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(Trade) war, children, it’s just a tweet away

Summary:
When I listen to the Rolling Stones, I often cannot understand the lyrics. But then the lyrics don’t matter, at least in terms of “information content”. All that matters is whether they sound good when Mick Jagger sings them. And they often sound very good. When I listen to Trump, the information content often makes no sense. He’s going to pay off the entire national debt in 8 years? And he’s going to do so with tariff revenue? Well . . . that does sound good. It sounds good when Trump announces that he’ll declare a trade war on big bad China, using higher tariffs. And it sounds even better when he reassures us that the tariffs won’t raise prices because they’ll be paid for by the Chinese. And it sounds even better when he announces that the tariffs will be delayed so that

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When I listen to the Rolling Stones, I often cannot understand the lyrics. But then the lyrics don’t matter, at least in terms of “information content”. All that matters is whether they sound good when Mick Jagger sings them. And they often sound very good.

When I listen to Trump, the information content often makes no sense. He’s going to pay off the entire national debt in 8 years? And he’s going to do so with tariff revenue? Well.that does sound good.

It sounds good when Trump announces that he’ll declare a trade war on big bad China, using higher tariffs. And it sounds even better when he reassures us that the tariffs won’t raise prices because they’ll be paid for by the Chinese. And it sounds even better when he announces that the tariffs will be delayed so that they won’t hurt our Christmas shoppers.

In a world where voters paid attention to information content, Trump might run into problems. But voterS see no inconsistency here, because the tweets consistently sound good.

It looks like I was wrong in my earlier post about Trump’s tariff announcement signaling a desire to get an agreement.  Either he never intended that strategy, or China’s tough response made it impossible.  (Maybe the Chinese read my blog.)

Obviously if Trump is frightened of the political consequences of 10%, his previous threat of 25% on the consumer imports is completely off the table.  The Chinese called his bluff, and he backed off like a dog with its tail between its legs.

I must say that I am really enjoying seeing the US lose the trade war.  For years (even before Trump) we’ve been pushing other countries around.  It’s nice to see someone finally stand up to American bullies. That’s doesn’t mean I’m “pro-China” (whatever that means), as I hope the Chinese government loses its battle with pro-democracy forces in Hong Kong.  I’m pro-neoliberalism, which I’ll support any time and any place in the world.

Speaking of neoliberalism, this FT editorial is another sign of the decline and fall of Western Civilization:

(Trade) war, children, it’s just a tweet awayIt’s sad to see former neoliberal media outlets such as the FT and The Economist move in a statist direction.  A younger generation seems to have forgotten all the lessons of the final 3 decades of the 20th century.  I suppose some people would cite a quote attributed to Keynes:

When the facts change, I change my mind. What do you do, Sir?

So let’s consider the facts:

1. Market economies did better than statist economies before the Great Recession.

2.  Market economies did better than statist economies during the Great Recession.

3.  Market economies did better than statist economies after the Great recession.

In the same edition of the FT is another headline, a reminder of what statist policies do to an economy:

Argentine peso falls sharply for a second day

Turmoil continues to rock currency after strong showing by populist candidate in primary vote

I hope Tyler Cowen will hurry up and write his book entitled “The Great Forgetting.”

We’ve forgotten that monetary policy drives NGDP, and that fiscal policy is a fifth wheel.  We’ve forgotten that trade deficits are not a problem and budget deficits are.  We’ve forgotten that industrial policies don’t work.  We’ve forgotten that price, rent, and wage controls don’t work.  We’ve forgotten that saving is a virtue.  We’ve forgotten that low interest rates don’t mean money is easy.  We’ve forgotten how to build infrastructure. We’ve forgotten that nationalism is one of the great evils of world history.  We’ve forgotten that socialism is another of the great evils of world history.

Here’s Mick:

Oh, a storm is threat’ning

At least I think that’s what he said.

PS.  Brian asked me to talk about monetary policy.  Hey Fed, cut rates by 50 basis points.

HT:  Stephen Kirchner


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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