Economists Critique Trump’s Industrial Policy
On Thanksgiving, while most Americans were drinking beer and watching football, Donald Trump was hard at work keeping jobs in America!!
When word came out that the company Carrier would in fact keep its operations in Indiana, rather than outsourcing, naturally the Trump forces claimed victory. But Justin Wolfers on Twitter was horrified:
Every savvy CEO will now threaten to ship jobs to Mexico, and demand a payment to stay. Great economic policy. https://t.co/t2WAJOgh8F
— Justin Wolfers (@JustinWolfers) November 30, 2016
Notice he got 6,400+ retweets. Obviously, lots of Trump critics agreed with Wolfers’ assessment.
Then along comes Tyler Cowen, who had this to say about the affair in Bloomberg:
When an American company “moves jobs to Mexico,” it doesn’t disassemble a factory and load all of the parts onto border-crossing trucks. That might be relatively easy to stop. Instead, the company closes or limits some U.S. production while expanding or initiating new production south of the border. Given that reality, how is government supposed to respond?
…
Perhaps most importantly, a policy limiting the ability of American companies to move funds outside of the U.S. would create a dangerous new set of government powers. Imagine giving an administration the potential to rule whether a given transfer of funds would endanger job creation or job maintenance in the United States. That’s not exactly an objective standard, and so every capital transfer decision would be subject to the arbitrary diktats of politicians and bureaucrats. It’s not hard to imagine a Trump administration using such regulations to reward supportive businesses and to punish opponents. Even in the absence of explicit favoritism, companies wouldn’t know the rules of the game in advance, and they would be reluctant to speak out in ways that anger the powers that be.
Another good argument, right?
Now notice something interesting. If you hate Trump, and especially if you’re an economist, I bet you nodded your head at *both* Wolfers’ critique and Cowen’s.
And yet, they are saying opposite things. They can’t both be right. (Wolfers is saying Trump just opened up a new subsidy for domestic manufacturers, such that they’ll even *fake* that they want to outsource. Cowen is saying Trump just opened up a new method of oppressing domestic manufacturers.) If you thought they both showed different reasons that Trump’s behavior is dumb, then you suffer from confirmation bias.
P.S. I think Trump’s behavior vis-a-vis Carrier is dumb. But I at least have enough introspection to realize that Wolfers and Cowen can’t simultaneously be right.
“I think Trump’s behavior vis-a-vis Carrier is dumb.”
So, you agree with Wolfers and Cowen. What are your reasons?
I think you’re wrong Bob. Manufacturers who decide to stay find a new subsidy. Manufacturers who decide Trump’s bribery isn’t sufficient, are likely to be harassed.
JJ, yes there are ways to reconcile the spirit of Wolfers’ post with Tyler’s analysis. But their actual statements, their actual descriptions of what companies would face, are contradictory.
Tyler says companies “would be reluctant to speak out in ways that anger the powers that be” while Wolfers says all CEOs will threaten to leave the country. So threatening to outsource wouldn’t anger a Trump Administration?
“If you hate Trump, and especially if you’re an economist, I bet you nodded your head at *both* Wolfers’ critique and Cowen’s. And yet, they are saying opposite things”.
Why does the fact that they are (perhaps) saying opposite things mean that they can’t both be right? If Trump (or anyone else) attempted to implement either policy that would be bad. So it seems fine to nod ones head at both.
Transformer wrote: “Why does the fact that they are (perhaps) saying opposite things mean that they can’t both be right?”
I’m gonna go with the Law of Non-Contradiction on this one.
Well, they are saying different things – I think you are incorrect to say there are opposite things – I was just quoting you on that !
??? So why didn’t you say, “Bob, I understand why you think they can’t both be true at the same time, since you think they are saying opposite things. But in fact you are wrong, they are NOT saying opposite things.” ?
yes, that is probably what I should have said.
You appear to concede the point to JJ above that they are in fact not opposites, as both policies could be used together.
In any case – rather than being opposites are they are not alternatives ways of attempting to hamper free trade – both of which it is possible to be against with no contradiction irrespective of whether or not is is possible to implement them both at the same time ?
That is: They are not saying opposite things. They can both be right.
OK, there’s no details available at this stage but absolutely no evidence of any payment to Carrier. Even when you link through to David Faber’s Twitter comments there’s still nothing pointing to a payment. For that matter, Trump has no capability to make any payment until next year at the soonest.
We can chalk that up to fundamental dishonesty I would say, because if people who make a claim without being able to back it up with anything at all are just inventing fiction.
