[UPDATE: Amash clarified what happened; see the bottom of the post. Now I can sleep peacefully.]
In Episode 799 of the Tom Woods Show, I was the guest and we were talking about the Carrier deal. Tom brought up the fact that I had mentioned on Twitter that I thought Rep. Justin Amash (R-MI) had misunderstood (at least initially) the point that Dilbert creator Scott Adams brought up.
I’ve had a few people challenge me, saying that *I* was the one missing things. I wasn’t going to bother with this, because I don’t want it to seem like I was taking Trump’s (or Adams’) side on the broader debate. FOR THE RECORD: I TOTALLY AGREE WITH JUSTIN AMASH’S DEFENSE OF FREE TRADE, AND HIS OPPOSITION TO TRUMP’S THREATS AGAINST U.S. COMPANIES THAT ARE CONSIDERING OUTSOURCING.
However, since I guess the cat’s already out of the bag, I might as well be clear on exactly what motivated my remarks on Tom’s show. One last thing, though: If you go and listen carefully, I hedged and said something like, “At the very least, one reading Amash’s tweets would understandably *think* that he didn’t get the point.”
So anyway, here we go. I’ll paste in a selection of Amash’s tweets taken from the debate, with my commentary following each:
— Justin Amash (@justinamash) December 4, 2016
This is what got the ball rolling. Clearly, at this point Amash is thinking of a general tariff that actually gets implemented. If he *weren’t* thinking that, then the 35% figure would be wrong (because it would be arbitrary). For example, suppose it would only take, say, a 28% tariff to scare every US firm and keep it from outsourcing. Well then, if Trump had threatened a 28% tariff, then no company would move, and Amash would tweet, “This is a 28% tax on all Americans…” If Trump then jacks it up to 35%, it would still be the case that no company moved, but that wouldn’t make their products more expensive yet again. In that case, Amash would still have to write, “This is a 28% tax on all Americans…”
Thus, at this initial stage, when Amash is first responding to Trump’s twitter rant, it is clear that Amash is thinking the 35% tariff will actually be triggered, and *that’s* why Amash is (correctly!) saying it’s not just a penalty on the outsourcing company, but on American consumers.
In the next stage, Scott Adams replies:
No, the whole point is that no company would move with that risk hanging over them. So no tax is triggered. https://t.co/1XJnuiuIyp
— Scott Adams (@ScottAdamsSays) December 5, 2016
OK, so we see that Adams is challenging the initial logic. (By the way, I had never considered this possibility until Adams brought it up. I don’t know whether Trump himself was thinking this.) OK fair enough. Let’s see what Amash says in reply:
No. American consumers are taxed even if no companies move. Tariff increases production costs & limits competition. This is basic economics. https://t.co/JjBAnpflbE
— Justin Amash (@justinamash) December 5, 2016
OK, so *this* is the point where I, Bob Murphy, jumped into the twitter debate. At this point, it sure seemed like Amash missed what Adams had argued. For one thing, Amash is talking about a tariff increasing production costs. But in this scenario, there IS NO tariff. Rather, it’s the THREAT of a tariff that is doing the work.
That may sound like quibbling to some (and we’ll get to that in a moment, over the narrow vs. broad use of the term “tax”), but look how weird Amash’s usage would be in other circumstances. Suppose Trump says, “If a CEO wants to outsource, I will shoot him in the head.” Then Amash says, “Outrageous! Bullets hurt brains.” Then Scott Adams says, “No, the idea is that no CEO will want to get shot in the head, so no outsourcing.” Them Amash comes back and says, “No, even if no company moves, the bullet still causes damage. This is basic physiology.” Wouldn’t people think Amash had misunderstood?
OK, you still don’t believe me? Then what about Amash’s claim in the tweet that, “This is basic economics.” If we interpret the previous sentence to mean, “A tariff is imposed on goods coming into the US,” then yes of course, it IS basic economics. But if we interpret the previous sentence to mean, “No tariff is actually imposed, but the threat of it keeps companies from outsourcing and thereby keeps their production costs artificially high, and makes US consumer prices higher than they would otherwise be,” then HECK NO that’s not basic economics. In fact this is the first time I’ve ever heard such a claim. I *agree* with it, but it’s not basic economics.
Thus, I think I was on solid ground when I said, at this point in the debate, that Amash had missed Scott Adams’ point.
Next, Amash tweeted out a link to Don Boudreaux’s blog post:
Open Letter to “Dilbert’s” Scott Adams https://t.co/w4nhqOmPGX
— Justin Amash (@justinamash) December 5, 2016
Now here I made a mistake. I started skimming Don’s piece, and saw that he immediately said that Amash was right and Scott Adams was wrong. Since at this point I was confident that Amash had misunderstood Adams’ point, I stopped reading (I was in an airport, cut me some slack) and I tweeted that Amash and Don were both missing the point. However, I realized later (when I had time to carefully read Don’s post) that Don fully understood Adams’ point, and gave a great reply.
