OK, so work with me here [1].
I’m not especially a fan of tariffs. Some of the arguments against them aren’t much better, though. If they go through, they are taxes, yes indeed. And if they don’t – if they are leverage, used to successfully change trade policy, or in some cases safeguard an industry we *don’t* need getting offshored [2], then not so much.
But this goes way beyond tariffs, so again, bear with me [1].
Our economy has extremely healthy fundamentals – and some incredibly nasty endemic problems:
- – National debt that will crush the economy if we don’t do something useful
- – inflation that was down from four years ago, but still way higher than it should be, especially for working-class Americans (because the inflation rate for food, fuel and housing was and remains *way* higher than the economy at large)
- – A stock market that was very overvalued at the beginning of the year (with profit to earnings ratios almost double the rate of a healthy market), with a major bubble caused by federal spending and the AI bubble.
- – A Federal Reserve whose only answer is cutting rates (which will increase inflation, given all the loose money that’s already out there) or hiking them (strangling economic growth).
- – Four years of uncontrolled immigration, which depressed working-class wages (and artificially kept some prices down while raising other costs, economic and social).
- – A Congress that *can* and *should* fix all these problems, and *could*, at least to start by means-testing Social Security and Medicare, except that they have to win popularity contests every two years, and the noise machines of both sides have made being *honest* about the impending entitlement time bomb political suicide)
- Oh, yeah – Europe is closer to general war than it’s been in 85 years, and experts are predicting China will, not may, either invade or strangle Taiwan before the end of the decade. ]
So – what to do?
Let me take you back.
It’s 1982. I was still a Democrat. Probably kind of an obnoxious one, come to think of it.
And the economy had been a basket case for much of my childhood, and all my teenage years and adulthood to that point. The Oil Embargo led to the mid-seventies recession, which led to Stagflation, which led to the Malaise, and of course the Federal Government was spending money like crazy on the “war on poverty”, so inflation crushed economic activity; inflation peaked at over 12% when I was in high school.
President Reagan’s Fed chief, Paul Volcker, cranked the federal funds rate to *20%*. Mobbed up loan sharks said “dial it back, bub”. It SLAMMED inflation to the mat – but unemployement *soared* to 10.8% [3]. It triggered a VERY sharp recession in 1982 – one that’s still “the big one” to a lot of us.
The Democrat majority in Congress grew by 26 seats to a majority of *over 100 seats*. IF there’s been a Presidential election in 1982, Reagan would have lost by a landslide.
But here’s the thing about recessions – if the fundamentals of the economy are healthy, then the sharper the downturn, the sharper the recovery, if you let it [4]. In a year, the economy was gaining almost 500,000 jobs *a month* (and the population was 34 the size it is today), and the longest peacetime boom in history, almost 25 years, kicked off.
And Reagan rode that economy to the biggest landslide in history. And I made my first Republican vote, for Reagan (and my last Democrat one – for my Mom).
So – what about last week’s orgy of tariffs?
Maybe it just means Trump is stupid. Could be [5].
Or maybe the whole thing is:
- A sharp kick in the market’s teeth, to get those valuations down to size, AND…
- … burn off some of that excess capital that Biden (and yes, Trump in 2020) pumped into the economy with no growth to eat it up, AND…
- Throw a stun granade into the international trade market to exert leverage on other countries to cut the tariffs that *are* there [6] AND… Start creating demand for American blue-collar labor, to replace all the cheap foreign labor that the cartels aren’t walking across the border, AND…
- To force China into a recession that they can just not afford (if their exports are strangled, they are screwed blue), which might have the salutary effect of helping prevent WORLD WAR F**KING THREE in the Taiwan Straits, AND…
- Unleash the Growth Fairy, which – let me put this as gently as I can – IS THE ONLY WAY THIS COUNTRY’S ECONOMY ISN’T GOING TO COLLAPSE in the next decade or so. Literally, those are the two choices – out of control growth, or collapse. There is no option C. Taxing billionaires don’t do it. Confiscating every dollar of wealth over a Billion, or a million, won’t do it. ONLY the greatest explosion of growth the world has ever seen will do it.
It’s not just me thinking this: my (Facebook) friend Glenn Reynolds wrote this [7]…
And HIS friend and my one-time rhetorical fencing partner Steven Green had this to say:
Decide for yourself. [1].
[1] Or don’t. I don’t care. But if you disagree, shoot for intelligent disagreement, OK? I’m kind of tired of the other kind.
[2] Germany is kind of starting to regret outsourcing the production of its army’s tanks to Greece, for one example.
[3] Yep, Millennials, almost a point worse than 2008. You didn’t survive the worst of all possible times.
[4] Which is why the 2008 recession, and the Great Depression for that matter, dragged on so long – government “recovery” efforts prolonged the economic trouble that caused the whole thing in the first place.
[5] We’ll see, one way or the other. I’ve been wrong about Trump before, and so have you. Anyway, hear me out [1].
[6] Both sides are wrong about trade, by the way; Trump’s largely wrong about the trade deficit (it’s mostly from us buying cheap stuff from poor countries, and the middle class has grown in the past 40 years) and his opponents are wrong about foreign countries’ policies (they DO hamper lots of American exports in the “free market”). We can discuss it [1].
[7] I eschew “appeal to authority” and other logical fallacies, and I hope you do too [1], but let’s be honest; he’s smarter than me, and probably smarter than you, too.
