A commenter recently claimed that I bashed the new China deal because Trump is in my “outgroup”. Commenter anon/portly responded:
However, just because the rest of his comment is a blizzard of misunderstanding the ideas of two Scotts, doesn’t mean that the first sentence is untrue:
“Scott’s posts are really a vindication of Scott Alexander’s outgroups theory from “I Can Tolerate Anything Except the Outgroup”.
Well, since much of what we observe in the world – and especially the blogging world – is a vindication of that, this may well be true. But what *is* the (or a) Sumnerian Outgroup (hereafter “SO”)?
Anyone reading this blog for long would know that you can’t assign this based on the other Scott’s ur-example, the “blue” tribe’s attitude toward the “red” tribe. SS doesn’t belong to either the blue or red tribe. (It helps to remember that in criticizing Trump on trade, he’s criticizing ideas that in the past were much more closely associated with specific Democratic party politicians, e.g. Dick Gephardt, than with specific Republican party politicians; and if not closely associated with any non-crank economists on either the left or right, at least closely associated with one crank Democrat economist, Trump advisor Peter Bellamy).
So what is the SO? I’m not really sure, but one thought that occurs to me is what I have always taken to be the outgroup of engineers. By “engineers” I don’t mean the people they call engineers nowadays who do coding and use software and aren’t (necessarily) really all that great at math, I mean the old-style guys (and occasional gals) who were really good at applying various forms of math to the real world. I always thought their outgroup was something like “people – especially other smart people – who can’t or won’t do math, or use math creatively.”
Trump is certainly in my “outgroup”, as I dislike everything about him. But I also root for the US to succeed. So I root for Trump to succeed in areas where his success is good for America (say a cut in interest rates, labor market deregulation, or a corporate tax cut) and I root for him to fail where it’s bad for America (trade barriers, immigration restrictions, war on drugs, big budget deficits, etc.)
Anon/portly’s comment got me thinking about what sort of thought process distinguishes me from other analysts. The following is highly subjective:
1. I believe that I rely more on classical economic theory, and also general equilibrium theory.
2. I try to pay a lot of attention to statistical data, with a focus on whether data is accurate and economically meaningful.
3. I try to avoid “mood affiliation”. My views tend to cut across all sorts of ideological lines, and I don’t see myself as either “left” or “right”. I’m one of the very few people who have been strongly pro-monetary stimulus during much of the last decade, and also strongly anti-fiscal stimulus. I see many people form into pro and anti-stimulus camps, and adopt the various other views of people in those camps. I’m fine with very high tax rates on billionaire consumption, but am opposed to minimum wage laws. I like carbon taxes but oppose wealth taxes. I think we should be tougher on some criminals and softer on others.
Let me illustrate these points with the example of how the media reports on the recent Chinese agreement to buy more US farm products, which embodies all three problems.
Trump’s original motivation for the trade war was the large US trade deficit, which he wrongly thought was due to unfair trade practices in foreign countries. Later his agenda was hijacked by foreign policy conservatives who worried about China threatening US hegemony with an alternative (illiberal) model. Much of the news coverage of the China deal focuses on the promised food purchases, even though they are unrelated to either complaint. Before Trump took office, almost no one was claiming that the problem with China was that they were not buying enough US farm products, or that they had unfair barriers on our farm products. Indeed farm exports are one of America’s big success stories. Trump has “fixed” a problem that did not exist.
I attribute that to “mood affiliation”. Once you decide that China is a Bad Country, then any concession we can wring from China becomes a US “win”.
This policy is also based on a lack of understanding of general equilibrium theory. The China deal will not affect the US current account deficit, which is determined by factors influencing US saving and investment. I get annoyed reading endless commentary by people who seem oblivious to this point, and hence provide the sort of useless analysis you could get from just talking to the average man on the street.
Socialism and statism sound good to the average person, at least when the laundry list of proposals is presented one item at a time. That’s why losers like Jeremy Corbyn keep insisting that the public agrees with them. Even Republican voters often support socialist ideas when polled on the subject. It sounds good if you tell average Americans that China will buy more US farm products. Less good if you point out that the trade balance won’t be impacted, which means we will lose manufacturing exports and jobs as a side effect. Sort of like how people support almost every spending proposal until you tell them that it requires higher taxes.
