I am not going to sugar-coat the stupidity of President Trump’s proposed aluminum and steel tariffs. There is no justification for taxing foreign products that Americans want to buy. It is complete and utter idiocy.
On economic grounds, tariffs cause prices to rise and competition to soften. That means fewer and lower-quality products at an inflated price for all.
On moral grounds, the argument that a steel tariff will save American jobs in the steel-producing industry is quickly squelched by the much larger number of steel-using industries that lose jobs and opportunity. This is not simply a theoretical law of economics either. President George W. Bush placed tariffs on steel imports too. He protected a handful of steel jobs, caused the loss of hundreds of thousands of others, and then wisely repealed the tariffs. This was less than 20 years ago.
(If one is bright enough to understand that tariffs kill more jobs than they create, and still supports tariffs, he is corrupt, and his opinions need not be taken seriously.)
On political grounds, however, tariffs might be brilliant. They stir the masses and often result in short-term gains for a few sympathetic people (like a steel mill in rural America reopening). Protectionism masquerades as Patriotism, claiming to be in the interest of American workers and American industry. And by the time tariffs take their imminent toll, voters have been fed so much propaganda that they are unable to construe the negative effects of tariffs on the overall economy from Wall Street to Main Street. Tariffs secretively punish everyone, and ostentatiously benefit a few.
When it comes to understanding the Global economy or even the American economy, President Trump is a complete moron. But this is nothing to be ashamed of, Mr. President! Obama is a moron on this issue too! So are Gary Johnson, Hillary Clinton, Paul Krugman, Alan Greenspan, Neil Cavuto, every economist who has ever lived, and me! We are all complete morons when it comes to understanding the economy!
This is because the economy is far too complicated for any one person or group of people to even begin to grasp.
As I type this essay, I am looking at scattered items all over my table. There is a glass, a plastic cup, some dental floss, a box cutter, two pairs of scissors, many pens and pencils, a notebook, a remote control for my air conditioner, my iPhone, a calendar, two chargers, a ruler, a stapler, my glasses, a sock, my laptop, a mouse and mouse pad, a platform with a fan that keeps my laptop from overheating, and some tissues.
I don’t know where any of this stuff was made. I don’t know who manufactured it. I don’t know how it was manufactured. I don’t know how it was shipped to wholesalers and retailers. I don’t know who arranged the shipments and wholesale purchases. I don’t know precisely what raw materials these items are made of. I don’t know how or where the raw materials they consist of were harvested. I don’t know what equipment was used to harvest those raw materials. I don’t know how or where or by whom or with what materials the equipment used to harvest or synthesize the materials that were manufactured into the products sitting on my desk was made either!
I only know that I purchased them, where I purchased them, how much I paid for them, and that I use them. And if I run out of one or it breaks or I become dissatisfied with it, I will go out and replace it to the best of my ability (or not if I don’t think it’s necessary).
The great economist Frederick Hayek, in his essay “The Use of Knowledge in Society,” referred to someone like me as “the man on the spot”. Hayek begins by explaining that “If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic.” This is a general idea that applies to all aspects of life. If it’s 10:00pm on Monday night, and you need to be in Reno by 11:30am on Tuesday, and it takes two hours to fly to Reno, and the red eye is sold out, and there are flights to Reno at 7:00am and 9:00am on Tuesday morning, and the 9:00am flight is out of your price range, you have to take the 7:00am flight. You and I can solve these problems by applying a smidgen of logic to the information at hand.
But when it comes to the world economy, possessing knowledge this concise is impossible for one individual or one group of people no matter how educated or informed they might be. As Hayek says:
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
The “dispersed bits of knowledge” are possessed by people like you and me and every other idiot in the world. Hayek calls each one of us with our own unique and specialized collection of data “the man on the spot.” As dumb as we are in comprehending the “economic order,” we are ingenious at making economic decisions in our everyday lives. And it does not take much more than half a brain to be a genius as a man on the spot:
How much knowledge does he [the man on the spot] need to do so [make good economic decisions] successfully? Which of the events which happen beyond the horizon of his immediate knowledge are of relevance to his immediate decision, and how much of them need he know?
There is hardly anything that happens anywhere in the world that might not have an effect on the decision he ought to make. But he need not know of these events as such, nor of all their effects. It does not matter for him why at the particular moment more screws of one size than of another are wanted, why paper bags are more readily available than canvas bags, or why skilled labor, or particular machine tools, have for the moment become more difficult to obtain. All that is significant for him is how much more or less difficult to procure they have become compared with other things with which he is also concerned, or how much more or less urgently wanted are the alternative things he produces or uses. It is always a question of the relative importance of the particular things with which he is concerned, and the causes which alter their relative importance are of no interest to him beyond the effect on those concrete things of his own environment.
If read in bad faith, one might come away with the impression that Hayek is an elitist snob talking down to a bunch of ants in a terrarium. “Those concrete things of his own environment” can come off as condescending. But Hayek is a man on the spot himself, and he knows it. Due to his profession as an economist, he is certainly slightly more informed than many of the other men on the spot around him. But when compared to the inconceivable number of events taking place around the world at all times, that extra information is largely insignificant.
It is often said that there are three kinds of knowledge. There is 1) what you know, 2) what you know that you don’t know, and 3) what you don’t know that you don’t know. You know that the Eagles won the Super Bowl. You know that you don’t know how nuclear power works. But did you know that there is a giant, mongoose-like creature in Madagascar called a fossa that hunts lemurs? See, you didn’t know that you didn’t know that (until I told you).
When Hayek explains that the man on the spot does not know and does not need to be aware of every event that takes place and its effect on the economy, he is not saying that he is the one who actually understands these things. Hayek is just like you! The only thing that makes his knowledge superior is his awareness that many events are taking place around the world that are beyond his knowledge. Hayek does not seek to assert himself as the arbiter of the global economic order. He is simply suggesting that a more humble approach is needed.
And this is where politics spoils everything.
Hayek’s approach to economics is to decentralize as much as possible. This runs counter to the ambitions of governments, bureaucrats, and special interest groups. Governments gain wealth and power by usurping controls of the means of production. Bureaucracies remain in demand only by setting up barriers between the man on the spot and his economic decisions. And special interest groups benefit from undermining their competition via legislative fiat because they can’t compete on an even playing field. All of this is incompatible with allowing the man on the spot to live and choose freely.
Ironically, the ingenious man on the spot is politically retarded, and is thereby encouraged to participate in politics as often as possible. His emotions and his ignorance are manipulated by politicians and activists to best serve their agendas. The man on the spot is told that we must take action, not that we must step aside and live our lives peacefully and reasonably. The unseen impacts of tariffs and rent-seeking are difficult to illustrate and conceptualize while a single steel mill hiring 500 new workers bedazzles and affirms mythical beliefs.
Thomas Sowell once said “the first lesson of economics is scarcity: there is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” President Trump and his populist base are disregarding all of the evidence and all of the facts. The country they claim to love will suffer as a result. We’ll have to wait and see if it pays of politically. My commitment to voting for the Libertarian candidate is growing stronger by the day.