George Will – inspired by Nicholas Eberstadt – warns of declining population and encourages more immigration. Two slices:
For the first time since the Black Death in the 1300s, he writes in Foreign Affairs, Earth’s population is going to decline. A lot. This will create social hazards that will challenge political ingenuity. Still, it will be, primarily, a protracted reverberation of a relatively recent, and excellent, event in humanity’s story: the emancipation of women.
Eberstadt, who is incapable of writing an uninteresting paragraph, is an economist and demography-is-destiny savant at the American Enterprise Institute. He says a large excess of deaths over births will be driven not by a brute calamity like the bubonic plague but by choices: those regarding fertility, family structures and living arrangements, all reflecting “a worldwide reduction in the desire for children.”
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Eberstadt is, however, tentatively cheerful: “Steadily improving living standards and material and technological advances will still be possible.” The Earth “is richer and better fed than ever before — and natural resources are more plentiful and less expensive (after adjusting for inflation), than ever before,” and the global population is more “extensively schooled” than ever. What is required is “a favorable business climate,” which is Eberstadt’s shorthand for allowing market forces to wring maximum efficiency from fewer people: “Prosperity in a depopulating world will also depend on open economies: free trade in goods, services, and finance to counter the constraints that declining populations otherwise engender.”
Sen. Rand Paul (R-KY) is correct: “Trump’s tariffs won’t bring us peace and prosperity.” A slice:
Ronald Reagan knew what makes a nation prosperous. “Free trade serves the cause of economic progress, and it serves the cause of world peace,” he said in a 1982 radio address. That sentiment was in line with years of conservative policy. The Republican Party had long stood for free markets and free trade, principles that helped cement America as the world’s economic superpower.
Sadly, many in my own party seem to have forgotten these lessons. A populist faction insists on imposing more and higher tariffs that would raise the prices of everyday goods and services as well as destroy the commercial incentive for nations to live in peace.
Such advocates claim that tariffs protect American workers from foreign competition. In practice, they hurt the workers they purport to help. Consider Chinese-made electronics. When tariffs are imposed on products like smartphones and laptops, as Donald Trump is proposing to do, American consumers end up paying higher prices. A report from the Consumer Technology Association projects that Mr. Trump’s proposed tariffs could raise technology prices for U.S. consumers by as much as 21%. China accounts for more than 90% of U.S. laptop and tablet imports. Its manufacturers won’t bear the brunt of these tariffs—American consumers will, as the levy will be passed on to them in the form of higher prices.
Also warning of the dangers lurking in Trump’s protectionism is the Editorial Board of the Wall Street Journal. Two slices:
The evidence is clear that the tariffs had real costs and reduced the growth spurred by his other policies. Other countries retaliated, hitting U.S. producers of everything from apples to whiskey. The government paid farmers billions in compensation. Harley-Davidson had to shift production for its overseas customers to Thailand to stay competitive.
There was no great boom in manufacturing employment. More jobs involve using steel than making it, and one study said higher steel prices led to 75,000 lost manufacturing jobs. Consumers paid more for many products, as companies passed on tariff costs. The economic studies on these points are copious, and it’s worrisome that Mr. Trump and his advisers dismiss them.
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Mr. Trump sometimes says he sees tariffs merely as a means to gain trade reciprocity: If Japan had zero tariffs on U.S. goods, the U.S. would do the same. But the process of getting to zero is likely to be messy if it is even achievable. Once imposed, tariffs build business and union constituencies that won’t easily give them up. The current 25% U.S. tariff on foreign trucks was imposed in 1964.
Yet at other times Mr. Trump sounds like a true believer in high tariff walls for their own sake—as the way to return manufacturing to the U.S. and protect it from foreign competition. This seems to be the view of his chief trade adviser, Robert Lighthizer, and perhaps running mate JD Vance.
Known as import substitution, this model of economic growth kept India globally uncompetitive for decades. It would guarantee higher consumer prices and the slow erosion of U.S. business competitiveness. Our guess is that financial markets would signal their disapproval if Mr. Trump goes this far.
