Smoot-Hawley-Trump

OK, now he's scaring me. There is a possibility that Donald Trump could become President of the United States. He was on the news yesterday in an interview saying that as president he would undo the trade arrangements we have negotiated over the years, starting with NAFTA. He would adopt protectionist policies reminiscent of the Smoot-Hawley Act of 1930, emblematic if not the primary cause of the Great Depression. Whether the rest of the world would follow suit as it did after Smoot-Hawley is doubtful. They recognize the importance of trade to their prosperity if Mr. Trump does not. But it would certainly retaliate, pitting the United States against the world and isolating us as we have never been before. Whether a President Trump could get the necessary legislation through congress is also doubtful but, oath of office not withstanding, presidents don't necessarily uphold laws they don't like. We live in dangerous times. The scary part is that so many of us are listening to this man. We are so angry we would fight fire with fire. Rather than insisting on a return to the rule of law we would fight lawlessness with lawlessness. Stick it to the Chinese, and the Japanese, and the Mexicans. That will show them. Deport the illegal immigrants, all twelve million of them. Don't ask how, just do it. Build the wall. Mexico will pay for it, even if we don't trade with them any more. We all need to take a deep breath, remember a little history, and do a little critical thinking. NAFTA would be a good place to start. Yes, there were winners and losers but most economists agree that Canada, the U.S., and Mexico all benefitted enormously from the agreement, as we have from the steadily improving trade environment generally since the end of WWII. Mexico is emerging as a middle class country. Net immigration from Mexico has been zero or negative for several years now, in part because of NAFTA. NAFTA can be improved but any improvement should encourage more trade, not less. The Trans Pacific Partnership, which includes Canada and Mexico and is currently awaiting congressional approval could be an enormous improvement if it does what it's backers say it does. One can only hope TPP gets a thorough and informed airing. Right now it is being heavily demagogued with Mr. Trump leading the charge and Mrs. Clinton joining in, if with softer language. It's not encouraging. The World Bank recently announced that global extreme poverty has declined in absolute terms to its lowest level in years, and in percentage terms to its lowest level in history. A huge new middle class has appeared, not just in Mexico but in much of what was once the third world. It is worth asking why. Improved governance, lower corruption, technology, globalization, and trade all play important roles. A Trump presidency could set that process back decades, though in fairness draconian measures championed by many democrats to reduce carbon dioxide emissions could do even more damage, perhaps stop it entirely. But my focus here is on trade. Interstate commerce has always been one of the principle drivers of American prosperity. The individual states cannot interfere with it. We can thank the founding fathers for including the commerce clause in the constitution. For more than seven decades, beginning with the Bretton Woods Conference in 1944, international commerce has been a driver of the greatest economic boom the world has ever seen. The United States has been a prime mover in that. It would be a profound tragedy for us to turn our backs on it now. As I said. Donald Trump is scaring me.

Global Poverty

The World Bank made the news last week with a forecast that the number of people living in poverty, defined as subsisting on an income less than $1.90 per day, will fall to about 702 million this year. That is down from 902 million just three years ago and represents less than 10% of the global population for the first time in human history. The UN has also released new Millennium Development Goals including one to eradicate extreme poverty by 2030. With the kind of progress made in recent decades that almost seems achievable. Of course there are obstacles. Hundreds of millions of Indians and Africans will have to have access to cheap and reliable electricity they don't have today. All sorts of infrastructure will have to be put in place and paid for. We are in the midst of the worst refugee crisis we've seen since the end of WWII. And there there is a rising chorus demanding we all reduce our carbon dioxide emissions, with most proposals to do that making us less well off, not better. Frankly I don't see it happening in fifteen years. Turning the lights on all over India will require staggering amounts of fossil fuel to power them. All the alternatives together won't come close to satisfying the need, not in the near future. China's emergence as a world economic power was a miracle but it took decades. They did it in no small part with coal fired power plants and goods manufactured for export. Nobody wants to see the air in India or Africa choked with coal dust the way China's is. I doubt the international community would finance new coal powered electrical capacity anywhere in the third world, certainly not in the quantities needed. As for exports, the recently negotiated Trans Pacific Partnership not withstanding, protectionist sentiment is pretty high. TPP is in for a rough time in congress if it passes at all. Tens of thousands of protesters are expected in Berlin this week opposing the Transatlantic Trade and Investment Pact currently being negotiated. The Doha round of World Trade Organization negotiations is dead for the foreseeable future. There is lots of room for more trade and that is a good thing but it won't be an explosion. Then there is corruption. Where hunger and extreme poverty exist in the world today the problem is bad governance. With the exceptions of much of the Middle East, North Africa, and parts of Latin America a great deal of progress has been made there too. And before Iraq, Syria, and Libya descended into the chaos of civil war, even those basket case economies were showing promise. They are all salvageable but it will take some time. There are some ways we can help move things along. We can pass TPP. Every trade agreement we ever did faced stiff opposition. We can speed up the development of more modern, smaller, safer, and cheaper nuclear technologies and there are some that could be ready in ten years or so, maybe even sooner. We can influence the governance issues in Central America. We've done it before and that would at least begin to deal with the refugee problem at its source. And we can address some of our poverty issues here at home. We've been doing some pretty dumb things lately that have put a lot of people out of work and kept them out of work. We really need to take a sober look at that. So I don't think we will eradicate extreme poverty in fifteen years. But there is a better than even chance it will happen within the lifetimes of the generation currently coming of age. There are fewer people living in poverty today, there will be even fewer tomorrow and poverty becomes more manageable when there is less of it.