There’s also a problem with innumeracy. Pundits often talk about how German fiscal stimulus could boost the Eurozone economy, whereas the German government spending a few more percentage points of GDP would have almost no discernible impact. Similarly, the effects of Chinese promises to buy US agricultural products are trivial, for several different reasons. First, the Chinese won’t buy $50 billion, as even Lighthizer admits. Second, the extra sales to China will be mostly offset by fewer US exports to other areas, as displaced Brazilian exports to China seek out other markets. Global commodity prices will rise by a trivial amount, and it’s global commodity prices that matter. The net gain in US exports will be very small, relative to our $2.5 trillion in total exports. Maybe zero to $5 billion. It’s a “nothingburger”.
People who disagree with me on the trade deficit often point to the empirical work of Fred Bergsten and Joe Gagnon, which is the best defense I’ve seen of the alternative view, the view that we need to worry about foreign currency manipulation boosting our current account deficit. But the Bergsten/Gagnon study says that every $1 increase in our budget deficit will boost our current account deficit by 52 cents. That means that Trump’s reckless fiscal policies have “worsened” our current account deficit by nearly $200 billion. And yet the press ignores this. (To be fair, I don’t think the current account deficit is a problem, but I do believe the budget deficit is a problem.)
The media is full of people with contempt for Trump. Thus it’s ironic that most of the reporting on Trump’s policies is actually far too generous. The new NAFTA and the China trade deal are discussed on the press in his terms, in terms of what the US “won” in the negotiations. Tyler Cowen recently linked to a Christopher Balding post that is a nice example. You’ll see very few news articles pointing out that Trump’s reckless fiscal policies have made the trade deficit much worse, and that none of these deals will do anything to fix this “problem”.
I’m sure a critic could look at my blog and see all sorts of biases that I’m blind to. All I can say is that everywhere I look I see bad economic theory, inability to interpret economic statistics, and mood affiliation. My in group is not Democrats or Republicans (both of which I dislike) it’s people who know how to rationally evaluate an issue and have good intuitive common sense when interpreting data.
PS. Some will argue that I had already decided the trade deal would be a dud even before it was concluded. That’s a fair criticism; so let me explain why I had this preconception. I think I know enough about economics to know just how disruptive an actual Steve Bannon-style (i.e. nationalistic) trade policy would be. Any policy that significantly moved the needle away from globalization would be highly disruptive and very unpopular with large segments of the public. And I think I know enough about politics to know that Trump would not go that route.
Thus for the past three years I’ve simply been bidding my time, waiting for these meaningless symbolic deals to be announced as huge wins for America. And now it’s happened. So yes, I did pretty much have my mind made up long ago, although if Trump had actually done something dramatic I would have said so and predicted that it would greatly harm our economy. The actual deals will have only a trivial impact on the economy, which is a relief.
And maybe this is actually good. Before Trump, we were told we needed economic nationalism to bring blue-collar jobs back to America. We were told we needed massive government infrastructure programs. We were told we needed to crackdown on illegal immigration, and expel those who are already here.
Let’s say that people foolishly believe Trump did all that. They believe there’s a shiny new wall on the border. That would be great! Then the electorate would move on to other issues, as these issues have been “solved”. If we have an actual policy of neoliberal cosmopolitanism, and yet people wrongly think that Trumpism has won, then no one will get any political mileage in attacking neoliberal cosmopolitanism.
The very worst thing that can happen to any policy agenda is to take office and then not implement your policies. The public will think you have implemented the policies, and any problems will be blamed on your announced policies, not what was actually implemented. No one will vote for a future Republican who says, “I’ll do what Trump promised but failed to do”. Yeah, sure.
Remember that, “all political careers end in failure”. The goal should be to avoid ever winning an election, rather to focus on getting the other side to implement your policies. In Australia and New Zealand, it was the left that implemented neoliberalism. Let them “own” neoliberalism and there’ll be no one to take it away.