Here’s a follow-up letter to a new correspondent.
Mr. S__:
In your follow-up email to this post you charge me with failing to “admit that Pres. Trump has millions times more business sense” than do I and other economists. You recommend that I “shut up and let an expert show how it’s done.”
I confess to having no business experience, but I know enough to know that no sane business person would run his or her company in the way that Trump wants to run what he erroneously takes to be USA, Inc.
Trump mistakenly believes that USA, Inc., is cheated whenever any of the other economic entities with which it deals, such as Switzerland, Inc., buys less from USA, Inc., than USA, Inc., buys from that entity. Trump wants USA, Inc., to sell to (export to) each and every one of the other individual countries with which it trades as much as USA, Inc., buys from (imports from) that country.
So let’s put Trump’s belief to the test by supposing that he isn’t president of the United States but, instead, president and CEO of General Motors. Trump would then insist on charging GM’s materials-acquisition division a penalty for the steel it purchases from US Steel, with this penalty to remain in place until US Steel agrees to buy as many automobiles from GM as GM buys steel from US Steel. If US Steel (and each of any other steel suppliers) refuses to satisfy this condition, Trump would then suffer GM to get by using less steel.
CEO Trump would make the same demands on each and every one of GM’s many other suppliers: GM would restrict its purchases of rubber from rubber producers until and unless each individual rubber producer spends on GM outputs at least as much as GM spends on rubber from that individual supplier. Ditto for each company that supplies GM with aluminum, chemicals, wood, machine tools, insurance, electricity to run its factories, and on and on.
Indeed, CEO Trump, upon observing, to his horror, that GM runs trade deficits with each of its workers, would refuse to employ anyone who doesn’t annually buy from GM as much as GM annually buys from that worker.
After implementing his new policy, CEO Trump would boast about his genius demands to GM’s board and shareholders – who would immediately fire him for his unprecedented incompetence in running that corporation into the dirt.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
