The Trump Card

To many, the world has stopped making sense. People "out there" have lost their minds. Brand new political parties are winning big elections, Britain voted leave and of course, Donald J. Trump.

To me, this all makes perfect sense. While I did not think Trump was going to win, I did believe he had a much better chance than many were expecting. What did I know that so many missed?

Indeed, why did trump win? What will happen in 2020? It wasn't the Russians. Yes, I'm sure they try and influence elections where they can and I'm sure they try and sow instability in their rivals' turf. But to say they were able to swing the whole election with some social media bots is asinine. Advertisement is not hypnotism and we don't need such an outlandish explanation to explain why Hillary's campaign and candidature were so lacklustre and why Trump's message had legs when there is a much better explanation staring us in the face.

The real reason Trump won is the same reason Bernie almost got the Democratic nomination. It's the same reason why Jeb and the rest of the establishment tanked. Of all people, Hillary really should have known: it's the economy, stupid.

Living in Obama's recovery USA, I could see a lot of anecdotal evidence of people struggling. College grads working multiple bar jobs and moving back in with their parents and Uber drivers explaining how they used to be retired. Work trips to Ohio and Michigan really opened my eyes to a recovery that wasn't

There are lies, damned lies, and then there are statistics. Government economic data is thoroughly biased as evidenced by the changes to the formulae for inflation, GPD and unemployment that always coax out better numbers than the older formulae. Hedonic substitutions then really allow the bureaucrats to cheer-lead the economy. Shadowstats, economists or the Austrian school and contrarian thinkers had it right: the Fed's unprecedented inflationary policy had brought the good times back to Wall street, but on Main street, unemployment was still north of 10% and and inflation was a lot hotter than 2% (making real GDP negative).

One other person saw all of this: Donald. He called the stock market a "big fat ugly bubble". He said unemployment was more than 20%. He said America was no longer great. Hillary, on the other hand, stood on Obama's shoulders, who said that Trump was "pedaling fiction". But the rust belt knew what reality they were living. They voted against four more years and for something different. Anything different.

Almost as soon as he had won, Trump changed his tune and declared victory. The big fat ugly bubble was now a bull market. The worst economy in history was now the best economy in history. Excitement about tax cuts and deregulation changed sentiment and the stock market reached record highs while unemployment reached new lows. However, the underlying economy was still the same. Nothing of substance has changed. The deficits are bigger, people are still struggling, waiting for Trump's America to arrive. It's not coming. Trump's irrational cheer-leading leads me to my next prediction: Trump is toast.

Trump will be a one-term president. Trump's 2020 slogan of "Keep America great" will be another four more years the electorate won't want. As the recession worsens and the data becomes undeniable, the voters will be ready to bring in anyone, as long as they are everything that Trump is not. America is going to lurch hard to the left in 2020. Of course, that won't work either.

Similarly, and for similar reasons, the rest of the west will lurch left and right, sliding ever farther from the centre and down the slope towards totalitarianism. In some places it will be universal socialism and in others, nationalist socialism.

Our only hope is to recognise and refute this trajectory. The only answer that works is real free market capitalism. Not the crony, over-regulated special interest system we have today, but the true free markets that made us rich in the first place. Getting there will not be easy. After all, we need a recession. We might even need a depression. The real economy has been so screwed up for so long by so much bad macro policy and regulation that the transition must now be long and arduous. So much debt now has to be written down. So many people expecting a social safety net will have to be let down. So many malinvestments have to be liquidated and re-allocated. If that sounds grim, I assure you it could and might be worse. After all, 2035 might start to look a lot like 1935.

San Jose, January 24th 2019

TLDR: Economic issues are the root cause of the west's political instability

Tit for Tat

“Trade wars are easy to win”, says Trump. Unfortunately for the USA, trade wars are not only not easy 
to win, they are impossible to win, because every ‘victory’ leaves you poorer than before. Free trade is 
under attack, it has been daemonised, not only by leftists and populists, but also by more centrist 
politicians. The sad truth is that truly free trade has been dead for a long long time. One positive outcome 
of Trump’s actions is that is has brought trade back into the spotlight, and his unpopularity is driving people 
into the free trade camp.

