Some Learn Lessons at Early Ages, And Some Never Learn Them at All

          When I was a junior in high school, a buddy of mine (the same one who dropped the rudder in the lake and is now a Dentist in Tennessee) suggested he ‘borrow’ a couple bottles of Jim Bean from his father’s collection, we load up on junk food, and camp out on an island in my hometown’s lake.

Sounded like a super idea to me, so off we went. By midnight I was marveling at the size of the trees, the full moon, and filling my tummy with junk. You get the idea.

By six in the morning, I had a much different view of the world, and the lake needed a pollution check. I have never been that sick again. Now that lesson and some others convinced me that I wanted to control my actions and not let Jim Beam do it. When I got married fifty-one years ago, I became a tee-totaler. I learned my lesson.

Trump Economics

Now let’s move on to President Trump’s Economic policies. He instituted a set of tariffs to “Make American Great Again.” One would think that would increase the strength of American business in the world arena, lower prices to the consumer, and lower American tax burdens. So, let’s see if that works.

Suppose a toaster is only made of a pound of steel. The toaster before the Trump tariffs costs $10 from one made in China, and $12 for one made in the United States.

Trump puts a 25 percent tariff on steel. That means the China toaster now costs $12.50 compared to the $12 U.S. toaster. The consumer pays an extra $2. The Chinese are smart business persons, so they invest in more technology to make more toasters and lower the cost per toaster through innovation and economies of scale. Of course, they are astute, so they drop the price to $11.99. The U.S. consumer pays $1.99 more than before the tariffs, and the U.S. toaster company shuts down because it has not been forced to innovate and update. U.S. business takes a bad hit.

The fallout of the steel tariff isn’t over. The State of Illinois priced the new bridge over the Mississippi based on $10 Chinese steel and now must recalculate the price to the taxpayer at $11.99 a pound. The taxpayer loses.

To further complicate the problem, the Chinese retaliate and put a 25 percent tariff on soybeans. Illinois farmers competing in the world market are now higher priced than Brazil farmers and lose the Chinese market. Since Illinois farmers supplied 30 percent of their crops to China, they must throw the beans onto the U.S. market causing prices to drop. The next year they plant more corn since they can’t sell soybeans, and the supply of corn increases and the price of corn drops. The Illinois farmer takes a big hit.

Now you would think that Trump would realize that America is made less “Great Again” would dawn on him.

Well, you guessed wrong.

President Trump moved on to criticizing the Federal Reserve for increasing interest rates and causing the stock market to fall. He went so far as to suggest he would fire the Chairman of the Federal Reserve. (He probably can’t do that, but facts never seem to bother him.)

Now let’s examine this. First, the Federal Reserve was created to conduct monetary policy without the interference of politics. It was composed of seven governors, and each is appointed to 14-year terms. Those terms are staggered every two years one new governor is appointed so no one President can name the majority of the Federal Reserve Board. Now given the good economic employment and other numbers, the Fed rightfully was concerned that prices would shoot up. Their models, which are the best in the world, projected higher prices. To keep them moderate, the monetary policy dictates slow and steady increases in the interest rate.

Even though it was politically expedient for Trump to want to keep interest rates lower so the stock market would be higher, and he could take credit for it (I can’t figure that one out).

He followed that up with shutting down the government for a wall. Over a million direct consumers are not receiving paychecks, and this doesn’t count the downstream effect.

Trump Make America Great Again

The Irate Conservative Republican

Some of my readers will be upset with this memo since they label themselves as Conservative Republicans. Well, my answer to that is that I have never met a Conservative Republican who is anti-free trade? I don’t think one exists.

Likewise, I have never found a Conservative Republican who favors higher taxes to pay for bridges. I don’t think one exists.

We could go on but let’s summarize:  When it comes to economics, American is not being made “Great Again” under Trump economics, and it appears he doesn’t learn lessons.

About Larry Hill

Dr. Larry Hill is Chair and Professor of Economics. Areas of interest include economic analysis, energy economics cost benefit analysis and economy. To subscribe to the email list of Dr. Larry Hill's Economic Memos, contact Tracey O'Brien at Credentials include 1967 B.S., Indiana State University, 1968 M.S., Indiana State University, 1976 Ph.D., Northern Illinois University He is a member of honorary fraternities in economics and social science. He is currently writing a book on Managerial Economics and revising previous book, "The Basic Macroeconomics of the American Economy"

One thought on “Some Learn Lessons at Early Ages, And Some Never Learn Them at All

  1. Connie Whitesell
    January 19, 2019 at 2:11 pm

    So happy to see Dr. Hill’s name pop up. He was my favorite teacher in Lewis’ MBA program and had a knack for taking complicated economic topics and making them understandable to the average person. (Boy, did I need that!) Here he is – working his magic again. Thank you Dr. Hill. Jim and I miss you!

Leave a Reply

Your email address will not be published. Required fields are marked *