A couple days before, the new President shouted his dystopian vision of America to a quarter million or a million or whatever number of brave souls who braved a wet Washington day to hear his inaugural address. The wasteland of empty factories and unmet hopes and dreams stops today, he said to a smattering of applause, with the ghosts of Reed Smoot and Willis Hawley, the grandfathers of economic isolationism, flanking his either side.
Trump has been channeling his inner Hoover since descending down his golden escalator.
It’s 1930 all over again and Trump has been channeling his inner Hoover since descending down his golden escalator a year and a half ago. During his 1928 election campaign, Herbert Hoover pledged to help farmers by raising tariffs on agricultural products. However, once the farmers looked to be getting protectionist help, industry big and small also wanted theirs. “When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history,” Capitalism.org explains.
Please Don’t Do This
“I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot Tariff,” J.P. Morgan partner Thomas Lamont recalled. “That Act intensified nationalism all over the world.” Trump, and his supporters, not being students of history, or oblivious to the notions of comparative advantage and the division of labor, are leading America down the same path, at the same time nationalism grows in Europe and Japan.
More than a thousand economists in 1930, including Frank Fetter and Frank Taussig, petitioned against the bill. Fetter recalled, “Economic faculties that within a few years were to be split wide open on monetary policy, deficit finance, and the problem of big business, were practically at one in their belief that the Hawley-Smoot bill was an iniquitous piece of legislation.”
Theodore Phalan, Deema, Yazigi, and Thomas Rustici, in a 2012 FEE article, explain why economists united against Smoot-Hawley.
The protest included five basic points. First, the tariff would raise the cost of living by “compelling the consumer to subsidize waste and inefficiency in [domestic] industry.” Second, the farm sector would not be helped since “cotton, pork, lard, and wheat are export crops and sold in the world market” and the price of farm equipment would rise. Third, “our export trade in general would suffer. Countries cannot buy from us unless they are permitted to sell to us.” Fourth, the tariff would “inevitably provoke other countries to pay us back in kind against our goods.” Finally, Americans with investments abroad would suffer since the tariff would make it “more difficult for their foreign debtors to pay them interest due them.”Stealing and Stealing Back
Of course the Great Depression quickly followed the bill’s passage and “most of the empirical discussions of the downturn in world economic activity taking place in 1929–1933 put Smoot-Hawley at or near center stage,” write Phalan, Yazigi and Rustici.
President Trump believes America’s jobs are being stolen and thinks he can steal them back with government force, with the public’s jingoistic support, to fulfill his promise to “Make America Great Again.” Of course someone must pay the cost, and that someone will be U.S. consumers.
In “Making Economic Sense," and countless other writings throughout his life, Murray Rothbard explained the problem:
protectionism is not only nonsense, but dangerous nonsense, destructive of all economic prosperity…. Coerced restraints on trade—such as protectionism—cripple, hobble, and destroy trade, the source of life and prosperity. Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of less efficient producers, at the expense of more competent firms and of consumers. But it is a peculiarly destructive kind of bailout, because it permanently shackles trade under the cloak of patriotism.In 1930 about a quarter of the working population worked in agriculture, so Hoover wanted to make farmers happy. Now, only 2% work on farms. Today, 20% work in industrial jobs and Trump wants to protect those jobs at our expense, despite industrial employment peaking around 1950 and declining ever since, with employment in the service sector continuing to climb.
[1840–1900: Robert E. Gallman and Thomas J. Weiss. "The Service Industries in the Nineteenth Century." In Production and Productivity in the Service Industries, ed. Victor R. Fuchs, 287-352. New York: Columbia University Press (for NBER), 1969. 1900–1940: John W. Kendrick, Productivity Trends in the United States. Princeton: Princeton University Press (for NBER), 1961. 1950–2010: Bureau of Economic Analysis, National Income and Product Accounts.]
Ironically, Trump’s protectionist program is being praised by the hard-core left. Sahra Wagenknecht, the parliamentary group chair of the Left Party in Germany, is quoted by Peter Schwartz on the World Socialist Website.org,
And it’s not only about prosperity. It’s about peace and civilization.
“Apparently a Donald Trump even has more economic policy sense than you,” Wagenknecht told the assembled deputies. “Because at least the man has understood that state-led industrial policy is better than low-wage service sector jobs and that budget cutting does not help crisis-ridden and collapsing infrastructure, but only a well-funded programme of public investments.” Mr. Schwartz goes on to explain, “This recalls the argument that Hitler’s policies initially were not so bad because he built autobahns and financed other public investments.”
Adam Smith long ago explained the very simple rationale for extending the division of labor as widely as possible, and by means of a simple analogy: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.”
And it’s not only about prosperity. It’s about peace and civilization. “The philosophy of protectionism is a philosophy of war,” Ludwig von Mises wrote in “Human Action.” “The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.”
Should Trump attempt to back up his bravado about America winning again and being rich again with protectionist nationalism, it will indeed be “dangerous nonsense.” The kind that will make the entire world poorer and less safe.