From searching further I see this (from The Hill):
Again, that’s pretty vague, could be lower state taxes in Indiana or maybe a promise on some other regulation. Since both Trump and Pence ran on a platform of reducing regulation I don’t see that as particularly shocking nor would it be unreasonable to expect other companies to also benefit from reduced taxes and regulations.
Here is the very first item on Trump’s website which was the policy he took to the election:
No “payment” mentioned here, just lower taxes. If you scroll down further to the specific stuff about corporations, you see:
Again, Trump took this to the election and won. I mean, I hope someone was reading the stuff to know what they voted for. But anyway, Trump is consistent and delivering what he promised. Justin Wolfers is trying his best to mislead people.
Tel, I completely agree with your analysis, but you missed one thing:
The leftist argument would be that there is no difference between a tax cut and a subsidy.
Murphy, do you have any good source material which goes into detail on what exactly Trump is promising companies like Apple, Carrier, and Ford?
I tried searching for it but all I found were too vague and too general..
I believe Mike Pence did this Carrier thing, actually. I don’t think this is Trump’s plan. He’s said he’d levy a tax on people sending jobs overseas, AFAIK that hasn’t been explained in detail.
But notably, Trump always talks about punitive solutions for outsourcing. At least that I’ve heard.
What makes you think that lower taxes is punitive ?
Trump has never mentioned lower taxes as a solution to outsourcing, only higher taxes.
What exactly are you referring to?
https://www.donaldjtrump.com/press-releases/an-america-first-economic-plan-winning-the-global-competition
The very first thing he mentions as the cause of the problem is high taxes. Then he goes over it again not long after:
Trump has been banging on about this for 12 months at least.
There’s no one on Earth who can say it is difficult to understand his message. Sure some people don’t believe it will work, others just don’t like the idea on principle… but at least we all know what Trump has promised.
Donald Trump has never read his own website. In public pronouncements, he mentions punitive measures-exit taxes.
Quoting a website written by mostly normal Republicans claiming to represent what Trump wants to do does not inform you of what Trump wants to do.
Andrew_FL wrote:” Donald Trump has never read his own website.”
I’m just gonna point out, guys, that it’s hard to take you seriously when you hit the swooning couch over Trump’s tweets, when you yourselves engage in untestable hyperbole. If I called you out on this claim, and asked how do you know it, of course you would retreat to, “OMG what I meant was…” Which is how Trump supporters defend his hyperbole.
Nope, I won’t back down. Prove he has read his website when every off the cuff comment made in public completely contradicts it.
Andrew_FL do you think Hillary Clinton’s website would ever have things denouncing Keynesian pump priming or calling to privatize infrastructure? And you’re allowed to make obviously hyperbolic claims about Trump, unless I can prove you wrong?
This is why I end up being a big Trump supporter in the eyes of people like Ivan. People make way over the top claims, I am a wiseguy (as is my wont) and point this out, and then ipso facto I hate Mexicans.
I like your new name Harold.
LOL Funniest thing I’ve heard all day.
https://youtu.be/eMLs9XkrVj0?t=8m44s
Kind of odd that Trump’s speech matches his website … almost word for word. I wonder what could have caused that?
I suspect Putin logged in and changed it.
Scripted.
So Trump managed to deliver a lengthy speech, fully scripted, but here’s the clever part: at no stage did he ever read the script.
That’s unbelievable!
Tel, all Andrew_FL has done is admit that Trump read the script written by his economic advisors. The burden is still on you to prove that they posted it on his website. For all you know, they printed the script out and handed it to Trump. Or it was on a teleprompter.
I don’t think anyone has insight into the private conversations between Trump’s team and these companies, but I tend to agree with what Tel wrote above. I think these companies were planning to leave because the regulatory and tax burden was too great in the United States to maintain their desired profit margins. I think the Trump team is explaining the planned regulatory and tax policy for the next 4 years and that these companies are deciding that they will be better off in the long run if they stay in the US and take advantage of the new policy once it goes into effect.
I realize this doesn’t come close to explaining “exactly” what Trump is promising.
Wolfers and Cowen are talking about two completely different theoretical policies, the carrot and the stick.. It depends on which one Trump implements which economist is right. If Trump implements a third policy or nothing at all, it’s conceivable neither are right…
hammer -> nailhead
Normally I’m nodding right along with Murphy’s logic (if I can grasp it) about various things, but in this case he seems to be absurdly proud about something irrelevant. We do not know yet whether Trump used a carrot or a stick (or neither) but clearly one can look at both economists’ statements and decide that if either method were used by Trump to keep Carrier’s jobs here that would be bad. “Confirmation bias,” pfft.
