Trumponomics And The Paradox Of Prices

  By VennerRoad, 2nd Sep 2016

Donald Trump has made serious criticisms of American trade policy, but is Trumponomics really the solution?

Donald Trump in 2015

In his campaign for the US Presidency, Donald Trump has made much about what he calls poor trade deals that he says are killing the United States. Certainly much of the country’s manufacturing industry has disappeared since the words Detroit and automobile were synonymous.

In an address at Akron, Ohio, August 22, Trump promised an end to dumping and other countries selling subsidised goods in America. Sounds good, doesn’t it, or does it? But does dumping actually exist? According to mainstream economists, big companies sell goods below cost in foreign markets in order to destroy the competition so that they can then move in big time, take over, and raise prices thanks to their new monopoly, but has this ever happened even once in history on anything bar a micro-scale? In practice, the only way a monopoly can be protected is by legislation, something that may be good for the producer but is inevitably bad for consumers.

Here is a short cartoon by the Libertarian Cato Institute that explains the real effects of opposing so-called dumping, and the real vested interests that oppose foreign companies selling you cheap goods. If you want something more substantial, check out this science fiction story The Gift Of Ramu in which a space traveller bequeaths the Earth a free source of energy.

So-called dumping is really about selling goods at lower prices; lower prices benefit the nation and indeed the world as a whole for a very simple reason. We are not all producers, but we are all consumers, each and every one of us. Think how many people do not produce: the young, many retired people, people in hospital...and to that we can add much of the entertainment, service and other industries. Lower prices mean we can all purchase and consume more, but lower prices mean too that producers are paid less for their goods, which in some cases can put them out of business. Every producer seeks to maximise the prices at which he sells his products while at the same time minimising the prices he pays. But what if a producer cannot compete with cheap foreign competition?

Although this may seem counter-intuitive, some industries should be left to die, in fact some of them should be executed! As explained in this article, in the 1890s, the major form of transport was the horse. Now do a little experiment, look at old films of urban street scenes on YouTube from 1895 fast forwarding five years at a time. What you will notice - apart from the total chaos - is that cars become more and more frequent, horses less so, until eventually you will see nothing but motor vehicles.We may all rail at modern life sometimes, but how many of us would really give up the automobile for the horse? And let’s not talk about foreign travel.

Lower prices also lead to more investment, consider one striking example from the modern era. If you are under the age of about forty you may find this difficult to believe, but it is true nevertheless. In 1990, a high density floppy disk would hold 1.44Mb of data. Seriously! In the UK this would set you back perhaps £1. Today, there is one firm selling excellent memory sticks on Ebay for around £20; these hold 128Gb of data, ie around 88,000 times more than 26 years ago. Okay, you will pay more than £20 over the counter, perhaps double, but factor in inflation. This kind of technology cannot be developed without massive investment, and such investment will not be forthcoming in the private sector without low prices.

That is the good news for society, now let us return to that free energy source. Donald Trump has been making common cause with coal miners; what would be their reaction to free energy that put them out of work? We can see their reaction to the phasing out of coal; in 2013, the UK coal industry employed around 4,000 people. In the 1980s, it employed over 140,000. Throughout the 70s and 80s, there was a series of bitter conflicts between the governments of the day and the miners, which the miners lost. The phasing out of dirty and dangerous industries to be replaced by clean, cheap ones - in the energy sector and elsewhere - is good news for all of us, but bad news for those whose livelihoods depend on them.

Donald Trump has made much about standing up to what he calls special interests - ie big money - but although he doesn’t realise it, he is making common cause with other special interests, in particular blue collar workers and organised labour. The big question though is are the big money people wrong and the workers right just because...?

Trump says he has a plan to put America back to work. If that involve rebuilding its faltering infrastructure and regenerating the inner cities, he will doubtless have some success, but does it make sense to produce electricity or anything at a higher cost than it can be bought in from elsewhere?

One valid point he has made about the trade deals he says are killing America is that the country has been flooded with cheap imports. As stated, this is a good thing, but it begs the question, if so many people are unemployed or otherwise out of the workforce, where is the purchasing power coming from?

This is not such a paradox, because as those on the left never tire of telling us, America and everywhere else is being polarised into the haves and the have-nots. Trump’s former rival Bernie Sanders and others have proposed a minimum wage to combat this, but as both economic theory and economic practice prove, the minimum wage destroys jobs as well as saddling employers with even more red tape. There is another solution though, basic income, which is discussed in this video together with the reasons the minimum wage fails, primarily because in an age of automation, the once well-paid unskilled jobs on which a man could support his family are no longer there.

Unlike welfare (social security in the UK), basic income would lift people out of poverty because it would destroy the poverty trap. As there are around 45 million Americans on food stamps, it would make sense to abolish the food stamp program and all other welfare programs merging them into a non-means tested basic income program for all citizens.

Although well-meaning, Trump’s plan for a highly paid workforce with full or near full employment is not a laudable goal for any government in an industrialised nation, not in the Twenty-First Century. New technologies including 3-D printing and the next generation of robots will soon mean the production of even more goods at even lower prices. They will also require fewer workers who will increasingly be highly skilled technicians. Without basic income or something similar to distribute purchasing power, we will see not only a dwindling workforce but taxation crippling all but the very rich.

It is time for not only Donald Trump but all politicians to start thinking outside the box, and if that means lower rather than higher prices for producers, then so be it.

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