Sunday, June 3, 2018

Is Donald Trump a New Herbert Hoover?



Tuesday, June 5, 2018
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Is Donald Trump a New Herbert Hoover, With his Policy of Isolationism and Protectionism?
By Dr. Rodrigue Tremblay

To treat [U.S.] auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees,” Cody Lusk, president of the American International Automobile Dealers Association, Wednesday, on May 23, 2018.

Lots of countries have resorted to protectionism when their economies were doing badly. It almost never works. But Trump may be the first leader ever to do it when the economy is booming. He’s trying to fix a problem that ain’t broke. The auto industry is healthy.” Rufus Yerxa, president of the National Foreign Trade Council, on Wed., May 23, 2018

The 1929 depression was so wide, so deep, and so long because the international economic system was rendered unstable by British inability and U.S. unwillingness to assume responsibility for stabilizing it by discharging five functions:
(1) Maintaining a relatively open market for distress goods; (2) providing countercyclical, or at least stable, long term lending;
(3) policing a relatively stable system of exchange rates;
(4) ensuring the coordination of macroeconomic policies;
(5) acting as a lender of last resort by discounting or otherwise providing liquidity in financial crisis. Charles Kindleberger (1910-2003), American economic historian, and author of The Great Depression 1929-1939, 1973, revised and enlarged in 1986.

When every country turned to protect its own private interest, the world public interest went down the drain, and with it the private interests of all. Charles Kindleberger (1910-2003), American economic historian, and author of The Great Depression 1929-1939, 1973, revised and enlarged in 1986.

American president Donald Trump seems intent to isolate the U.S. economy from neighboring economies, and even from the world economy, and thus to break with three quarters of a century of closer economic cooperation between countries, established after World War II. There is a clear danger that the international economic system could become structurally unsettled for years to come, which does not mean that such a system is not in need of reform.

What worries many economists is Donald Trump’s approach to international economic cooperation, or lack of it, which appears to be a dangerous throwback to the 1930’s. — If his administration were to continue in that direction, the negative economic and industrial dislocations and consequences, both for the American economy and for other economies, would be severe, potentially very severe, considering how closely intertwined modern economies are today, through investment, industrial and technological cooperation, and through reciprocal international trade.

Trump: a Sorcerer’s Apprentice in international trade?

Is it possible that American president Donald Trump is some sort of a Sorcerer’s Apprentice, as far as his protectionist trade policy is concerned? He seems bent on instigating a trade war with other countries, from neighboring Canada, to Europe and to China. In so doing, however, he may start a sequence of events, which could be impossible to control or to stop once set in motion, with very negative economic outcomes. Such outcomes could be a severe economic recession, similar to the 2008-2009 Great Recession, and potentially, in the most extreme case, an economic depression, similar to the one the world experienced before World War II.

Indeed, during the ten years of the 1929-1939 Great Depression, international trade measured in dollars plummeted 65 percent, total U.S. production fell by 47 percent, wages fell 42 percent and the unemployment rate rose to 25 percent. This was truly an economic disaster, mainly brought about by bad public economic policies. Who would want to repeat such a failure?

Is Donald Trump set to repeat the mistakes of the 1930s?

By now, most everybody knows that hotel and casino owner Donald Trump is an extremely self-centered individual who operates in government as he did in his own business, when he was known, in New York, as being a ruthless private real estate negotiator, constantly trying to pull the blanket over to his side, and not hesitating to violate rules and contracts when that suited him. — But a government is not a private corporation. Citizen Trump does not “own” the U.S. government. The U.S. government belongs to the American people and its main function is to pursue policies that promote the common good, not the private interests of a megalomaniac politician or the financial interests of his immediate family, or those of his rich donors.

We have some indication of the troubled economic thinking of Donald Trump, when we consider what he said in a tweet, on March 2, that international “trade wars are good, and easy to win”! I have never heard a statement as outrageous and as irresponsible as this one coming from a head of state, although in Trump’s case, this seems to have become customary.

Trump seems to be oblivious to basic facts of history or basic economics. He doesn’t seem to have a clue about the way international trade and international investment function. He doesn’t seem to understand that the reason the U.S. dollar is widely used as a means of payment internationally, and as a key currency for other countries’ central banks, is a direct consequence of the United States promoting harmonious and multilateral international economic relations. The United States collects important economic and financial benefits from this privileged situation.

Trump’s economic ideas are primitive, obsolete and mercantilist. Let us consider his pretention that for a country to “win” when it trades with other economies, it must have a trade surplus with everyone. In a multilaterally trading world, this is practically impossible. In a given year, a country may have current account surpluses with a number of countries, but will likely have current account deficits with other countries. And this is the normal outcome, if we assume that there are no capital movements between countries.

