Here’s a letter to a long-time critical reader of my blog.
Mr. P__:
Thanks for your email.
You’re “unpersuaded” by my pointing out the economic folly of Pres. Trump declaring that so-called U.S. “goods trade deficits” with individual countries are a national emergency. You write: “President Trump is a skillful corporate executive” while I am “a tenured professor with nothing like his knowhow.” You put your “confidence in his judgement ahead of the musings of intellectuals.”
Skepticism of the musings of intellectuals is healthy, although your skepticism shouldn’t harden into knee-jerk refusal to consider what we academics have to say. So to support my case that it’s foolish for Trump to declare that the run of U.S. goods trade deficits with individual countries is a national emergency, I point you, not to what I and other economists have said for 250 years, but to what Donald Trump himself actually does in running his own businesses.
To wit – he does not demand that each individual entity from which The Trump Organization purchases goods buy from The Trump Organization an amount of goods at least equal in value to the amount of goods that the Trump Organization purchases from that entity. Were Trump to run his business in such a bizarre way, he would demand that each company from which his firm buys office supplies buy from The Trump Organization goods of equal value – and if he discovered that there were no such ‘reciprocal’ purchases, he would conclude that his company is getting “ripped off” by each of those office-supply companies and threaten to restrict his company’s commerce with them.
What’s true for each office-supply company from which The Trump Organization buys goods would be true for each furniture company – each carpet company – each automobile company – each aircraft manufacturer – each golf-cart manufacturer – each catering company – each painter and sculptor whose works are purchased by The Trump Organization. You’ll agree with me that Trump the businessman does not, and would not think to, run his private company in such an absurd manner.
It’s worth nothing that Trump’s company would be especially foolish to attempt to have a “goods trade” balance with each of the entities with which it trades because much of what Trump’s company sells is licensing, merchandising, and endorsements – services all.
There’s no more reason to expect that the U.S. – 80 percent of whose GDP now is services – will have a “goods trade” balance with each of the many countries with which Americans trade than there is to expect that The Trump Organization will have a “goods trade” balance with each of the companies with which it trades. And, again, the Trump Organization does indeed have no such “goods trade” balances and never even thinks to attempt to have them.
So, yes, by all means put your confidence in Trump. But put that confidence, not in Trump the politician but, rather, in Trump the businessman – a person whose actions directly contradict and belie those of Trump the politician.
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
