Mistakes

I’ve told you often why you should not believe everything that comes out of an economist’s mouth. It’s usually mistaken scientifically or ethically or both. He puts forward his mistakes with great confidence and a show of highly technical expertise. Most economists who do statistical studies use technical tests of “significance.” But the tests have been known for a century to be nonsense. Most economists who deal with inflation and unemployment and the like believe that the U.S. central bank controls interest rates. But the government’s bank sits in a big world of supply and demand for funds, and the control it is supposed to have is exercised through an extremely small and weak instrument called the Federal funds rate. Most economists who deal with markets and industries believe that the economy grows important monopolies, externalities, and ignorant consumers, and that therefore the state should step in. But there’s essentially no evidence for these, and for the statist solutions.

What’s the reader to do? Oh, listen to me.

Yet what comes out of a non-economist’s mouth is often more wrong on scientific or ethical grounds. Donald Trump, like many people, whether on the left or the right, believes he understands the economy better than economists do. He believes, for example, that trade is a matter of power and that the side that sells the most is a winner. He therefore sees trade as an instrument of coercion that powerful countries can use against others less powerful. He has imposed a 25 percent “emergency” tariff on imports from Mexico to coerce its government to stop an imagined flood of migrants into the U.S. Mexico is the second-largest trade partner of the U.S. Expect him to threaten the largest, Canada, in a similar fashion. He wants Canada to become a state in the U.S. Perhaps he doesn’t know that the U.S. tried that in 1812 and that, anyway, Canadians don’t want to be Americans. For some reason, he has not proposed that Mexico become such a state. One wonders why.

Most economists know that trade between you and Pedro, or between Brazil and the U.S., benefits both sides. Yes, some left-leaning economists, and many of the Marxists or fellow travelers in departments of economics in Brazil, still adhere to the old line of the Argentinian economist Raúl Prebisch (1901–1986). He argued that developing countries need to watch out for falling into a “dependency” of bad trade deals with rich, fully industrialized countries. But even his followers don’t deny that trade can be good. Maybe sometimes imports are “superfluous” to the urgent industrialization that the state should encourage. But they don’t take the mercantilist view that Trump and most non-economists believe—that exporting is what’s good about trade. So you would want to work more for less ability to import groceries and housing? They don’t assert that all imports are bad or that trade is merely a one-man exercise of power. They say that sometimes it’s a sad but unintended result of “structures.”

What to do? Oh, listen to an economist. Which? Guess.

Weekly column in Folha de São Paulo, Brazil
Translated into Portuguese for the newspaper.