However, when there are capital movements between countries, as it is the case nowadays, a country can finance an excess of domestic investment over its domestic savings (without inflation) and reap the benefits of faster economic growth. In which case, a net borrowing country will register a current account deficit to counterbalance its net capital inflow, in any given year. That is because a country does not only borrow capital or savings from abroad, it borrows an excess of goods and services from other countries over its own domestic production, and this is paid for with an increase in its net foreign debt (foreign liabilities minus foreign assets). When this new capital is well invested, the country takes advantage of a faster rate of economic growth.

At the end of 2017, the United States had a net foreign debt equal to $ $7,845.8 billion. If the Trump administration were serious in wanting the U.S. economy to generate a trade surplus with the rest of the world, it would stop borrowing heavily from other countries to finance its budget deficit ($440 billion in 2018) and it would take measures to increase domestic savings to cover the needs of all U.S. domestic investments.

But the United States is a net borrower of foreign savings, in a given year, and that is the reason it has a current account deficit. No pronouncements from American politicians can change that reality.

The general principle here is that the balance of payments of a country always balances and there is an economic adjustment, (through interest rates, exchanges rates and incomes), which makes sure that this the case.

That an individual who is the head of state of an important government like the United States does not seem to understand these simple economic and accounting principles is a scandal in itself.

Donald Trump goes rogue on international trade and border taxes

Thursday, May 31, 2018, could be known as the date when Donald Trump launched a trade war with a host of countries, many of them close allies of the United States either in NORAD, as is the case with Canada, or in NATO, as is the case with many European countries. And Trump had the gall to pretend that he is raising tariffs on imports from Canada and from European countries for “national security” reasons, relying on an obscure section 232 of the 1962 trade law (the Trade Expansion Act of 1962), without having Congress vote on the issue!

In Canada’s case, one of Trump’s demands to maintain the 1994 North American Free Trade Area (NAFTA) is to insert a sunset clause to automatically terminate and renegotiate the trade agreement each five (5) years. Considering that companies plan their investments twenty or thirty years in advance, only bad faith or mischievous intentions would explain why such an impractical demand has even been considered.

What are the likely negative consequences of an open trade war for its participants?

- First of all, U.S. export industries, their production and their employment, will be heavily penalized and disrupted by the new border taxes and similar taxes imposed by other countries, in retaliation, on American exports.
- Secondly, U.S. import industries will face higher prices for their supplies, thus raising prices for the consumers and raising the overall rate of inflation. Don’t forget that border taxes are taxes, and that they are ultimately paid by the consumers when they buy goods, from the purchase of jeans to buying houses.
- Thirdly, American companies operating worldwide will see their chain of supplies perturbed. They may also face a less welcoming regulatory climate in some countries, as a result of the Trump administration’s hostile economic policies. —Their profit line is most likely to suffer. For instance, for the year 2012 (the last year for which data are available), American corporations reported that profits earned by their US-controlled subsidiaries abroad amounted to more than one trillion US$. American investors profit directly for such foreign incomes.
- Fourthly, a rise in domestic inflation is bound to translate into higher interest rates, which are bound, sooner or later, to derail the stock market, with heavy losses to be expected, and possibly an overshoot on the way down.
- Fifthly, as economic uncertainly spreads, productive investments will decline, possibly resulting in a self-reinforcing general downward economic spiral, with lower productivity growth, lower incomes, lower employment and lower consumer spending.
Other countries will suffer similar contractions in their economies, causing negative multiplier effects worldwide.

This is a doomsday scenario that the world has seen before and has lived to regret. I do not know a single economist who would advise a course of action such as the one the Trump administration seems to be willing to take.

People who ignore history are bound to repeat it.

Indeed, the Republican Trump administration’s frontal attacks against multilateral trade looks as reckless and as irresponsible as the much reviled Republican Herbert Hoover administration’s move against international trade, in 1930. On June 17, 1930, indeed, President Hoover signed the Smoot-Hawley Act into law, — a law that imposed stiff tariffs on imports. First, American imports plummeted. And secondly, other countries raised their own tariffs in retaliation against American exports. The end result was a dramatic contraction of international trade, which transformed an economic recession into a full-blown worldwide economic depression, which lasted ten years.

It is relatively easy for politicians to start a trade war. It is much more difficult to end one. Donald Trump has no knowledge or competence in international economics and finance, and he probably also is ignorant of the damage that the Republican Herbert Hoover administration did to the U.S. economy, when it precipitated a drop in international trade and international financial flows.

