JD Vance is the latest postliberal to embrace what is now, for all intents and purposes, an anti-growth position.
In his latest book, Communion, Vance inveighs against those perennial straw men, the GDP-obsessed economists. We keep hearing about these mysterious figures, cold-hearted calculators who believe that GDP is the only measure that counts. Oddly, despite running the world’s foremost classical liberal think tank, I have yet to meet one.
Vance, though, is convinced that people who “struggle to put a value on anything that can’t be specifically measured” not only exist, but run America. The country is governed, he tells us, “by numbers on a spreadsheet and the people who built those spreadsheets.”
He goes on to write, with the air of a man imparting an original insight, that looking after your children is more fulfilling than adding to GDP. Well, yes, obviously. Whom does he imagine disagrees? Economists, practitioners of what Vance, unconsciously quoting a pro-slavery tract, calls “the dismal science,” will point out that higher living standards — higher GDP, if you insist — frees up time to play with your kids, because you no longer need to work six days a week just to feed them. But no economist, indeed no parent, has ever argued that you get more pleasure from a large bank balance than from reading a bedtime story.
We are used to hearing degrowth rhetoric from the extreme Left. To hear it from a leading figure in the main right-wing party — Vance is said to have locked down big donors and the Republican National Committee in advance of the next presidential election — is extraordinary.
Large chunks of what are still sometimes called the Right have adopted radical socialism: NatCons, Groypers, integralists and a mass of the MAGA rank-and-file. While much of the democratic world has seen a political realignment, in which culture displaces economics as the chief division, this development makes the United States an outlier.
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I suspect that Vance’s real game is to depreciate the whole concept of economic growth because several of the policies he favours, notably on trade, will reduce it. If free trade is the last idea that unites every economist, then, for Vance, the entire profession must be flawed. Or as the vice president puts it in his book, “Maybe economics is just fake.”
Charles Calomiris reveals “the hidden lesson in the history of the Lucas Critique.” Two slices:
The reason contributions to economic thinking can be the butt of such jokes is that they are formalizations of ideas that in some sense we already knew. But formalizations can be important because they show not just that intuition is right, but exactly why it is true, that is, how its truth emerges from and fits into a broader way of thinking about the world. In the process, the logic of many related truths that weren’t so clear are also brought to light.
In the case of the Lucas Critique, its author pointed out that rules of thumb about economic behavior from the past are subject to change if policy circumstances change. The way people set prices for their goods and labor in the market, for example, depends on their expectations of the prices of other goods and services they will have to buy. Past patterns of behavior in price and wage setting may not persist if policies change, and if those changes make people see that they will need to change their price setting behavior accordingly. For example, if an observable expansionary monetary policy causes people to expect prices in general to rise, everyone will be more demanding in the prices they charge for their own goods and services.
Or as Robert Lucas put it in his influential 1976 Carnegie-Rochester volume paper, Econometric Policy Evaluation: A Critique: “Given that the structure of an econometric model consists of optimal decision rules of economic agents, and that optimal decision rules vary systematically with changes in the structure of series relevant to the decision maker, it follows that any change in policy will systematically alter the structure of econometric models.”
The example that Lucas had most in mind was monetary policy’s effects on employment and real output. What we now call “the great inflation” of the 1960s and 1970s was front of mind in 1976. Today it is viewed as a colossal, persistent policy error. Students learn that the cause of the great inflation was that when our government increased its spending (both to fight the Vietnam War, and to achieve the ambitious domestic agenda of the Great Society objectives) the Federal Reserve accommodated the rising deficits by expanding its purchases of government debt, which produced accelerating inflation.
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The many years of denial in the 1960s and 1970s may be the most important lesson we should learn from the history of the Lucas Critique. That self-serving reluctance to learn from economic facts and logic seems as present today as it was then.
The Trump Administration says that trade deficits are evidence that a country is being abused by others and that tariff policies will promote growth by substantially onshoring the global supply chain. Both those claims ignore a vast theoretical and empirical literature in economics. That literature shows that trade deficits today mainly reflect the desire of foreigners to invest in the US. And economic evidence is unanimous in showing that tariffs harm growth by limiting our pursuit of comparative advantage in supplying some goods and services.