At this point, let me just post a screen shot of the back-and-forth Amash and I had:
OK, so after I said I thought Amash and Don were missing Adams’ “narrow point,” Amash assures me he gets it. I PROMISE YOU, folks, at this point I totally believed him. After all, Amash is a sharp guy, and Adams’ point wasn’t too hard to grasp.
So I threw in the towel, and said, “OK,” and just clarified why I thought he had been unclear by calling it a tax, rather than a *threat* of a tax. I was ready to walk away; my work was done here. At this point, I would’ve bet $1,000 that Amash understood Adams’ point.
And yet… and yet… look at how Amash then replied to me, in the last item above. The entire point of Scott Adams’ argument was that no tariff would exist. And yet Amash chooses to wrap up the debate by saying, “…the existence of a tariff increases prices…” Again, for someone trying to convince me that he understands we’re talking about a scenario where no tariff exists, summarizing his whole position as being based on the existence of a tariff is a bit confusing.
In light of the above, I stand by my remarks on Tom’s show. After his last comment, I would no longer bet $1,000 that Amash fully grasped Scott Adams’ original point. Maybe he did, maybe he didn’t, but at this point I was once again unsure.
AND JUST TO REPEAT: I TOTALLY OPPOSE TRUMP’S THREATS AGAINST COMPANIES. I SUPPORT AMASH’S DEFENSE OF FREE TRADE.
Update: Amash read this post and then resolved all problems by explaining:
@BobMurphyEcon Ha. Twitter's character limit has made this more complicated than necessary. Tariff can exist (in law) even if not triggered.
— Justin Amash (@justinamash) December 10, 2016
This isn’t Contra Krugman; instead it’s episode 799 of the Tom Woods Show.
Don’t worry, this isn’t (directly) about Trump.
In a blog post titled, “Innumeracy drives me nuts,” Scott Sumner lists several examples of people (allegedly) being innumerate. I definitely agree with some of his examples, but others are stretching it.
However, one of Scott’s arguments in particular seemed flat out wrong to me. Here’s what Scott wrote:
The claim that greater infrastructure spending would significantly boost US economic growth is absurd. It might boost it, but the US economy is far too large and diverse for a $550 billion infrastructure package to make much difference, especially during a period of 4.6% unemployment and monetary offset. Tax reform and deregulation are more promising, but even here the claims of 4% to 6% RGDP growth are ridiculous, at least over an extended period of time (I suppose one or two quarters are possible.) Trend RGDP growth during the 20th century averaged about 3%, under wildly different policy environments. I’m not saying policy had no impact (I’m a moderate supply-sider), but people tend to overrate the impact.
Now this is a strange argument indeed. Imagine if someone said, “It’s ridiculous to suppose you could sample Americans and get four guys in a row who are over 6’5″, because the average height over the whole population–including people with wildly different genes and diets–is about 5’10”.” The fallacy–dare I say innumeracy?–there would be obvious, and yet that seems to be what Scott’s argument is.
In any event, here’s a chart on annual percentage increases in real GDP, using quarterly data, from FRED:
As you can see just eyeballing the chart, Scott’s apparent claim that 4% to 6% real GDP growth (for longer than a quarter or two) is “ridiculous” is simply wrong.
Indeed, I crunched the numbers and, assuming no Excel mistakes, I found that from 1950 through 1979, the arithmetic average of year/year growth rates in real GDP was 4.0%. If we just look at 1960-1969, the figure rises to 4.5%.
In context, Scott is talking about people who are saying tax reform and deregulation could deliver sustained 4% – 6% real GDP growth. (I found John Taylor saying it here, for example.) I would think that surely, if a new Trump Administration could deliver 4% or higher for four years straight, then that would satisfy these claims. Yet Scott seems to be arguing that history shows us such hoping is ridiculous.
Well, assuming I didn’t make an Excel mistake, if you take the period 1948 – 2016 (3q), and calculate all the arithmetic averages of the annual growth rates in real GDP looking forward 4-years, then 29 percent of the time, that number will be at least 4%.
In other words, if you randomly pick a quarter from the postwar period (as far back as the standard BEA real GDP series goes), there is a 29 percent probability that from that point forward for 4 years, annual GDP growth will exceed 4%.
(For purists: You have to be careful with averaging the individual growth rates etc. [This is why reports of the “average performance” in a stock fund can sometimes be grossly misleading.] So I downloaded the levels of real GDP, and calculated the compounded annualized growth rate from 1950 to 1970: it was 4.2%.)
Now to be sure, we can quibble with the legitimacy of the BEA’s numbers. For example, maybe they are driven by the Korean and Vietnam Wars, and in that respect are bogus. But Scott didn’t seem to be throwing out the “official” numbers, he seemed to be saying the official numbers showed that sustained 4% – 6% growth had never happened in the US.
Yet on the contrary, it did happen, and during a time with very high marginal income tax rates. So I agree with John Taylor that a smart package of economic policies would allow the US economy to grow in this range for several years. (I’m talking in general. As readers know, I have long been warning of a coming crash due to the Fed inflating an asset bubble.)
I realized recently that secular people with little familiarity of Christianity (particularly fundamentalist Protestantism) might not understand the suspicion that so many have of “globalism” or “the globalists.” With Brexit, Trump, etc., this issue has more political relevance now than at any time I can remember.
