Rebuilding Conservatism #2: Free Trade Rocks and Protectionism Sucks

 by Ray Keating

The Keating Files – December 10, 2020

 

(Editor’s Note: Much damage has been inflicted on conservatism, conservative thought, and the conservative movement in recent years. The effort to heal and rebuild conservatism promises to be a difficult, but necessary undertaking. The Keating Files will regularly weigh in to help that process. This is our second “Rebuilding Conservatism” column, and it comes from the opening to my book Free Trade Rocks! 10 Points on International Trade Everyone Should Know.)

 

As an economist, let me make a couple of things clear when it comes to international trade. First, protectionism sucks. Second, free trade rocks. I know – not exactly highly technical stuff from the economics profession. But both points are true. So, let’s get started backing up these bold claims.

We’ll start by talking taxes. Most politicians understand that people don’t like to pay taxes. However, many folks don’t seem to get all that bothered when someone else gets hit with a bigger tax bill. There’s an old ditty that dates back to the early 1930s that goes, “Don’t tax you. Don’t tax me. Tax the guy behind the tree.”

 

It’s pretty standard fare for politicians to push the idea of taxing others – especially higher taxes on high-income earners or the “rich” – in order to then promise government goodies for everybody else presumably paid for with the resulting additional revenues. It’s class warfare, and it happens to be lousy economics.

 

Another group sometimes targeted for higher taxes is foreigners. Indeed, higher taxes can become an even easier sell if they are called tariffs – that is, taxes on imports – and politicians mistakenly or misleadingly argue that other countries wind up paying those tariffs.

 

While higher tariffs have popped up here and there during the post-World-War-II period, they largely were exceptions in a long-run move toward lower tariffs and freer trade. Both politicians and the public seemed to recall the role that high tariffs played in igniting the Great Depression (more on this later). But, of course, in politics, lessons eventually get unlearned. 

 

The first glimmers of tariffs making a serious comeback arrived via the losing presidential efforts of Pat Buchanan and Ross Perot in the 1990s – Buchanan in 1992, 1996 and 2000, and Perot in 1992 and 1996. Later, during his 2008 presidential campaign, Barack Obama struck a hostile tone toward free trade, and then in 2016, Donald Trump made protectionism a centerpiece of his run for the White House. 

 

Unlike Obama, who largely backed off his anti-trade campaign rhetoric after taking office, President Trump did the exact opposite. He pushed protectionist measures with an array of U.S. trading partners, including Mexico, Canada, China, South Korea, and Japan. One selling point by President Trump as he ramped up a trade war with China was that China, or Chinese businesses, would pay the tariffs he was imposing, not U.S. consumers or businesses.

 

In reality, the cost of higher taxes always spreads well beyond the groups targeted. For example, increased taxes on upper-income earners have negative effects on the private investment that is essential for economic, income and job growth. So, lots of people and the economy tend to suffer as resources are siphoned away from productive, private enterprises, and handed over to elected officials who dole out resources according to political incentives. As for tariffs on goods from China, for example, they wind up being paid by U.S. consumers and businesses who face increased costs and reduced choices.

 

There is the added political factor that consumers, at least, tend not to see the direct impact of tariffs clearly. In that way, tariffs are like regulations imposed by government. The effects are significant, but they are dealt with by others, such as by the businesses that must wrestle directly with increased costs. Compare these more-hidden costs to when government takes money directly out people’s paychecks via an income tax increase, jacks up property tax bills, or hits consumers with higher sales taxes at the cash register. Workers and consumers – and yes, voters – see those costs quite clearly, and respond accordingly.

 

When it comes to tariffs, one might change that old-time ditty to: “Don’t tax you. Don’t tax me. Tax the guy across the sea.” In reality, we all pay the price of higher tariffs in assorted ways.

 

But in getting at the basics of what free trade is, five fundamentals need to be summed up at the outset as to why free trade rocks!

 

First, and this obvious point is often missed, it’s critical to keep in mind that governments, for the most part, do not trade; instead, individuals and businesses do. There’s no difference between trades taking place across town, across the nation or around the globe. Trade happens between individuals, between businesses, and between individuals and businesses. Those trades would not occur if the parties involved were not made better off by such voluntary transactions. Trade, by definition, makes people better off.