That Donald Trump wants to repeat, 88 years later, the mistakes of the Hoover administration is difficult to understand. [N.B. Franklin D. Roosevelt (1882-1945) defeated President Herbert Hoover (1874-1964) in a landslide, in the 1932 U.S. presidential election.]
Indeed, why would Donald Trump impose economic, and eventually, political isolationism, on the United States, with his improvised and destructive attacks on international trade and world economic prosperity? He should know that in so doing, he will do a lot of damage to the U.S. economy, to U.S. corporations, to American workers and to American consumers, and to the world economy as well.

In fact, the Trump administration risks destroying the post World War II system of international economic cooperation, which has been so beneficial to the United States, and which has contributed to raise the standards of living of people, not only in the United States, but in many other countries. American corporations and American banks, and their employees, have especially benefited from the economies of scale, from economic specialisation and from the productivity gains (reduction in production costs) that the opening and stability of international markets have allowed.

Trump’s partisan political motivations

What could motivate the Trump Administration to adopt the risky protectionist policies of the 1930s? This is certainly not for immediate economic reasons, since the U.S. economy is currently operating at full capacity... Unless, of course, what really guides Donald Trump is his political obsession regarding the U.S. mid-term elections of next November. Polls indicate that Trump's tax policies and other policies put forward for the benefit of the ultra rich, and financed through future increases in public debt, are not very popular among the general population.

Therefore, the enactment of populist trade policies could appeal to the Republicans, at least in the short term and especially in some rust-belt states. In other words, Donald Trump and the Republican Party might believe it to be to their political advantage to ride a wave of economic nationalism and of trade protectionism, in some key industrial states. It will take several months before the negative effects of a trade war will be visible to the American public.

If that were the case, it would be an example of partisan political expediency to reap political gains; a case of short-term political gain for some, at the cost of longer-term economic pain for everybody else.

Conclusion


The conclusion is straightforward. It would be most irresponsible for Donald Trump to initiate a trade war, especially against allied nations, when the American economy is already prosperous. As a general rule, politicians should not play with the economy for their own narrow political benefits. Most Americans, workers or consumers, will pay a high price when American companies will be subjected to the new trade taxes, and will have to raise their prices. The same can be said for the citizens in other trading nations. Trade protectionism has been tried before, and it does not work.
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International economist Dr. Rodrigue Tremblay is the author of the book “The Code for Global Ethics, Ten Humanist Principles” and of “The New American Empire.

Please visit Dr. Tremblay’s new WEB site:

Posted, Tuesday, June 5, 2018, at 8:30 am



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N.B.: This article can be reproduced with permission or license from the author. This article is not intended in any way as personal advice of any sort. It is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Under the terms of the Creative Commons Attribution (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please carole.jean1@yahoo.ca.
_____________________________________________________________
© 2018 by Dr. Rodrigue Tremblay, economist.







Sunday, May 20, 2018

The Winning War the NRA Is Waging on American Kids




Monday, May 21, 2018
The Winning War the NRA Is Waging on American Kids
By Dr. Rodrigue Tremblay

It’s like the front lines of a war.” A student at the Texas Santa Fe High School, where 8 students and 2 teachers were shot and killed on Friday May 18, 2018, (less than two weeks to go before the end of the school year.)

“We are devoted to creating an America free from gun violence, where all Americans are safe at home, at school, at work, and in our communities. As the Brady Campaign, we work to enact and enforce sensible gun laws, regulations, and public policies through grassroots activism, electing public officials who support gun laws, and increasing public awareness of gun violence.” Brady Center to Prevent Gun Violence, Mission statement, 1974.

When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.” Frédéric Bastiat (1801-1850), French economist, statesman, and author.

American schools have increasingly become shooting galleries in a war that the National Rifle Association (NRA) is winning, with the help of venal politicians and clueless Supreme Court Justices, against American students and teachers. In the U.S., criminals, crazies and angry types alike can buy attack weapons of any kind, at will. As a consequence, when students and teachers go to school in the morning, they and their parents are never certain if they are going to come back home, after school. If you follow the news, you may have gotten the impression that American schools have become a lottery of death. Students and teachers have become the innocent pawns whose lives are being cut short to please the fanaticism and the gun idolatry of the NRA.