For my Bible study tonight we were covering chapter 15 of Exodus, and we were linked to this:
We cannot fail to connect in our thoughts the circumstances of this magnificent triumph-celebration with that other scene, described in the Apocalypse, where they who have “gotten the victory over the beast, and over his image, and over the number of his name, stand on – i.e., on the margin of – the sea of glass, having the harps of God,” and “sing the song of Moses, the servant of God, and the song of the Lamb” (Revelation 15:2). We do not enter into any elaborate explication of the Apocalyptic symbols. The beast and his followers obviously represent the Antichristian foes of the Church – the worldly secular powers that resist, oppose, and persecute the true servants of Christ. God’s judgment on these hostile world-powers, already summarily depicted in Exodus 14:19, 20, is to be afterwards more fully described under the imagery of the seven last plagues.
I’m not going to get into it in much detail right now, but here’s a bit more context: In Exodus, Moses (himself following God’s instructions) leads the Israelites out of bondage from Egypt. Pharaoh’s mighty army has just been slaughtered through divine intervention when the Red Sea parted to allow the Israelites safe passage, but crashed back on the soldiers and chariots.
(You may know this scene:
So for Christians who take the Bible literally, the Devil is the “prince of this world.” The earthly governments are “of the world” and are actively fighting God’s people. (I’m not cracking a joke, I’m being serious: I realize certain American evangelicals combine this general perspective with their adoration of the US federal government and endorsement of the US military. I’m just noting the apparent contradiction here, before some wiseguy jumps on me in the comments.)
So no, I’m not saying that a Bible-believing person necessarily would say, “God doesn’t like the eurozone”; it’s way more complicated than that. But I’m giving some of the context for why right-wing groups dislike “globalism.” They associate it with worldly powers that are the enemies of God’s people.
I’m being dead serious, we really caught Krugman in a whopper on this one (unless someone wants to defend his honor in the comments and explain why I’m wrong). Also, keep listening after the ending music kicks in–there’s a fun bonus.
And if you want to check out my limited-time book offer, here’s the direct link.
Some people in the comments of previous posts have been psychoanalyzing me, wondering why I spend so much of my precious time pointing out hypocrisy in Trump’s critics (as opposed to ridiculing Trump’s ridiculous statements). I actually thought maybe they had a point, and then this happened on Twitter.
— Robert P. Murphy (@BobMurphyEcon) December 3, 2016
His segment starts around 14:40.
[UPDATE: It was not until I pushed this post out on Twitter that I realized I should have called it, “WHY DID THE ECONOMIST CROSS THE ROAD?” Ah, life is full of regrets.
But seriously, that is a clever title for this content, beyond the obvious.]
I am in the middle of a lot of “day job” projects and can’t devote the full time to this post that it deserves. The context is that Milton Friedman famously said in economics, models need to make testable predictions, otherwise we are not being scientific but instead are engaged in spinning out mere tautologies.
Mises and many of his followers reject this strongly, thinking that economic laws should be deduced logically from the axiom of human action.
OK now to my anecdote: To walk from my apartment to my office at Texas Tech, I have to cross a busy street that has 4 total lanes, with a divider in the middle. So in the morning when it’s busy, what usually happens is that I wait for a break on my side of the street, I walk to the middle and hang out on the divider, and wait for a break in the traffic going the other way to get totally across the street.
The rub is that there’s a gap in the divider, so that cars going one way on the street are allowed to do a U-turn through the gap, so that they can effectively get onto the other side of the big street, going the other way.
Anyway, yesterday it was really busy. I made my way across the first two lanes of traffic, and I was hanging out on the divider. I saw a car turned right onto the busy street (behind me), drove up past me on my right, and then was waiting “in” the gap in the divider (about 20 feet in front of me), trying to turn left.
The driver of that car and I were *both* waiting for the oncoming traffic to give us an opening, so that I could cross and the driver could make the turn. Now normally in this situation I have to be careful, because if a car is pulling a U-turn, then obviously it will be heading straight for me if I’ve also entered the road (jaywalking across the remaining two lanes).
But I was very confident that the car would NOT pull a U-turn, but instead would make a 90-degree left turn and go straight through to the side street that intersected the busy 4-lane road.
How did I “know” this? Because I realized that if the driver pulled a U-turn, it would simply bring him back to where he had been a few minutes ago. In other words, had the driver wanted to get to where the U-turn would place him, it would have been dumb for him to turn right onto my busy street in the first place. He should’ve kept going straight.
Now granted, this wasn’t a prediction on the order of astronomers telling us where to find Halley’s comet. But I *was* right. The driver *didn’t* pull a U-turn, and I was able to cross the street. (By the way, I made sure the driver wasn’t turning. I didn’t stake my life on my prediction.)
One last thing: Notice that my prediction, based on “getting inside the head” of the other acting being, was way more tractable than if I had asked a bunch of neurobiologists to analyze the state of the driver’s brain stem and predict the physical movements of his feet and hands. My knowledge of praxeology allowed me to navigate in the real world a lot better than the natural sciences alone would have allowed.