Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.
One can’t blame the Financial Times for publishing an opinion piece by Wilbur Ross, if he is indeed a senior policy adviser to Donald Trump (“Trump campaign benefits from criticism of trade imbalances,” 29 August). It is hard to judge the Republican candidate’s positions from his own words, because of his famous “shoot from the lip” style. Does Trump really believe, for example, that American workers’ wages are too high, as he said in the Republican debates? Many had been waiting to see who his economic advisers would be, in part so that we could have clear and precise language by which to judge what are the candidate’s positions. The written statement in the FT is the first by any of them that I have seen.
So what does Ross say? His column is not economically literate or coherent. This judgement is not based on economic theories, but rather definitions and facts.
For example, he says three or four times that American productivity has fallen. It has not; it continues to rise.
Okay, what he means is the rate of productivity growth, which has indeed fallen since the turn of the century, and is indeed a problem. But what numbers does he choose to cite to measure the productivity slowdown? “During the 1970s growth in US unit labour costs was 6.8 per cent a year but it dropped…to 1.2 per cent so far this century.” What a bizarre thing to say! Growth in unit labor costs (ULC) equals the rate of wage increase minus the rate of productivity growth. Other things equal, the productivity slowdown would show up as a higher rate of increase in ULC, not lower. Does he know that higher ULC is usually considered a bad thing (by hurting competitiveness)? Is he trying to say something about wages, and if so, what? Is he agreeing with Trump’s statement about wages being too high or not? It is impossible to tell.
There are other mistakes as well. For example, the continent of Europe does not “run massive and chronic trade deficits.” To the contrary, it runs trade surpluses. He seems to imply manufacturing employment shares in Germany and Japan have not declined. They have. And so on.
It appears that definitions, logic and facts are no more important to Trump’s adviser than to the candidate himself.
This post written by Jeffrey Frankel.
As best I can tell the only “academic” on Trump’s economic team is Peter Navarro from UC-Irvine. I didn’t (and still don’t) know much about him, so I did a quick Wiki check. It sounded like he was another one of those entrepreneurial economists that plugs their investment strategies on suckers at the Holiday Inn conference center. But I wanted to give him the benefit of the doubt, so I searched the NBER database for any of his working papers. Zero hits. The publications that he brags about are all in the airport magazine rack category. Now I’m sure there that somewhere he must have some scholarly publications, but if they are at all recent, then I would have expected to find at least a working paper version in NBER.
The rest of Trump’s economics team is a bunch of intellectual lightweights, just like the candidate himself. No evidence that any of them have even the most basic understanding of macroeconomics. All a bunch of investor and private equity types.
2slugbaits: See here for a listing of his academic work.
Full disclosure: I’m a coauthor with Peter Navarro, “Capture and Ideology in American Farm Policy,” Rural Sociology (1984).
Menzie
Okay. Thanks. It looks like most of his productive years were in the 80s and 90s. A few short papers after that, but not many.
“Nonfarm business sector labor productivity decreased at a 0.6-percent annual
rate during the second quarter of 2016, the U.S. Bureau of Labor Statistics
reported today”
http://www.bls.gov/news.release/prod2.nr0.htm
Wilber Ross may not be familiar with the economics terminology. What he may mean is real wage growth has lagged productivity growth and a rise in wages, e.g. a higher minimum wage, will also boost productivity, although less than the wage increase.
Under the reigning Keynesian paradigm, policy recommendations have never been more than a dog and pony show; one dog one pony; fiscal and monetary stimulus, that’s it. Furthermore, both dog and pony are ready for the glue factory. Both are impotent to constructively affect the physical economy. Fiscal is a non-starter without monetary to energize it. Monetary is now impotent all on its own, as the data show steeply diminishing returns to the pallet of unorthodox policies. My belief is that marginal returns to fresh money injection (e.g. more QE, more negative rates, helicopter money, central banks buying stocks) went negative long ago. But you wouldn’t know it from Fed and academic economists. Nothing has shown up in the literature on the unintended consequences of these unorthodox policies. Only a lone early paper by William White.
This recovery is the weakest in US history. The labor force participation rate has plunged to the level of the 70s. The lion’s share is not due to baby boom demographics. Since its 2000 peak, the employment to population ratio has stair-stepped down at a staggering 2½ ppts per business cycle. This has taken its level back to the 70s, too. There’s every reason to believe it will fall another 2½ points next recession. The stock market is third-most overbought in history. Fifty percent or more of nominal wealth will vanish in the next crash and cause immense havoc.
