MotM Briefs – More on Trump and Free Trade

For sure, trade is not free. Tariffs are a means to raise revenue to fund government. There is nothing wrong with that. Tariffs funded the U.S. government almost exclusively until the introduction of the income tax in 1913.  Combined with the move toward national income statistics and the subsequent non-stop growth in big government, tariffs became a subsidiary for generating government revenue.  Trade pacts are necessary to balance differing national tax laws and ensure tariffs are fair. Government is going to get its revenue somehow. But like any tax, tariffs need to honor the law of diminishing returns and behavioral economics. Protectionist tariffs benefit no one and are destructively self-defeating.

If an individual desires to trade a unique product that is self-funded, sweated over, and brought to creation for another product anywhere in the world, why should that trade be prevented? What is the advantage in having the terms of that trade made uneconomical by onerous, arbitrary tariffs enacted for the benefit of perceived national policy?  How does an individual, a potential trade partner, or an economy as a whole benefit?

The collection of individuals comprise a nation’s economy.  Henry Hazlitt wrote in Economics in One Lesson that “What is harmful or disastrous to an individual must be equally harmful or disastrous to the collection of individuals that make up a nation.”  An economy is not an amorphous blob that rises at one end from what is subtracted from the other, to always return to equilibrium. If selected “elite” could effectively determine national policy for all individuals who make up an economy, the USSR would still be in business.

George Gilder, in Knowledge and Power, effectively destroyed Adam Smith’s notion of an economy as a great equilibrium machine that reaches the limits of production, floats along, and subsumes the entrepreneur. It is just the opposite. Entrepreneurs are the individuals who make up the economy and provide limitless surprises, vastly expand the boundaries of an economy, and create growth and wealth. National policy is anathema to unleashing entrepreneurs and growth. Knowledge and Power is well worth reading on this subject.

I think that Trump, as a successful international businessman, has natural instincts that will lead him in the correct economic direction. I don’t think he has internalized these instincts into coherent economic thought. I see him flying more by the seat of his pants, which is not necessarily bad considering the alternative of elite, entrenched, errant thought. I worry more that he will allow his advisors to surround him with policy makers who do not share his instincts. One reason the electorate selected Trump was to empower him to remove the dead weight of establishment thought in both parties that has led to our economic stagnation and problems. Trump’s selection of Secretary of the Treasury, who must advocate a return to stable money, is essential for moving the country in the economic direction the electorate desires.

Trump and Free Trade Part l

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