Greg and JSR08:
Go re-read Wolfers’ tweet. You seem to think he said, “In theory, if Trump were to offer tax incentives to Carrier, then I predict the following *would* happen…”
You will discover that that’s not in fact what Wolfers wrote.
Am I the only one who thinks it’s weird that you guys are guffawing over my “obviously” dumb post, but to do so you have to change what Wolfers said?
P.S. I think you guys are reading more into my post than is there. I know in theory carrots and sticks would both be bad. My point was that I think I lot of people agreed with Wolfers and thought, “Yep, now companies are gonna be faking like they’re leaving,” and I think some of the same people agreed with Cowen and thought, “Yep, now companies are gonna keep their heads low so they don’t get whacked.” Those are contradictory beliefs.
OK, but I don’t see anything in Cowen’s post to back up ” Cowen is saying Trump just opened up a new method of oppressing domestic manufacturers.”. His article is very much couched in “In theory , if Trump did this…” kind of language.
Actually this is Murphy’s clever ploy to divert attention from a sightly embarrassing fact that he is supporting a raging statist and protectionist [much worse than other GOP statists whom he rejects]; not to talk about Trump and his horrible policies, but on other people and their inconsistent critiques of those policies…
I am not sure that Murphy spent equal amount of time loosing sleep over the fact that GWB’s critics were claiming in the same time that he is trying to still Iraq’s oil and that he is motivated by Wilsonian zeal…
Actually this is Murphy’s clever ploy to divert attention from a sightly embarrassing fact that he is supporting a raging statist and protectionist [much worse than other GOP statists whom he rejects]; not to talk about Trump and his horrible policies, but on other people and their inconsistent critiques of those policies…
I am not sure that Murphy spent equal amount of time loosing sleep over the fact that GWB’s critics were claiming in the same time that he is trying to steal Iraq’s oil and that he is motivated by Wilsonian zeal…
Yes my blog oozes with support for Donald Trump. The guy who told me a while ago that it was a waste of time when I said (probably more than half the time) “DISCLAIMER: I DO NOT LIKE DONALD TRUMP AND THINK HE WOULD BE A HORRIBLE PRESIDENT” was totally right.
I don;t know, I saw last 10 posts and probably 7 or 8 of them are various defences of Trump or taking issue with this or that ‘unjustified critique” of Trump and so on:
http://consultingbyrpm.com/blog/2016/11/scott-alexander-on-trumps-alleged-racism.html
http://consultingbyrpm.com/blog/2016/11/reactions-to-the-trump-victory-f.html
http://consultingbyrpm.com/blog/2016/11/reactions-to-the-trump-victory-a.html
I looked at the first and second page and found zero critiques of Trump. If you are against him you are really good in hiding it.
Ivan wrote:
I looked at the first and second page and found zero critiques of Trump. If you are against him you are really good in hiding it.
Except for the part where I repeatedly say I am against him?
Look Ivan, why are you so anti-Murphy? Of all the horrible people in the world, you choose to spend time critiquing my blog posts? That’s more important than thwarting bank robbers? Why do you think my blog is worse than armed robbery, Ivan? What kind of twisted value system do you hold?
Haha
I swear the people who respond like Ivan are insufferable. They seem incapable of either taking you at your word or at least understanding any amount of nuance. They make my eyes roll as bad as SJWs.
These anti “free trade” arguments are like pro-Keynesian arguments. According to the story, free individuals buying and selling on their own terms somehow cause “the economy” to experience a grand mal seizure that cannot be solved by free individuals but only by a wise statist overseer. It’s never clear how the individuals who comprise “the economy” are then smart enough to elect the wise statist overseer who employs SWAT teams to direct his enlightened vision.
It sounds like just another gang that does understand economic calculation or “the problem of knowledge”.
I don’t see them both as saying opposite things; they’re saying the same thing: “hey, this heavily politicizes regulation of capital export, such that businesses have now have to deal with arbitrary laws, and only benefits businesses that are good at gaming the arbitrary rulings.”
There was, however, something fishy about Cowen’s article and about accounting identities in general:
The biggest irony of this whole Trump initiative is that it likely would lead to higher U.S. trade deficits. Economists stress the offsetting nature of trade flows and capital flows. As the accounting identities are constructed, a higher trade deficit corresponds to higher capital inflows, and a lower trade deficit corresponds to higher capital outflows. (To see the nature of these balanced transactions, imagine China selling goods and accumulating Treasury bills in return, a form of investment in this country.) So a Trumpian plan to limit capital outflows, through whatever means, is also — if only indirectly and without such intent — a plan to boost the trade deficit.