Eventually there will be a recession, a stock market collapse, and the distinct possibility of financial collapse. Global debt is at an historic high. US debt is just off its high and far above pre-crisis which, in turn, was already far above optimal. There are no global locomotives, as China and the EMs were until 2013. Global central banks are frantically trying to fabricate a locomotive out of credit and fiat money. That is, out of nothing. This policy is flat contradictory as it perforce pushes debt even further beyond optimal.
America’s entrepreneurial spirit is ground down by the rising regulatory burden. Net national saving as a percent of GDP is half what it was in the 50s. America must now borrow resource claims from abroad or the real stock of capital won’t grow. Debt is the flip side of savings. American’s are in debt bondage. The necessity to pay back principal and interest out of stagnant wages is contributing to the voters’ sour mood. Productivity is indeed rising. But you need a microscope to see it. The 3-year percent change peaked six years ago, and is today an abysmal half percent.
The spirit of Ross’s piece is correct. He illuminates that the economy’s problems are mostly structural. All Trump’s proposals consistently aim at changing structural elements. The picayune tone of the post here works against illuminating these the things that really matter.
Jeff,
This article was written by a non-economist, and despite Navarro’s contributions to it, obviously some of Navarro’s points got lost in translation. This may be the first article you’ve seen from one of Trump’s advisors but that doesn’t mean it’s the first article on this topic from one of Trump’s advisors. Navarro has been clear on the topic, and, in an interesting bit of Karma, cites your work with David Romer as partial justification.
The best place to go to understand Trump’s trade policy is the 2010 book by former Chairman of the CEA Glenn Hubbard and Trump economic advisor Peter Navarro, Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity. They lay out the argument partially in chapter 2, “How To Lift the American Economy With the 10 Levers of Growth,” and particularly in Chapter 6, “Why the Best Jobs Program May be Trade Reform.”
The authors acknowledge the truth of the basic arguments for free trade–comparative advantage makes everyone better off. However, they argue that that insight breaks down when one side is committed to free trade while the other side is committed to protectionist or mercantilist policies. They claim that large and persistent trade deficits lower US growth from what it otherwise would have been. The right policy broadly speaking, they argue, is to try to incentivize all sides to follow free trade policies, since that makes all sides better off. They cite Frankel and Romer, “Does Trade Cause Growth,” AER, (1999) that raising a country’s trade-to-GDP ratio by 1 percentage point raises per capital income by 2%.
The underlying motivation for Trump’s trade policies, then, is to have more rather than less free trade in the world. From a policy point of view, the authors advocate that the goal of US trade policy should be to enforce full compliance with WTO rules, prevent illegal export subsidies, ensure fairly valued currencies, protect intellectual property, enforce environmental and workplace standards, and in general have free and unfettered access to each other’s markets. In other words, the goal of policy is to try to achieve a situation approximating the European Common Market. The tariff that Trump sometimes mentions is a negotiation tactic to remind people that the Commerce Dept has the power to institute retaliatory tariffs for dumping or other unfair trade practices, as Navarro explains in his interview with PBS.
Thus, Trump’s trade policy is not a beggar-thy-neighbor strategy, as it is commonly portrayed, but rather a means to increase the level of free trade.
Jeff, do you agree with Hubbard’s and Navarro’s interpretation of your research? What do you think of their argument in general? It would be an interesting and useful post if you (or Menzie or jdh) were to weigh in, since this is a key economic issue in the campaign.
By the way, Peter Navarro. like Trump, used to be a Democrat, having run unsuccessfully as a Democrat for mayor of San Diego and as a Democrat for Congress in the 1990s.
Jeff,
This article was written by a non-economist, and despite Trump adviser Navarro’s contributions to it, obviously some of Navarro’s points got lost in translation. This may be the first article you’ve seen from one of Trump’s advisors but that doesn’t mean it’s the first article on this topic from one of Trump’s advisors. Navarro has been clear on the topic, and, in an interesting bit of Karma, cites your work with David Romer as partial justification.
The best place to go to understand Trump’s trade policy is the 2010 book by former Chairman of the CEA Glenn Hubbard and Trump economic advisor Peter Navarro, Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity. They lay out the argument partially in chapter 2, “How To Lift the American Economy With the 10 Levers of Growth,” and particularly in Chapter 6, “Why the Best Jobs Program May be Trade Reform.”