This was not the case fifty years ago. What has changed for the worse is an increasing lack of moral responsibility on the part of people in authority in the United States, and a rise in political corruption, which has allowed private organizations and entities, such as the NRA and the makers of guns, to buy up politicians to replace the common good in favor of narrow private interests. The editorial boards of newspapers and other media are also to blame for their lack of moral fortitude in not taking clearer stands against this widespread corruption. They are all accomplices, to a certain degree, in the epidemic of mass murders of children and teenagers in American schools.

Between 2012 and 2017, there has been no less than 239 school shootings in the United States—more than three gun shootings each month—and the massacres continue, month after month, relentlessly. The most irresponsible-in-chief is the current U.S. President, Donald Trump, who cowardly and publicly echoes the NRA propaganda motto that “guns don’t kill people; people kill people”. Such statements sweep under the rug another evidence, and that is that the instruments of killing do matter. In fact, guns are front and center in all mass killings. Military style automatic weapons can kill hundreds of people in a short span of time. This was well illustrated in Las Vegas, on October 1, 2017, when a heavily armed killer assassinated 58 persons attending a concert, and wounded 851 others, before he was found dead in his hotel room. He could not have done so much killing and wounding with his fists or with a knife! The type of weapons used was responsible for the high number of victims.

Of course, it takes a wicked, or a deranged or troubled individual, to kill another human being. That is a universal truth. However, given that evidence, the easiest it is for an evil or a deranged person to have access to deadly instruments of killing, the more killing there will be. This is a truth that some people refuse to accept, even though it is only pure logic. They pretend that they need an arsenal of heavy automatic weapons to protect themselves and their family against attacks. From whom? Is this paranoia or not? What can be said is that such a stand is illogical because when everybody is heavily armed, everybody is in mortal danger, even policemen who are entrusted with law enforcement to keep public order.

Indeed, many policemen are killed each year while being ambushed by heavily armed individuals. Between 2006 and 2016, some 1,500 police officers have been killed on duty, in the United States. As consequence, police officers are increasingly on their guard and may have become trigger-happy, because so many people are roaming the streets and highways while being armed to the teeth. This may have encouraged police officers to become more prone to overreact in some dangerous situations, to protect their own lives, but in so doing, they may threaten the lives of unarmed citizens. Arming every citizen, as some have proposed, not the least being U.S. President Donald Trump, would only make a bad situation worse, and it would risk bringing the United States to the threshold of an anarchic civil war.

But pure logic seems to have somewhat disappeared from the public discourse in the United State, and it has been replaced by a twisted and deranged logic, especially when the issue of easy access to sophisticated military-style automatic weapons is concerned.

The original constitutional guarantee, in the United States, to own a musket in order for ordinary civilians to dutifully joina well-regulated militia” to defend the land, at a time when most people lived on a farm and at a time when the United States had only a small professional army, has been exploited and corrupted, a few centuries later, and has been elevated to the status of an absolute and unregulated right, for any individual, to have as many military-style attack weapons as he can afford, even in a close urban environment. This is a clear abuse of language and would seem to be far remote from the initial intention.

For some gun enthusiasts, indeed, the right to own lethal weapons would seem to supersede the right to life for everybody else, and private interests would seem to trump public interest. A society that accepts those crooked principles in this day and age is well on its way to social decay and disintegration.

Since the Columbine High School massacre in Colorado on Tuesday April 20, 1999, there have been no less than 139 American students, teachers and others who have been assassinated in American schools, and close to 300 other people who have been injured, by disgruntled and heavily armed killers. Only three months ago, this time at a South Florida High School, on Valentine’s Day, February 14, 2018, seventeen people, (14 students and 3 instructors) were murdered at the hand of an expelled student, armed with an AR-15-style assault weapon.

While the problem persists, people tend to forget and move on to other preoccupations, that is, until the next mass killing in another school occurs.

Conclusion

Young Americans are reported to be increasingly eager to register to vote. This is a good sign. The political pendulum has swung too far in favor of the private right to own automatic guns for some and not enough in favor of public safety for all. Maybe the American youth will bring back sanity, in due time, to that deadly debate.
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International economist Dr. Rodrigue Tremblay is the author of the book “The Code for Global Ethics, Ten Humanist Principles” and of “The New American Empire.

Please visit Dr. Tremblay’s new WEB site:

Posted, Monday, May 21, 2018, at 8:30 am


Email to a friend:

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N.B.: Messages may be published in our weblog, unless you request otherwise.

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N.B.: This article can be reproduced with permission or license from the author. This article is not intended in any way as personal advice of any sort. It is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Under the terms of the Creative Commons Attribution (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please carole.jean1@yahoo.ca.
_____________________________________________________________
© 2018 by Dr. Rodrigue Tremblay: The New American Empire Blog.