Our “propensity to truck and barter” separates us entirely from the animals. Humans are traders, our 
survival depends on it. If left alone to create all the means necessary for our own survival ourselves, we 
barely subsist and then we die. Through specialisation and trade however, hunger is virtually unknown 
and we can devote large portions of our time to leisure.

“In every country it always is and must be the interest of the great body of the people to buy whatever 
they want of those who sell it cheapest.”, those immortal words of Adam Smith explain what is almost 
universally accepted by all economists: trade is a win-win. When two people freely exchange, both 
parties are better off. By allowing the butcher to focus on rearing cattle and the baker on makes loaves 
and allowing them to trade, both will have a greater amount of bread and meat than if they tried to make 
each themselves.

This is true on a national scale also. Some countries have the climates, skills, infrastructure, knowledge 
and natural resources that allow them to specialise in the production of certain goods. Even if one country 
is better at producing everything than another country, the less efficient country still benefits by focusing on 
what it is good at and trading for the rest. This is the rule of comparative advantage.

These admittedly very basic facts about economics, like many basic economic facts escape the vast 
majority of the population. The masses who believe that prosperity is a fixed pie, and that one nation’s gain 
is another’s loss are easily swayed by the arguments of protectionism championed by economic illiterates. 
Indeed, who or what is protected under ‘protectionism’? As Friedman liked to say, it is the people who are 
protected, from low prices.

The main arguments used by protectionists are that a certain industry is being affected by ‘unfair’ trade, 
or that it needs to be boosted to catch up with international competition or that it needs to be helped in 
order to preserve it for cultural or national security reasons.

There is no such thing as ‘unfair’ trade. If a foreign government is so ill-advised as to tax its own subjects 
to send low-price goods to another market, this is actually foreign aid and the citizens in the “dumping” 
market benefit form lower prices and a higher standard of living. After all, the vast majority of us don’t work 
for the sake of it, we want to enjoy the fruits of labour.

Wrong also, is the idea that a protectionist tariff, which is just a tax on the import of specific goods will 
somehow give domestic industry a leg up. Such measures invariably lead to complacency in these 
industries that can just raise their prices almost by the amount of the tariff without having to invest in plant 
and equipment. The measure intended to preserve certain industries end up dooming them to a 
zombie-like fate of irrelevance.

The national security argument is also a cop-out. The idea that, due to a war, a country would no longer 
be able to import steel, aluminium or unobtainium has never borne out. Also, if national security was really 
the concern, there would be much cheaper and more effective ways to guarantee a supply than a stupid 
tariff. For example, steel mills could be mothballed, just like battleships, or steel could be stockpiled. It is 
interesting that those invoking the national security argument never mention alternatives to tariffs or 
subsidies.

The most damning point about the national security argument is that trade wars lead to wars. Or rather, 
trade leads to peace. The more interconnected two countries are when it comes to trade, the more 
expensive it would be and therefore the more reluctant the parties would be to seek a destructive war with 
their trading partners.

We have seen this in Europe. 50 years of peace on a content that had previously scarcely known a year 
without war. The European free trade zone has been instrumental in this security. Interestingly, the 
European Union, the champion of inter-community free trade is on aggregate anti-trade, as highlighted by 
it’s Brexit stance.

Although it has sought to free up trade as much as possible between member states, the EU has started 
and participated in several trade wars. Also, it is in favour of managed trade; encyclopedia-sized trade 
treaties with specific countries that impose massive regulatory tariffs on imports and leave the developing 
world out in the cold.

A real free trade treaty could be written on the back of a business card: unilateral free trade. Everyone can 
buy or sell whatever he or she likes from whoever he or she likes. The citizens of the EU, especially the 
poorest, are not helped by the imposition of one-size-fits-all quality standards. Nor are they helped by 
targeting foreign companies with lawsuits over ‘unfair’ trade practices in courts clearly biased towards 
their home constituents. They aren’t helped either by having cheaper poorer-quality goods from 3rd world 
countries shut out of their markets - and neither are the citizens of those countries. Food for thought the 
next time you pick up a “fair trade” banana.

Pisa, March 9th 2018

TLDR: It's about time we stop hurting ourselves and each other with policies spouted by economic illiterates that we should have left buried in the 18th century

 

Trump's trade war receives a frosty reception