The Economist is one of the most respected popular journals in the world. It is, as one might expect, particularly informative and interesting on questions of economics. It recently published an interview with President Donald Trump. Treasury Secretary Steve Mnuchin and Gary Cohn, chair of the National Economic Council, sat in. As New York Magazine put it, “Donald Trump tries to explain economics to The Economist. Hilarity ensues.”
Because businessmen participate in economic activities, buying and selling, there’s a presumption that they know something about economics. I think it’s safe to say that Donald Trump knows quite a bit about the Manhattan real estate market, and perhaps a bit about marketing and branding. He doesn’t know anything about macroeconomics, despite graduating from the Wharton School of Finance. This is, I think, less surprising than you might suppose. In my experience, a lot of guys who graduate in Finance loathed their required economics classes. Too theoretical, too abstract, and quite often, post-Keynes, counter-intuitive.
Anyway, Trump gets off to a splendid start.
What is Trumponomics and how does it differ from standard Republican economics?
Well it’s an interesting question. I don’t think it’s ever been asked quite that way. But it really has to do with self-respect as a nation. It has to do with trade deals that have to be fair, and somewhat reciprocal, if not fully reciprocal. And I think that’s a word that you’re going to see a lot of, because we need reciprocality in terms of our trade deals. We have nations where… they’ll get as much as 100% of a tax or a tariff for a certain product and for the same product we get nothing, OK? It’s very unfair.
A few points. Reciprocality is not a word. Also, no, the United States has no trade deals in which our goods have a 100% tariff with a 0% tariff for their goods coming to the US. That’s just silly; hyperbolic posturing. Also “National Self Respect” is not an economic principle. Reciprocity is.
And the very interesting thing about that is that, if I said I’m going to put a tax on of 10%, the free-traders, they’ll say “Oh, he’s not a free-trader”, which I am, I’m absolutely a free-trader. I’m for open trade, free trade, but I also want smart trade and fair trade. But they’ll say, “He’s not a free-trader,” at 10%. But if I say we’re putting a reciprocal tax on, it may be 62% or it may be 47%, I mean massive numbers, and nobody can complain about it. It’s really sort of an amazing thing.
Yes, as wholly imaginary scenarios go, it is quite amazing. I love the idea of reciprocal taxes of 62% passing some fantasy muster with free-traders. Trump based his entire campaign on protectionism, on tariffs, on ‘making America great’ by engaging in trade wars with everyone. If he’s a free trader, I’m a sword-swallower.
We have so many bad trade deals. To a point where I’m not sure that we have any good trade deals. I don’t know who the people are that would put us into a NAFTA, which was so one-sided. Both from the Canada standpoint and from the Mexico standpoint. So one-sided. Wilbur [Ross, the secretary of commerce] will tell you that, you know, like, at the court in Canada, we always lose. Well, the judges are three Canadians and two Americans. We always lose. But we’re not going to lose any more. And so it’s very, very unfair.
I think he’s talking about NAFTA Investor/State Arbitrations. And no, Canada doesn’t always win and America doesn’t always lose. That’s nonsense. Sometimes American companies win, sometimes Canadian tariffs win.
Time for an anecdote:
Now at the same time I have a very good relationship with Justin [Trudeau, the Canadian prime minister] and a very good relationship with the president of Mexico. And I was going to terminate NAFTA last week, I was all set, meaning the six-month termination. But the word got out, they called and they said, we would really love to… they called separately but it was an amazing thing. They called separately ten minutes apart. I just put down the phone with the president of Mexico when the prime minister of Canada called. And they both asked almost identical questions. “We would like to know if it would be possible to negotiate as opposed to a termination.” And I said, “Yes, it is. Absolutely.” So, so we did that and we’ll start.
Ah, the big-hearted sentimental lug! What a wunnerful guy. See, the United States is getting royally screwed by NAFTA (we’re not), and he was going to pull us out of NAFTA, but a tearful (implied) appeal by his good pals Justin and that Mexican guy (the President of Mexico is Enrique Nieto) led him to change his mind.
What does this story really say? That Trump is desperate to be liked. That he didn’t act in the national interest (as he conceives it) because two world leaders weepingly (extrapolating) begged him not to. In short, that Trump can be manipulated. He ran, remember, on his skills as a negotiator. We’ve seen no sign of any such skill set. And, you know: good. NAFTA’s a good deal. Hey, Justin and Enrique. Keep it up guys.
The Economist asks him four separate times what a fair NAFTA would look like, and all Trump can do is recite various synonyms for ‘big.’ It would be ‘huge,’ ‘Massive.’ He clearly doesn’t have any idea.
He thinks our trade deficit with Mexico is 70 billion dollars. It’s not. He thinks our trade deficit with Canada is 15 billion. It’s not. Also, who cares? My economist son likes to point out that he, personally, has a trade deficit with his local grocery store. He does in there all the time and buys food. They give him food, he gives them money. Never once has he so much as offered them a single avocado. And yet the Republic prospers.
Later, he invents a narrative in which he denounces Chinese currency manipulation on the campaign trail, and immediately after he wins, China stops doing it. He is right about one thing; China did stop currency manipulation. In 2014.
Now comes my favorite exchange of the entire interview:
Another part of your overall plan, the tax reform plan. Is it OK if that tax plan increases the deficit?
It’s called priming the pump. You know, if you don’t do that, you’re never going to bring your taxes down. Now, if we get the health-care [bill through Congress], this is why, you know a lot of people said, “Why isn’t he going with taxes first, that’s his wheelhouse?” Well, hey look, I convinced many people over the last two weeks, believe me, many Congressmen, to go with it. And they’re great people, but one of the great things about getting health care is that we will be saving, I mean anywhere from $400bn to $900bn.
Mr Mnuchin: Correct.
President Trump: That all goes into tax reduction. Tremendous savings.
But beyond that it’s OK if the tax plan increases the deficit?
It is OK, because it won’t increase it for long. You may have two years where you’ll… you understand the expression “prime the pump”?
We have to prime the pump.
It’s very Keynesian.
We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?
Priming the pump?
Yeah, have you heard it?
Have you heard that expression used before? Because I haven’t heard it. I mean, I just… I came up with it a couple of days ago and I thought it was good. It’s what you have to do.
Everything about this is amazing. First of all, the US is not the highest-taxed nation in the world; we’re just about the lowest-taxed. Second, ‘prime the pump’ is an economic metaphor for a basic Keynesian concept: when unemployment is high, governments borrow money short-term to provide an economic stimulus to increase demand. That metaphor has been around since the early 1930s. The US has very low unemployment right now. A tax cut will have no stimulative value. It won’t ‘prime the pump.’
And Trump did not invent that metaphor. As New York put it:
Telling The Economist you invented the phrase “priming the pump,” to describe a plan that does not prime the pump, is a bit like sitting down with Car and Driver, pointing to the steering wheel on your car and asking if they have ever heard of a little word you just came up with called “hubcap.”
Once again, in full view of the international community, Donald Trump has demonstrated his own unique blend of arrogance and ignorance. He’s the loud-mouth in the bar, sitting on the bar stool next to Bill Belichek’s, haranguing the coach about what the Patriots should do on offense. He should play a guy named Tom Brady.