Scott Lincicome explains some of the economic damage would be inflicted by tariffs and industrial policy. Two slices:
Among the many Biden administration economic policies from which Vice President Kamala Harris stubbornly refuses to separate herself, industrial policy is near the top. In speeches and campaign materials, Harris has repeatedly and vocally championed the “targeted” tariffs, subsidies, Buy America rules, and other policy measures that have been implemented over the last four years to boost U.S. manufacturing, security, and the economy. Capitolism has addressed many of the storm clouds hovering over those policies, the success or failure of which is still very much TBD, but the toss-up 2024 presidential election provides yet another: the inevitable uncertainty baked into almost all American industrial policy, regardless of its form or merits.
Reams of economics literature show a strong connection between the unpredictability of government economic policy—aka “economic policy uncertainty” or EPU—and corporate investment and activity in the United States. Studies have found, for example, that higher EPU causes firms to reduce short-term, long-term, and total investments. Negative effects are particularly pronounced for small businesses, bank credit supply, and in the manufacturing sector, and they can occur at the federal and sub-federal level. In one particularly interesting paper, state-level manufacturing investment was found to remain depressed after gubernatorial elections, as companies faced with pre-election EPU in one state shifted their investments to neighboring states with more stable and predictable policies.
One of the most widely cited and relevant studies on EPU, by economists Scott Baker, Nick Bloom, and Steven Davis, develops an EPU index based on thousands of newspaper articles and reveals that EPU spiked during not just major shocks like the Gulf wars or failure of Lehman Brothers, but also tight presidential elections when the future of monetary, tax, fiscal, trade, and other federal policies set, implemented or influenced by the executive branch could change dramatically depending on who wins. The authors further found that EPU, at the firm level, increases stock price volatility and reduces investment and employment in “policy-sensitive sectors like defense, healthcare, and infrastructure construction,” and, at the economy-wide level, foreshadows declines in U.S. investment, output, and employment. They’ve since updated the index to include other measures of uncertainty, as well as sub-indices for specific economic policy areas (trade, monetary policy, climate) and countries.
Given events here and abroad, economists have recently focused on trade policy uncertainty (TPU), again finding that higher levels correlate with less investment and economic activity in the United States, and that things that limit TPU—such as trade agreements—can mitigate some of these harms. During the Trump era—when agreements were sidetracked and major changes to U.S. trade policy were literally announced via tweet (repeatedly)—TPU was, on average, more than three times as high it was during the Obama years, nearly twice as large as TPU during Biden’s term, and the highest recorded under any president going back to 1960. This dramatic increase in Trump TPU was further found to reduce aggregate U.S. investment by 1 or 2 percent (i.e., between $23 and $47 billion in 2018).
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In the real economy, meanwhile, there’s growing evidence that heightened trade policy uncertainty is affecting business decisions. The New York Times, for example, in August interviewed “two dozen American manufacturers, retailers and shipping agents,” and found that “many said they were holding off on investments and expansion given the uncertainty over tariffs on imported products and parts — especially on those shipped from China.” A month later, the Times documented how some U.S. distillers, targeted by painful retaliatory tariffs during the Trump 1.0 years, were holding off on new investments out of fear that another trade war was about to begin under Trump 2.0.
GMU Econ alum David Hebert draws lessons from China’s economic woes.
My GMU Econ colleague Vincent Geloso looks at historical data on income differences. A slice:
The problem is that the estimates that Piketty (and his co-author Emmanuel Saez) created for 1913 and 1917 are now known to massively overestimate inequality. In an article in the< a href=”https://academic.oup.com/ej/article-abstract/132/647/2366/6544663″ target=”_blank” rel=”noopener”>Economic Journal with Phil Magness, John Moore and Phillip Schlosser and in a companion article with Phil Magness in Economic Inquiry, we corrected for these errors. In fact, we showed that their entire series from 1917 to 1962 was flawed because of the way missing filers were treated, how net income was converted into adjusted gross income, and how they forgot that state and local governments (5% of the workforce with incomes well above the national average income) were not required to file federal taxes until 1938.
We also discovered that Piketty and his co-authors made an incorrect estimate of total income. They arbitrarily defined total income as 80% of personal income (as reported by national accounts) minus transfers. They justified this by claiming that “the ratio between total gross income reported on tax returns and personal income minus transfers in national accounts has been fairly stable since the late 1940s (around 75-80%).” However, according to their own datasheets, the actual average was 82.7%. While this difference may seem small, a higher proportion reduces the income shares of the rich. Using less arbitrary methods, we found a much larger denominator and, consequently, smaller income shares for the wealthiest groups.