The authors acknowledge the truth of the basic arguments for free trade–comparative advantage makes everyone better off. However, they argue that that insight breaks down when one side is committed to free trade while the other side is committed to protectionist or mercantilist policies. They claim that large and persistent trade deficits lower US growth from what it otherwise would have been. The right policy broadly speaking, they argue, is to try to incentivize all sides to follow free trade policies, since that makes all sides better off. They cite Frankel and Romer, “Does Trade Cause Growth,” AER, (1999) that raising a country’s trade-to-GDP ratio by 1 percentage point raises per capital income by 2%.
The underlying motivation for Trump’s trade policies, then, is to have more rather than less free trade in the world. From a policy point of view, the authors advocate that the goal of US trade policy should be to enforce full compliance with WTO rules, prevent illegal export subsidies, ensure fairly valued currencies, protect intellectual property, enforce environmental and workplace standards, and in general have free and unfettered access to each other’s markets. In other words, the goal of policy is to try to achieve a situation approximating the European Common Market. The tariff that Trump sometimes mentions is a negotiation tactic to remind people that the Commerce Dept has the power to institute retaliatory tariffs for dumping or other unfair trade practices, as Navarro explains in his interview with PBS.
Thus, Trump’s trade policy is not a beggar-thy-neighbor strategy, as it is commonly portrayed, but rather a means to increase the level of free trade.
Jeff, do you agree with Hubbard’s and Navarro’s interpretation of your research? What do you think of their argument in general? It would be an interesting and useful post if you (or Menzie or jdh) were to weigh in, since this is a key economic issue in the campaign.
By the way, Peter Navarro. like Trump, used to be a Democrat, having run unsuccessfully as a Democrat for mayor of San Diego and as a Democrat for Congress in the 1990s.
Jeff,
This article was written by a non-economist, and despite (Trump adviser) Navarro’s contributions to it, obviously some of Navarro’s points got lost in translation. This may be the first article you’ve seen from one of Trump’s advisors but that doesn’t mean it’s the first article on this topic from one of Trump’s advisors. Navarro has been clear on the topic, and, in an interesting bit of Karma, cites your work with David Romer as partial justification.
The best place to go to understand Trump’s trade policy is the 2010 book by former Chairman of the CEA Glenn Hubbard and Peter Navarro, Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity. They lay out the argument partially in chapter 2, “How To Lift the American Economy With the 10 Levers of Growth,” and particularly in Chapter 6, “Why the Best Jobs Program May be Trade Reform.”
The authors acknowledge the truth of the basic arguments for free trade–comparative advantage makes everyone better off. However, they argue that that insight breaks down when one side is committed to free trade while the other side is committed to protectionist or mercantilist policies. They claim that large and persistent trade deficits lower US growth from what it otherwise would have been. The right policy broadly speaking, they argue, is to try to incentivize all sides to follow free trade policies, since that makes all sides better off. They cite Frankel and Romer, “Does Trade Cause Growth,” AER, (1999) that raising a country’s trade-to-GDP ratio by 1 percentage point raises per capital income by 2%.
The underlying motivation for Trump’s trade policies, then, is to have more rather than less free trade in the world. From a policy point of view, the authors advocate that the goal of US trade policy should be to enforce full compliance with WTO rules, prevent illegal export subsidies, ensure fairly valued currencies, protect intellectual property, enforce environmental and workplace standards, and in general have free and unfettered access to each other’s markets. In other words, the goal of policy is to try to achieve a situation approximating the European Common Market. The tariff that Trump sometimes mentions is a negotiation tactic to remind people that the Commerce Dept has the power to institute retaliatory tariffs for dumping or other unfair trade practices, as Navarro explains in his interview with PBS.
Thus, Trump’s trade policy is not a beggar-thy-neighbor strategy, as it is commonly portrayed, but rather a means to increase the level of free trade.
Jeff, do you agree with Hubbard’s and Navarro’s interpretation of your research? What do you think of their argument in general? It would be an interesting and useful post if you (or Menzie or jdh) were to weigh in, since this is a key economic issue in the campaign.
By the way, Peter Navarro. like Trump, used to be a Democrat, having run unsuccessfully as a Democrat for mayor of San Diego and as a Democrat for Congress in the 1990s.
Sorry about the repetition above. I got out of memory or time out errors and when I tried to re-post, I got a message that I’ve “already said that.” So, I had to change the comment a little each time to get it to re-post. Looks they posted despite the errors though.
rick, i have also been getting some out of memory errors when looking at posts on this site-the problem seems to have appeared this summer some time. menzie and jim, i think this is a problem with the site/server, perhaps you could forward the problem to an IT person on the site? and thank you for keeping up such a superb economics blog!
