Almost four decades have passed since Daniel Patrick Moynihan famously declared,
“Of a sudden, the G.O.P. has become a party of ideas.” And his
statement still holds true, with one modification: These days,
Republicans are a party of zombie ideas — ideas that should have died
long ago, yet still keep shambling along, eating politicians’ brains.
The
most important of these zombies is the “supply side” insistence that
cutting taxes on the rich reliably produces economic miracles, and
conversely that raising taxes on the rich is a recipe for disaster.
Faith in this doctrine survived the boom that followed Bill Clinton’s
tax hikes, the lackluster recovery and eventual catastrophe that
followed George W. Bush’s tax cuts, the debacle in Kansas, and more.
And
Donald Trump’s selection of Larry Kudlow to head the National Economic
Council confirms that the tax-cut zombie is undead and well. For Kudlow
is a fervent believer in the infinite virtues of tax cuts, despite a
track record of predictions based on that belief that, as New York
magazine’s Jonathan Chait once wrote, “has elevated flamboyant wrongness to a form of performance art.”
Yet
there is more to economic policy than taxes; Trump himself, while
willing to sign whatever tax cuts Congress sends him, seems far more
interested in international policy, in particular the supposed evils of
trade deficits. And that’s where things get interesting.
You
see, now that “globalists” like Gary Cohn have left, all the people
advising Trump on international economics are, like those advising him
on everything else, in thrall to zombie ideas. But there’s more than one
kind of zombie. In fact, there are in effect two factions — equally
wrong, but wrong in different, almost opposite ways.
You might say that when it comes to international trade, Trumpworld is heading for a kind of zombie civil war.
On
one side, we have the neo-mercantilists — people like Peter Navarro,
Trump’s trade czar — who see world trade as a tale of winners and
losers: Countries with trade surpluses win; those with trade deficits
lose.
Both
logic and history say that this view is nonsense: Trade surpluses are
often a sign of weakness, trade deficits sometimes a sign of strength
(as a matter of arithmetic, a country that attracts more inward
investment from foreigners than it invests abroad must run a trade
deficit). And the neo-mercantilists have a habit of making crude errors,
like misunderstanding how value-added taxes work.
Still,
they have Trump’s ear, because the rocks in their heads fit the holes
in his: They’re telling him what he wants to hear, because their errors
play to his gut instincts, and when it comes to policy, he don’t need no education.
Yet
they’re not the only faction talking dangerous nonsense on
international economics. The Trump administration has also become home
to what we might call neo-goldbugs: people who think that a nation’s
strength can be measured by the strength of its currency, and refuse to
see any downside in a strong dollar, never see any reason a weaker
dollar might be needed.
Like neo-mercantilism, or for that matter supply-side economics, this view has been debunked many times — I wrote about it in 1987! — yet keeps shambling along, because it appeals to the prejudices of wealthy and powerful people.
Until now, the most visible neo-goldbug in the administration has been David Malpass,
the under secretary of Treasury for international affairs — normally a
position of great policy influence, although under Trump, who knows?
Malpass is the former chief economist of Bear Stearns, and a man with a
Kudlow-like record of being wrong about everything. In particular, however, back in 2011 Malpass published an op-ed article declaring that what America needed to fix its economic ills was a stronger dollar (and higher interest rates).
It
was a bizarre claim. After all, at the time the unemployment rate was
still 9 percent — and a stronger dollar would have made things even
worse. Why? Because it would have made U.S. products less competitive,
increasing the trade deficit — and a situation of persistently high
unemployment is the one situation in which trade deficits really are an
unambiguously bad thing, reducing the demand for domestic goods and
services.
But
here’s the thing: Kudlow appears to share Malpass’s worldview. In fact,
his first newsworthy statement after Trump announced his selection was a
call for a higher dollar — something that would worsen the very trade deficit Trump sees as a sign of American weakness.
Why
has Trump hired people with such conflicting notions about
international economic policy? The answer, presumably, is that he
doesn’t understand the issues well enough to realize that the conflict
exists. And what both sides in this dispute share is a general
propensity for invincible ignorance, which makes them Trump’s kind of
people.
Anyway,
on international economics the Trump administration is now on track for
a battle of the zombies — a fight between two sets of bad ideas that
refuse to die. Pass the popcorn.
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