 

Second, thanks to freer trade, competition is expanded and resources are allocated more efficiently, and therefore, consumers experience a wider choice of products and lower prices. 

 

Third, entrepreneurs, businesses and workers experience greater opportunity with freer trade, as more markets are open to their goods and services.

 

Fourth, as individuals and businesses specialize in those areas where they have a comparative advantage – that is, their largest advantage – and then trade with others, economic, productivity and income growth are boosted.

 

Fifth, international trade is increasingly important for the U.S. economy and to U.S. economic growth. Again, we’ll explore this more in an upcoming chapter, but for now, it’s simply worth noting that in 1955, real total trade (that is, exports plus imports) equaled only 6.3 percent of U.S. GDP. As of 2018, total trade had risen to 32.3 percent of the economy.

 

To sum up, free trade reduces costs through enhanced competition and lower trade barriers; expands choices and lowers prices for consumers; keeps U.S. firms competitive; opens new markets and opportunities for U.S. goods and services; expands economic freedom; and feeds economic growth.

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Other articles in the Rebuilding Conservatism Series…

 

“Rebuilding Conservatism #1: What is Conservatism?”

 

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Ray Keating is a columnist, novelist, economist, podcaster and entrepreneur.  You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books  at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

 

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The new book Vatican Shadows: A pastor Stephen Grant Novel is the 13ththriller/mystery in the Pastor Stephen Grant series. One of the best ways to enjoy Ray Keating’s Pastor Stephen Grant thrillers and mysteries is to join the Pastor Stephen Grant Fellowship! For the BEST VALUE, consider the Book of the Month Club.  Check it all out at https://www.patreon.com/pastorstephengrantfellowship

 

Also, tune in to Ray Keating’s podcasts – the PRESS CLUB C Podcast  and the Free Enterprise in Three Minutes Podcast  

 

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At a Turning Point with China?

by Ray Keating

The Keating Files – May 22, 2020

Economic freedom is critical to development, growth and prosperity. And it tends to play a key part in boosting political freedom as well. How far that last point goes, though, is being tested by communist China.

Nobel Laureate economist Milton Friedman made the link between economic and political freedom. He noted in his book Capitalism and Freedom: “Economic freedom plays a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.”

The link between economic freedom and economic growth is not surprising, given that individuals are set free and incentivized to pursue their hopes and dreams, and to start up and invest in businesses. And they have access to ideas and resources. They are able to work and create to make better lives for others, for themselves and for their families. It follows, as history shows, that economic freedom ensures human rights, and improves quality of life across the board, including health care, education, literacy, the environment, and so on. 

As for economic freedom helping to bring about greater political freedoms, two nations serving as examples are Taiwan and South Korea. Economic freedom enhanced prosperity and boosted public pressure in the mid-1980s for expanded political freedom. In turn, political freedom further enhanced economic freedom and growth.

Taiwan and South Korea previously were authoritarian regimes, that is, political power was held by one person and/or party. However, China is a communist totalitarian regime – meaning that the person and/or party in charge controls all aspects of life, both public and private. 

Regarding the Chinese communists opening up parts of their economy in the 1990s, the hope, of course, was that economic freedom would expand, and that would be followed by an expanded desire and pressure for true political freedom. The question was: Would a totalitarian regime react like the authoritarians in South Korea and Taiwan did, or would the Chinese communists work to maintain a stranglehold on life?

For years, progress seemed to be occurring. But the latest, deeply troubling signals point in the opposite direction. Under President Xi Jinping, the Chinese communists exhibit no interest in increased political freedom. Instead, they appear bent on expanding and strengthening the Party’s control. 

That includes news in recent days about Beijing violating the agreement that was struck when the British relinquished control of Hong Kong. Under the “one country, two systems” arrangement, Beijing had pledged legal autonomy for Hong Kong, including basic freedoms, such as speech, assembly and press, for 50 years, that is, from 1997 to 2047. But communist China now seems focused on breaking its promise by imposing national security laws on Hong Kong, including setting up state-security bodies. This comes after pre-pandemic protests in Hong Kong regarding fears that citizens could be arrested and sent to China for trial. 