Huh? So, if I stop paying someone to wash my clothes and start doing it myself, that means my “trade deficit” will increase and I’ll have to start taking on more debt?
The point is, Trump’s action is racist either way. That’s true of everything he does and (and this is the really beautiful part) everything he doesn’t do.
Craw, my persuasive powers have worked too well and you have gone too far. I wouldn’t agree with that for a second, but if you back pedal you might be on target!
Bob, I find it just odd that you would invest your time and energy into this stuff: you probably were not much impressed when some people were pointing out in 2003 or 2005 that you cannot say in the same time that Bush is stealing oil and that Bush is leading a Wilsonian crusade in Iraq. The paramount concern, I suppose, was that war in Iraq was bad, for all sorts of libertarian reasons. The same should apply (I suspect) to Trump’s trade protectionism.
I don’t know where exactly you were against Trump: I read 7 or 8 posts on your blog and in all of them you are either mocking the pundits and economists who did not predict Trump’s victory, criticize journalists who exaggerate Putin’s help to him, or various people for not having a unified theory about why Trump’s protectionism is bad. I would be very glad if you can direct me to some post in which you directly criticize Trump (not, some half-hearted sentence like “of course I am against Trump, but..” and then 10 000 words about how Trump’s critics are stupid, dishonest, deluded etc).
In my “official” reaction at Ind. Institute I have a whole section titled “…Trump’s Trade Rhetoric Is a Disaster.”
BTW just so you know, when I criticized Trump’s trade protectionism in that post, Scott Sumner devoted his “time and energy” (your phrase) to saying that this made it sound like I was OK with Hitler. So you’ll forgive me for not bending over backward to placate everyone who doesn’t like the way I allocate my blogging.
On this post, Ben Powell and I did a whole thing on the benefits of international trade, on public access TV.
On my blog and social media, I try to make points that nobody else is making. Do you need me to say, “Tariffs are bad”?
Funny, I was just going to write an apology to you because I discovered a couple of posts on your blog highly, and I mean highly, critical of Trump. One of them titled “Trump wants lebensraum” linking to his video where he says he would “take oil” from Iraq. And then I checked the date – bang,, all from 2011-2012. How many critical posts in 2016? ZERO. Just full scale defence of Trump and attacks on his critics with occasional “of course I don’t support Trump but…” tactic.
So, once upon a time you “hated” Trump, rather without any nuance. Let me guess: Trump was then a typical “neocon” advocating wars in Iraq, Syria, invasions, everything, and now he is against foreign wars, likes Putin and other anti-American dictators. And all of a sudden everything is forgiven, including his grotesque statism and trade protectionism, lebensraum, anti-Chinese bigotry. You will defend him to death because he is against “neocons”.
Ivan, it sounds like you’re saying, “Bob, back when Trump was pro-war, you were against him. Now that he is anti-war, you are supporting him. What the hell is your problem??”
Am I missing something?
I think Trump is WAY better to have in the White House than Hillary Clinton. I think he will kill fewer foreigners, and may ironically be better on civil liberties in the event of a domestic terror attack, if only because Clinton is a woman and would have to prove to the Republicans she was “tough” in a crackdown. I could be totally wrong, I grant you.
But as far as my blogging, I like to troll people. When everybody and his brother is running around screaming, “OMG Trump is Hitler!!” I like to dig deeper. Especially when a lot of these people had no problem with George W. Bush or Obama, depending on whether it’s a neocon or Democrat who’s saying Trump is Hitler.
Wouldn’t it just make sense to be consistent and criticize Trump like you would Obama and Bush instead of dedicating so much of your writings to pointing out perceived hypocrisies? Justin Amash comes to mind as a libertarian who would consistently go after those opposed to his libertarian ideology, whether they be Bush/Cheney, Obama, Clinton, or Trump. I know you always attempt to affix the disclaimer that you don’t like Trump, but have you ever dedicated so much time to defending a politician? I know you may feel the need to be contrarian, but is this guy, out of all politicians, the one you want to be dedicating so much of your resources to defending?
And yet Amash didn’t vote against sanctions on Iran…
March wrote:
I know you always attempt to affix the disclaimer that you don’t like Trump, but have you ever dedicated so much time to defending a politician? I know you may feel the need to be contrarian, but is this guy, out of all politicians, the one you want to be dedicating so much of your resources to defending?
