On Tariffs and Speaking to the Public

We economists have traditionally made innumerable criticisms of the inefficiency of various policies, criticisms which have often been to their own (and my own) utter satisfaction. The meager success of these criticisms in changing these policies, I am convinced, stems from the fact that more than narrow efficiency has been involved in almost every case- that inexplicit or incomprehensible goals were served by these policies and served tolerably efficiently. Tariffs were redistributing income to groups with substantial political power, not simply expressing the deficient public understanding of the theory of comparative costs. We live in a world that is full of mistaken policies, but they are not mistaken for their supporters.--GJ Stigler (1980) Economics or Ethics, The Tanner Lectures on Human Values, p. 155.

A few months ago, an open letter (organized by the national taxpayer union) with 1100 signatures by economists and 15 Nobel laureates (maybe more now) was released. Most of the letter consists of a block quote from (yet) another letter dating from 1930,when "1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act." It is a tempting occasion to start lamenting the folly of the world and the eternal return of the lack of respect for the wise and virtuous or expert opinion. The temptation is strong to lecture readers on the truism that our own times are less distinctive than we, who are living it, may well imagine. 

Even so, I won't succumb to temptation today, because I was struck by two questions: (i) why repeat a speech act that failed miserably the first time? (ii) Had economics (or the consensus within it) not advanced such that no new arguments could be articulated at all?* The central claim of the new letter is "not to repeat" the "mistake" of the past.  Below I re-print the bits copied of the 1930 letter.

The idea that economists are doomed to live in "mistake-prone world" is deeply ingrained in the DNA of the profession; it is useful to my present purposes that it was already mocked relentlessly in Stigler's (1980) Tanner lectures. (Stigler, a Nobel laureate, was one of the leading Chicago economists of the previous century.) He makes two arguments: first, the claim presupposes that the economists and the politicians (and their supporters) share the same goals/values (that is, efficient use of resources, etc.); second, that politicians (and supporters) do not grasp the consequences of their actions.  Drawin on ideas developed in public choice (and his own work on regulatory capture), Stigler makes mince meat of the second claim. It is notable that he does not pause the reader to inform them he had defended the first claim (recall that  a consensus of ends among economists and society is presupposed in economics). 

The idea that we live in a mistake-prone is relentlessly promoted by those that see President Trump as a dangerous fool (or worse). I have no doubt that he is badly informed on lots of things, but he is also a very shrewd politician. Tariffs have foreseeable income effects, and the President is making a calculated bet that these will help those he wishes to help among his well-organized supporters and friends. (The previous sentence is compatible with the further thought, which I have relentlessly emphasized (recall here and here), that he thinks of the world in zero-sum terms.) 

Unsurprisingly, the letter by this generation's economists has had little more influence than their esteemed (but Nobel-free) predecessors. What is most remarkable about both these letters is that they refuse to name the fact that there are political winners from tariffs and, more important, to name who these may be. (That's most remarkable because the economists are the experts who can tell us this!) I mention this because that's the politically salient fact that gets ignored by both letters.** 

I am not suggesting that the economists would be more effective if they told us what we needed to know to understand our own political situation better. But they can hardly be less effective than they are now.

 

We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.

Few people could hope to gain from such a change. Construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.

The vast majority of farmers, also, would lose through increased duties, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.

Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.

Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.

 

 

*On the second, I have sometimes wondered if the policy relevant bit of economics has advanced much in the last half century or really all that much beyond the ancient wisdom of Mencius and Ibn Khaldun: ensure impartial justice, keep taxes low, create minimal safetynet, etc.  

**I am not sure it's true, but my impression is that both China and the EU have retaliated against industries that are concentrated in areas where Trump voters live. This may seem satisfying, but my hunch (take that for what it's worth) is that this may well entrench support for the President.