President Donald Trump’s removal of socialist dictator Nicolás Maduro in January offered a generational opportunity to counteract the failures of Venezuela’s socialist policies. A pro-America opposition appeared ready to usher in a free market and end the state’s suffocating grip on oil production. Eight months later, the White House’s deal with Maduro’s former vice president risks entrenching the people and policies that tanked the country’s economy in the first place.
Under the terms of the deal announced by the White House on Monday, the government will hold a 35 percent stake in North American Blue Energy Partners, previously the second-largest private oil producer in Venezuela. The federal government will also hold “veto power over the appointment of any member of” the company’s board of directors, the White House announced.
This is a rather shocking expansion of the state corporatism that the Trump administration has mainstreamed into American politics. Now, in addition to owning stakes in more than two dozen American companies, the Trump administration is giving the federal government direct control over an oil company that will operate in a foreign country while competing with other American and international firms.
It is effectively the “American nationalization of Venezuelan oil,” as National Review termed it. The Trump administration has apparently decided it can solve socialism in Venezuela by…doing socialism in Venezuela.
Meanwhile, the deal also seems likely to create additional hurdles to the democratic transition in Venezuela—a country that is still officially governed by socialist Delcy Rodríguez, Maduro’s second-in-command, who was appointed as interim president by the Trump administration in January.
Michael Segal writes informatively about U.S.-Canada trade relations. A slice:
There are numerous discrete problems in U.S.-Canada trade. Canada has a dairy quota, and the U.S. is reluctant to buy Canadian aluminum even though Quebec can produce it inexpensively using hydroelectric power. These can be solved easily. The big problem is the Segal issue—which is named for a cousin of mine.
The Segal issue held up the 1993 North American Free Trade Agreement for months. Publicly it was called the “textile issue,” but in private the negotiators called it the “Segal issue.” Most of the dollars involved a Canadian manufacturer of men’s suits, Peerless Clothing, which was led, after my father’s death, by his first cousin Alvin Segal.
The problem was that Peerless could import fine Italian cloth duty-free to Canada and make it into suits that could be sold in the U.S., undercutting American manufacturers, which faced U.S. tariffs if they imported the same cloth.
The Nafta negotiators worked around this problem by giving Canadian manufacturers a break from Nafta tariffs according to their existing shipments to the U.S., much of which accrued to Peerless. A more elegant repair came in 2001, during the final days of Bill Clinton’s presidency, when the Commerce Department dropped duties on importing Italian cloth to the U.S., leveling the playing field for Canadian and U.S. manufacturers. When the U.S.-Mexico-Canada Agreement replaced Nafta in 2020, Alvin thought the new changes were also wise.
Today, the same issue—different tariffs on imported inputs from other countries—is the core problem between Canada and the U.S. The problem has re-emerged because President Trump has reversed Bill Clinton’s approach and raised tariffs on a vast number of items. That creates a huge flurry of Segal-like issues in many different sectors of manufacturing and trade. There are so many tariffs that differ between the U.S. and Canada that fair trade between the two countries has become overly complicated to achieve.
Mr. Trump may prefer to solve the issue by demanding that Canada raise and lower tariffs in tandem with America. Ottawa wouldn’t accept that. It would be a huge affront to Canadian independence, and it would inflict on Canada the chaos of frequent U.S. tariff changes.
The most sensible approach would be to emulate Mr. Clinton and eliminate most tariffs, with exceptions for national security. As a dual Canadian-American citizen I could imagine friendly Canadians and Americans agreeing jointly to such a plan. Yet even though Mr. Trump thinks so highly of Canada that he has offered it statehood, his enthusiasm for tariffs is greater.
Bill Saporito rightly call Trump’s tariffs punitive taxes on Americans who buy aluminum from Canada “nuts.” Here’s his conclusion:
It’s not cheating when Canadians undersell American aluminum producers. It’s an advantage. It’s logical for the United States to import lower-cost Canadian aluminum and invest in industries in which America enjoys its own advantages — chip design and artificial intelligence, for instance.
Who would flout this logic, trashing a 150-plus-year relationship with a close ally in a disruptive attempt to separate two interdependent economies? Oh, right.
John Stossel reports on the failure of rent control in St. Paul, Minnesota.