It’s the economy


When playing the blame game for the 2024 presidential election, a lot of people point towards social issues. Not to dispute the importance of white identity politics, but polling suggests that the largest concern among voters was the economy, so let’s at least give that issue the time of day.

The funny thing about the economy is that it tends to lag behind economic policy, or just do its own thing based on external factors. During elections, people blame current economic conditions on the current president, even though those economic conditions might have little to do with the president’s actions, or could even be blamed on the previous president. The nightmare scenario is people blaming Biden for the consequences Trump’s bad policies, and then later crediting Trump for the consequences of Biden’s good policies.

This is why it might help to understand what good or bad economic policy looks like. In general, this is hard. But Trump makes it easy, with his very obviously bad economic proposals.

1. Tariffs

Trump has proposed universal tariffs–a tax on imported goods. The details vary, with an initial proposal being 60% on China and 20% on the rest of the world, and now it’s 10% on China, 25% on Mexico and Canada.

These tariffs are not only unusually high, it’s also unusual to apply the tariffs across the board to all products. Traditionally, economists are opposed to tariffs, except possibly in specific circumstances, such as protecting a domestic industry that needs time to grow and become globally competitive. Lots of goods simply cannot be produced domestically, so there is no point. Tariffs that apply to all goods across the board are just bad.

Tariffs are likely to increase prices, because a huge fraction of our economy is based on imports. US imports total $2.9 trillion per year, or about a tenth of US GDP. Imports from Mexico/China/Canada account for 40% of it. If you doubt the power of tariffs to raise prices, consider that at least some of the inflation during the Biden administration has been blamed on the global supply chain crisis. Universal tariffs are like creating our own little supply chain crisis, on purpose.

Some people have wasted time arguing over whether the tariffs are paid by the consumer or by foreign exporters. This question seems immaterial. Tariffs are basically a sales tax. Does it matter whether the buyer or the vendor is paying the tax? Either way the prices are higher.

2. Immigration

Another Trump policy is deporting people. Aside from how it impacts the deported people themselves, it’s also likely to cause inflation, due to the loss in labor. Undocumented immigrants account for about 5% of the US work force, and 45% of the agricultural workforce. It’s okay, I’m sure we can just import food from… oh wait!

In all seriousness, US immigration policy sits in this weird middle ground. On the one hand, there are few pathways for people to immigrate legally, and on the other hand, we’re still letting a lot of them in. This setup is ideal for employers, because undocumented immigrants are presumably cheaper and easier to exploit than legal immigrants or non-immigrants. Changing the status quo in either direction may cause inflation. And that might be for the best; inflation is preferable to worker exploitation. But Trump is advocating a policy that’s the worst of both worlds, worse for people and worse for inflation.

3. Interest Rates

We need a bit more levity, so let’s consider the clown side show. Recently, Trump demanded “that interest rates drop immediately”. It’s funny because raising interest rates is the primary tool that the Federal Reserve has to combat inflation. So basically, Trump is loudly demanding that we increase inflation. Luckily, interest rates are (by design) in the hands of the Federal Reserve and not politicians.

The Federal Reserve is likely to drop interest rates anyways, as they have slowly been doing every month since September. Basically, the feds think inflation is finally under control. Of course, with Trump’s pro-inflation policies… who knows?

The irony is that under Biden, the economy was recovering. There are definitely a few important details there, some points of contention. People talk a lot about the “vibecession“, the gap between economic metrics, and people’s perception of the economy. Possibly this is due to ignorance, like how people think inflation going down means prices go down (not how it works!). Or maybe people are seeing real financial hardships that simply aren’t captured in the standard economic metrics, or which lag behind the metrics. I’m sure that I do not know.

Whatever the case, in order to fight inflation, people have voted for policies that promote inflation in the short-term. How will that play out? Not that I’m looking forward to it, but I’d much rather Trump shock Americans with bad economic policies than have him instigate a genocide that nobody even pays attention to.

Comments

  1. says

    big agreement with last paragraph. not that he isn’t going to do both, but depending on how bad he makes things, buyer’s remorse might run very deep at the two year mark. fingers crossed, because US voters have shown themselves as wise and trustworthy as circus chimpanzees on PCP.

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