Round 6 results of the FiveThirtyEight/IGM COVID-19 Economic Outlook Survey Series is out. Fivethirtyeight characterizes the results: A sudden uptick in food insecurity. A wave of evictions. People spending less money at shops and restaurants. More job losses. According to leading economists, that’s what’s likely in store for the U.S. economy this year if Congress […]
By Donald J. Harris, here is the abstract: Focused on the emerging conditions of industrial capitalism in Britain in their own time, the classical economists were able to provide an account of the broad forces that influence economic growth and of the mechanisms underlying the growth process. Accumulation and productive investment of a part of […]
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There have been few insights into what the Queen’s favourite film is but one might assume that it would be a black and white classic from her youth or perhaps Black Beauty. According to Brian Blessed, however, one of her favourite films is Flash Gordon, the 1980 high camp space opera in which the actor […]
In recent years, an increasing number of conservatives have become disenchanted with “neoliberal” economic policies, which are seen as leading to unbalanced trade, de-industrialization and even the breakdown of the family. At the same time, they are not willing to accept the big government progressivism of left wing figures like Bernie Sanders. Instead, they seek a “third way”. As we will see, their third way is as mythical as the kingdom of Prester John.
The conservative movement is increasingly drawn to nationalist policies, including protectionism and immigration restriction. Unfortunately, these views on trade are based on a fundamental misconception, the theory that trade deficits are caused by uneven trade agreements with foreign nations.
Peter Navarro is perhaps the most prominent public official making this claim. He also argues that the national income identity:
GDP = C + I + G + (X-M)
somehow proves that trade deficits reduce GDP. This is a very basic error, which freshmen economics students are taught to avoid. Navarro is wrongly assuming that an accounting identity has causal implications. That’s simply false.
Very few heterodox economists are allowed to test their theories with a real world economy, but Navarro is an exception. The mainstream view in economics is that trade imbalances are caused by saving/investment imbalances. That theory predicts that expansionary fiscal policy (bigger deficits) would “worsen” the US trade balance. And that’s exactly what has happened in recent years.
I am often struck by the number of commenters who believe that recent protectionist trade policies have been successful. And it’s not just blog commenters, consider this claim in a LA Times editorial by Joel Kotkin:
The removal of Trump is also a necessary step to the repositioning of the GOP. Of course, some Trumpian elements will remain. The prospects for reprising the country club Republicanism of the past are dim. There is no groundswell for a return of militant neoconservatives to power, or for a restoration of lopsided trade policies, long backed by many corporate leaders from both parties, that has so damaged America’s middle and working classes.
Our trade policies have not been “lopsided”, and they have not damaged America’s working and middle classes. (Scott Lincicome has an excellent new paper puncturing myths about the “China shock”.) Kotkin is making the mistake of confusing intentions with results. Yes, the protectionists that are currently running trade policy intended to improve our trade balance. But they failed. They operated under a false theory, and hence made the deficit “worse”. So why shouldn’t we return to the pre-2017 trade policies, which were more successful than the current protectionism? Kotkin doesn’t say.
This gets at the biggest failing of conservatives seeking a third way—confusing intentions with reality. Both left and right leaning economists have favored free trade for the past 250 years. There is overwhelming evidence that countries that do a lot of international trade do better than countries that are closed to trade. Conservatives are making a huge mistake if they attach themselves to heterodox ideologies based on illogical theories and dubious evidence. In the long run, there is no realistic alternative to globalization.
Another common mistake is to assume that because the US has followed a “neoliberal regime”, and because the US has problems, we can conclude that neoliberalism has failed. Here’s Julius Krein in the American Conservative:
The neoliberal economic system is falling apart under the weight of its own contradictions, while its intellectual and cultural energies appear increasingly exhausted. New policy options and even novel directions in culture are coming into view. New electoral coalitions are emerging to support, for example, more family-oriented economic policies, to strengthen communities from the neighborhood to the nation, and to challenge the moral-cultural dominance of radical liberal individualism.
There are two problems here. First, neoliberalism is not falling apart under its own contradictions. If you look around the world it’s clear that the success of a country is strongly and positively correlated with the extent to which its policies resemble neoliberalism. The top 20 countries of almost any list of free market policies regimes contain almost a who’s who of successful countries. And even within the top 20, the top ten are even more successful. There’s not a single example in the entire world of a country failing because it’s too neoliberal. In contrast, history is tittered with examples of countries failing because they are too statist (Venezuela, Greece, Cuba, North Korea, Zimbabwe, etc.) And Deirdre McCloskey showed that neoliberalism promotes the “civic virtue” so cherished by the new conservatives.
The second problem with the new conservative critique is that there’s no plausible alternative being offered. Krein’s essay is actually quite good when he points to problems within conservatism, but when it comes to a new policy approach we are presented with bland and meaningless generalities.
For instance, what does it mean to have more “family-oriented economic policies”? Surely that would include ending the marriage penalty in our tax system and our welfare system. And who has spent the past 50 years advocating that we do so? Neoliberal economists! And who has consistently ignored their policy advice? Progressive and conservative real world politicians.
And how about “moral-cultural dominance of radical liberal individualism”? Perhaps he’s referring to radical proposals to legalize drugs. Unfortunately, the anti-libertarian drug warriors have almost completely controlled US drug policy since 1913. They’ve had their way, and we can all see the result. So in what sense have radical libertarians “dominated” our policy? Our laws on alcohol and sex are some of the most restrictive in the entire developed world. Just to be clear, here I’m not trying to argue for or against any particular policy on individualism, just pointing out that other developed countries regard our attitudes toward alcohol and sex as being extremely puritanical.
To be fair, it is true that cultural liberalism has won some important battles in recent decades, in areas such as civil rights, women’s rights and gay rights. Do the modern conservatives want to go back to previous conservative policies such as banning interracial marriage and criminalizing homosexuality? Of course not. Indeed doesn’t gay marriage “encourage families”? So in the end their “cause” is little more than “we accept the direction of the arrow of history, but please move a bit more slowly”. Not much of a rallying cry.
[Here I exclude the abortion debate, where conservatives actually can claim to have strong and distinctive views. But then just say “abortion”; don’t talk about vague concepts like “radical individualism.”]
And what does the following mean: “to strengthen communities from the neighborhood to the nation”? What is a strong community? Does it merely mean a healthy economy? Strong religious values? Strong civic culture? Preserving manufacturing from import competition? Giving NIMBY’s the power to stop minorities from moving in? It could mean anything. I’d guess that Bernie Sanders would like to see strong communities. (He’d eagerly fund “community groups” and encourage labor unions.) And a “strong nation” is an even more vacuous concept. Does that mean a strong economy? A strong military? Nationalism?
It all sounds so nice, until the new conservatives are forced to come up with specific policy suggestions, at which point we are confronted with poorly thought out proposals based on discredited economic theories. In practice we get old fashioned nationalism, which means trade barriers, immigration barriers, whitewashing of unpleasant parts of our history, bigotry against minorities and foreigners, and all the other attributes of nationalism throughout the ages. On foreign policy, the same conservatives who lament our foolish “neoconservative” adventures in the Middle East are among the most fervent in calling for a new cold war with China.
The nationalists of the 1920s and 1930s made exactly the same complaints about radical individualism, cosmopolitanism, globalization, etc. Let’s not learn the same painful lessons a second time.
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