The two largest gangs in world politics today – the left and the right – have spent the last several years of ideological upheaval publicly proclaiming that economics is a pointy-headed pseudo-science that should never be allowed to get in the way of a leader’s vision.
The left has been pushing the glories of free everything, as funded by the magic printing press. Centrally planned equality and scientific public management, though it seems never to have worked anywhere, will work this time.
This time it is different, they say. Now there is a real passion for intersectional justice driving this mass movement. Plus, the world is going to melt in 12 years so we have no choice but to shut down capitalism and go back to foraging for food (we used to say “hunting and gathering” but the modern left is against hunting).
The right has been just as dismissive of economics. They say that economics must defer to national greatness and to a people’s higher spiritual ambition. There’s no point to wealth unless it feeds a sense of national purpose, a society of cohesion led by a great man whose drive and ambition grants our lives meaning. We – that magic plural pronoun that unites society and state, the collective and the individual, the leader and his followers – must always be number one. Print the hats, unfurl the flags, attend the rallies, sing the songs, and then we’ll win so much your head will spin. (As an aside, I’ve never understood that metaphor; a spinning head is not a sign of life.)
Meanwhile, the experience and theory of 500 years is behind the general proposition that wealth creation depends fundamentally on the expansion of the division of labor. That’s a fancy way of saying that the more we cooperate together through markets, the more productive our lives can be. More trade. More benefit. More innovation. Respect property rights, defer to the contracts of private parties, celebrate profits, and permit the widest possible opportunity for innovation, and you have the makings of a wealthy society. Nor is this restricted by the borders of the nation state. Cooperation should be international to support a growing population.
And what do we mean by wealth? Are we talking fripperies, furs, and fun for the rich and famous? Sure, that’s part of it; you can say that is the culturally tacky part of it. More importantly, it means longer lives, cures for diseases, wider access to communication technology, more opportunities for travel, time to write and reflect, the ability to be secure in person and property, the discretionary income to support the arts and religion, and the ability to rise above subsistence so that we can love fully and be fully loved. It could even mean saving enough money so that when you pass on from this world, you can leave a substantial bequest to your daughter’s child who was born with severe autism and needs lifetime support, or possibly give a large gift to a convent of religious sisters who have a calling to live a life of teaching, singing, and praying.
That’s what wealth really means. It is the material path toward living a better life. That’s the most we can hope for in this world. The point of economics is to explain how we get there.
Economics explores and explains the forces that govern the interaction of resources and social needs, forces that operate without anyone pulling levers or pointing guns. Knowing these forces puts limits on the political visions of fanatics. It constrains the range of the possible within the structure of existing reality. That main reality is what economists call scarcity, the unavoidable fact that our desires will always outstrip the capacity of the world to provide for them; hence we must find a way to make more for everyone, granting as much access as possible through the freedom to trade and innovate.
What happens when you fight economics? Economics pushes back. It cares nothing for your visions, speeches, songs, hats, and rallies; indeed, not even the world’s biggest guns and armies can stop the forces of supply and demand.
To watch economics push back is not always pretty. Markets fall, people lose jobs, settled supply chains are brutally disrupted, economic growth turns downward, prices rise, whole industries suffer grave damage. It can be grim to watch. Still, there is something wonderfully comforting about this. It means that no man can finally ruin the world so long as economic forces are at work. Economics humbles despots – maybe not right away, but in the long run.
So where are we today with the Trump administration’s trade war, which arrogantly set out to reverse the market-driven development of the global division of labor? There is talk of recession in the air. Financial markets are about where they were when this all began and are facing downward pressure. Germany appears to be in recession. US export markets for agricultural goods are so bad that the Trump administration is moving toward a third bailout. There is no greatness to behold.
Chad Brown and Douglas Irwin have issued the following ominous statement:
A future U.S. administration that wants to chart a more traditional course on trade will be able to undo some of the damage and start repairing the United States’ tattered reputation as a reliable trading partner. In some respects, however, there will be no going back. The Trump administration’s attacks on the WTO and the expansive legal rationalizations it has given for many of its protectionist actions threaten to pull apart the unified global trading system. And on China, it has become clear that the administration is bent on severing, not fixing, the relationship. The separation of the world’s two largest economies would trigger a global realignment. Other countries would be forced to choose between rival trade blocs. Even if Trump loses reelection in 2020, global trade will never be the same.
It’s true that even under the best-possible conditions – all interventions since January 2018 are reversed and the US goes hat in hand to country after country with a sense of regret for the absurdities of the last 18 months and with true dedication to restoring peace and prosperity – it will take many years to repair the damage. The best-possible path is highly unlikely.
At least this time, there appears to be a chance that the public blame will be placed in the right place. Maybe there will be learning, as there was following a similar debacle in 1930. If there is to be learning, let economics be our teacher. If we refuse, however, economic reality won’t care: it just keeps operating regardless of the intentions of any of the world’s most smart and powerful people.