To Rick Stryker:
As should be evident, Donald Trump is by the far the most anti-trade of major American presidential candidates going back — at least — to Herbert Hoover. If Peter Navarro is pro-free-trade, I am glad to hear it, but it has nothing to do with Trump’s candidacy. (Amidst all the questioning of the credentials of Trump’s list of economic advisers and list of foreign policy questions, I have not seen any reports that Trump has actually met with them.)
I see a parallel with the Brexit vote. In the run-up to the UK referendum, the media reported that there was at least one PhD. economist supported Brexit, namely Patrick Minford. It was not always made clear that Minford’s position was that when Britain left the EU it would unilaterally remove all trade barriers. Not exactly what the anti-globalization supporters of Brexit have in mind! Similarly, Trump does not draw his support from free-traders and would not produce a free-trade policy if elected.
JF
Jeff,
Thanks very much for taking the time to reply.
It seems your view is that you don’t need to analyze the Hubbard-Navarro trade policy because you don’t believe it represents Trump’s views. You seem to think it’s self-evident that Trump is the most anti-trade candidate since Herbert Hoover. But what’s the evidence for that really? Yes, Trump has said NAFTA is a “disaster” which he’d renegotiate and he has said the same about TPP. But Barack Obama made much the same criticisms of NAFTA as a candidate in 2008, saying that it had cost jobs and that he’d renegotiate parts of it. Obama also voted against CAFTA as a senator. And yet Obama didn’t follow through at all, instead going on to champion TPP. Similarly, Hillary Clinton also said she’d renegotiate NAFTA in 2008 is now saying she is opposed to TPP. I think people understand that she needs to say that to appeal to the Sanders wing of her party but that she won’t actually oppose TPP in office.
Trump realized that there is a faction in the Republican party that is opposed to trade agreements as well and so he sounds like a Democratic candidate on trade when he’s on the campaign trail, albeit with more panache. Trump’s realization that trade agreements matter for many Republicans, among other realizations, catapulted him over his rivals. But if you look at what is actually written down on his website, you see some important qualifications. Trump’s official trade policy statement, is essentially lifted from Chapter 6 of the Hubbard-Navarro book I mentioned. The policy statement explicitly denies protectionism, saying “America has always been a trading nation. Under the Trump administration trade will flourish. However, for free trade to bring prosperity to America, it must also be fair trade. Our goal is not protectionism but accountability.”
I see no reason to believe that Trump will not behave just as Obama and Hillary have. It seems a huge exaggeration to say that he will be the most anti-free trade candidate since Herbert Hoover. Since Chapter 6 of the Hubbard-Navarro book is what’s on Trump’s website, I still think it would be useful to get a view on that at econbrowser.
I also don’t see any parallel with the Brexit vote. That Britain would enjoy more free trade outside the EU was a widely made argument by the Leave movement. That argument was made not only by Minford and the “Economists for Brexit,” but also by well-known Brexit leaders such as Nigel Farage and European Parliament member Daniel Hannan, in debates, interviews, and books. The argument was prominently featured in Brexit: The Movie. The voters who voted Leave believed the UK would regain legal sovereignty, control immigration, reduce regulations, and have more free trade as a result of their vote. The benefits of additional free trade outside the EU customs union was one of the justifications for the argument that the UK would ultimately see lower prices upon exit, particularly in manufacturing and agriculture since those industries are protected by the EU.
Although not really important for the purposes of this discussion, I would also mention that I think Minford’s position is a bit different from the idea that the UK would unilaterally abolish all trade barriers. Sampson, Ottaviano, et al at the CEP describe it the way too but this description implies that the UK has developed a schedule of import duties that they would suddenly reverse upon Brexit. The UK has developed no such schedule. The UK faces trade barriers outside the EU because the EU has negotiated a MFN schedule that all members of the customs union of the EU must follow. The European Court of Justice has ruled that the WTO agreement is a mixed agreement in which the EU and its member states jointly exercise their competences. Upon exit, then, the UK would remain in the WTO (probably) but would no longer be part of the common schedules as matter of law and practice. Thus, there would be no trade barriers to abolish.
Minford’s view is that there would be no reason whatsoever for the UK to negotiate a new set of schedules that reproduced what they had under the EU, since the motivation for Brexit in the first place was to get out of those schedules. The optimal policy, for Minford, is to do nothing and just trade on the market at world prices under WTO rules. However, Minford acknowledges that from a practical political point of view the optimal policy isn’t really possible and that some barriers will have to be put up to obtain political support. But he wants those barriers to be transitory with an expiration date and implemented as little as politically feasible.