent for a U.S. president requiring private companies to use U.S.-made materials or equipment outside of war-time, said Dan Ikenson, director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.
“First of all, this is private investment, so there’s no legal authority for the government to require a private company to use domestic materials,” he said on Thursday, prior to Trump’s comments at the retreat.
“Is it good policy to have the president dictate where U.S. companies buy their inputs? No. I think that’s terrible. I think that’s dictatorial. I think it’s very bad precedence.”
Adam Smith Explains Why Punishing Companies and Countries with Tariffs is Bad Economics
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished, no more than that of the above-mentioned artificers; but only left to find out the way in which it can be employed with the greatest advantage. It is certainly not employed to the greatest advantage when it is thus directed towards an object which it can buy cheaper than it can make.”
“When our neighbours prohibit some manufacture of ours, we generally prohibit, not only the same, for that alone would seldom affect them considerably, but some other manufacture of theirs. This may no doubt give encouragement to some particular class of workmen among ourselves, and by excluding some of their rivals, may enable them to raise their price in the home-market. Those workmen, however, who suffered by our neighbors prohibition will not be benefited by ours. On the contrary, they and almost all the other classes of our citizens will thereby be obliged to pay dearer than before for certain goods. Every such law, therefore, imposes a real tax upon the whole country, not in favour of that particular class of workmen who were injured by our neighbours prohibition, but of some other class.”
Trade is Not the Problem and “Outsourcing” is Not the Problem; Government Policy is the Problem and Trump is Making it Worse
“To the extent that some Americans are harmed, which is inevitable, the projected gains of future free-trade agreements should be more than enough to compensate losers, if only the government can get itself organised. Peter Petri and Michael Plummer, two economists, estimate that the TPP will boost American incomes by $131 billion, or 0.5% of GDP. That is over 100 times what America spent on trade-adjustment assistance in 2009: there is plenty of scope to do more for the losers from trade.”
Maybe we need to see the Donald’s transcripts? He sure doesn’t seem to understand how the economy works.