Eh, I’m not being as unusual as you may think. I defended Dan Quayle on the “potatoe” thing, Sarah Palin on the “what do you read?” thing, and a bunch of other stuff that I can’t recall right now. My MO is to defend someone whom I think is being lynched.
So when both left and right starting saying Trump was Hitler, when he was saying the most anti-US empire stuff I’ve seen from a Republican since Ron Paul, it started making me sympathetic to the guy.
If and when he starts trying to build a wall, I will flip out. And any goofy economic policies he pushes, I will criticize.
Supporting sanctions certainly isn’t libertarian or respectful of international independence/sovereignty, but that misses the general point. Amash is an elected politician, and you can only expect only so much of a degree of dedicated libertarianism from politicians. (Belated disclaimer, I am not a libertarian.) However, he is currently (along with Massie) about the most libertarian member of Congress and has the closest to what could be a consistent approach. The main point, regardless of the individual referenced, is that you would expect a libertarian to consistently call out those who espouse beliefs contrary to libertarianism or whatever ideology one holds. I don’t understand the whole sympathy thing for Trump. Bullying people through lawsuits, Twitter, lying like any politician (probably more so), stiffing charities (probably not what most politicians do), advocating overt murder of civilians (later walked back indirectly), making a point to advocate imprisonment and citizenship revocation for flag burning (yes, we know Hillary’s history on this matter), protectionism (congrats on taking issue with this), mass deportation, wanting to “open up libel laws,” not wanting to reduce entitlement spending, wanting to increase defense spending like any other Republican, etc. aren’t things that you would think would elicit a whole lot of sympathy, especially from a libertarian. Granted, I very much agree that his stated desire at times to reduce America’s international military presence is a welcome sign. Trust me, I started off thinking it was kind of neat that we had a candidate who was politically incorrect and sent the media in a tizzy, but then I then more I learned about him, the less and less I thought of him (for some of the reasons encapsulated above). I’m glad you directly provided a response and let me know where you’re coming from, but my emphasis was the amount of effort you had placed into defending this particular politician, not just that you may have made a defense of politicians in the past. And as Ivan noted, you had before used a sort of Hitler reference for Trump’s views. Also, I don’t think most criticisms on the left and the right rise quite to the level of “Trump is Hitler.” But if you want to be the voice giving push back to a chorus of denunciation, then maybe that’s fine. But there do seem to be plenty of defenders out there. And Ivan seems to be getting at the impression that anyone reading this blog would have.
“And Ivan seems to be getting at the impression that anyone reading this blog would have.”
No, he’s not. The majority of people reading this blog think it is absurd to call an anarchocapitalist – who didn’t vote, doesn’t vote, incourages everyone to not vote, repeatedly says he thinks Trump will make a horrible president, etc, – a Trump supporter.
It makes you guys sound like petulant children incapable of having conversations with any nuance. It’s like discussing economics or political philosophy with a different variant of SJW. You guys sound completely ridiculous, and Murphy really should just ignore those kind of comments until you guys promise to stop beating your wives.
No sensible or honest person could think Murphy supports Trump. I get the same reaction from people that we see here. It’s not enough to oppose Trump. You must oppose him for the approved reasons.
And, I don;t doubt that you are for free trade. I just detect a drastic change of tone and priorities from 2012 to 2016. In 2012 Trump was a “neocon” and you did not have any interest whatsoever in finding any nuance about him. He was for you just a new Hitler dreaming about the American lebensraum. Fast forward 2016, and you spent 10 posts defending this Hitler against unjustified accusations and mocking and criticizing his critics. And zero posts attacking him.
It is possible to say one thing and do another. “I come to bury Caesar, not to praise him” springs to mind. That couldn’t lead to any trouble, could it?
However, I think that “you will defend him to the death” is rather too strong.
Ivan wrote:
I just detect a drastic change of tone and priorities from 2012 to 2016. In 2012 Trump was a “neocon” and you did not have any interest whatsoever in finding any nuance about him.
You’re honestly surprised that I spent more time in 2016 probing the depths of Donald Trump than I did back in 2012? Is this for real?
” you spent 10 posts defending this Hitler against unjustified accusations ”
Weird. If the accusations are unjustified, what’s wrong with rebutting them? And if they are unjustified how do you conclude Trump really is a Hitler? Crystal ball? Tarot cards?
I wonder which 2020 candidate Bob is giving a free ride this year too.