Make no mistake, this is meant to crush dissent and opposition to the Communist Party and the State, at behest of Xi. It’s a clear step toward ending “one country, two systems.”

But there’s more. The communist regime in China also has no use for Taiwan President Tsai Ing-wen, who was sworn in for a second term this past week. According to CNBC, she said, “Cross-strait relations have reached a historical turning point. Both sides have a duty to find a way to coexist over the long term and prevent the intensification of antagonism and differences... We will not accept the Beijing authorities’ use of ‘one country, two systems’ to downgrade Taiwan and undermine the cross-strait status quo. We stand fast by this principle.” She also said, “We have made the greatest effort to maintain peace and stability in the Taiwan Strait over the past four years ... We will continue these efforts, and we are willing to engage in dialogue with China.” Beijing, which cut off dialogue with Taiwan when Tsai was first elected, responded by declaring that “reunification” was a “historical inevitability.”

To amplify its point – or threat – as Reuters reported last week, “The Chinese military is planning to conduct a large-scale landing drill off Hainan Island in the South China Sea in August to simulate the possible seizure of the Taiwanese-held Pratas Island in the future, Chinese sources familiar with the matter have said.”

Finally, there is the fact that China’s Xi chose lying and secrecy over public warnings and early containment efforts regarding the coronavirus and its origins in Wuhan. That’s typical for communist leaders who care little for their own people, never mind those living in other countries, and only come sort of clean when overwhelmed and in need of help. (Of course, that doesn’t excuse inaction by the U.S. and others in the West, particularly given that Taiwan issued warnings and began screening people from Wuhan at the end of December.)

Meanwhile, China’s expansiveness faces no substantial check at this point. The U.S. unfortunately has retreated from the world stage in all serious ways under President Trump. For example, the obvious benefits of the Trans-Pacific Partnership (TPP) trade agreement between the U.S. and 11 Asia-Pacific countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) not only would have included major economic positives for the U.S. and our trading partners by reducing governmental barriers to trade, but it also would have solidified relationships with those nations and made clear that the U.S. would be a major counter for freedom in the Pacific versus China’s desires. But that was wiped out by President Trump’s very first action in office, which was withdrawing the U.S. from the TPP. And then there’s his subsequent erratic behavior, lack of strategy, and general disinterest in foreign affairs and national security.

Looking ahead, serious problems and threats loom with China. On the economic front, U.S. firms have long had to weigh the uncertainties and risks of doing business with and in China versus the potential benefits of having access to the Chinese market on both the consumer and producer fronts. Those uncertainties and risks have now grown significantly. This requires a sober, informed analysis, as opposed to assorted investors appearing on financial news shows and merely assuming that “Chinese leaders have to understand that confrontation is not in their interests.” In reality, confrontation can very much be in their interests.

As for U.S. foreign policy, coherence and reasserting leadership are critical – not just for ourselves but for our allies around the Pacific Rim and beyond. That means expanding our naval power and reach. And on the economic front, the U.S. needs to reassert its leadership role for expanding free trade in the area (and around the rest of the world), and making clear that China needs to behave on assorted fronts in order to fully participate in the benefits of free trade. For good measure, reaching out directly to the Chinese people in a more organized fashion with a pro-freedom message makes sense.

We are at a turning point on policy toward China, and the carrot and the stick must be manifest.

But it will require serious work to undo the damage done by the past two U.S. presidents, that is, President Obama’s foreign policy and trade indifference for most of his administration, and President Trump’s isolationist and protectionist inclinations, not to mention his tendency to be hostile toward longtime allies and inconsistent on international matter in general.

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Ray Keating is a columnist, economist, podcaster and entrepreneur.  You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. Keating also is a novelist. His latest novels are  The Traitor: A Pastor Stephen Grant Novel, which is the 12^th book in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

Two of Ray Keating’s Pastor Stephen Grant novels deal with relations with China. Check out Deep Rough and The Traitor. 

Also, tune in to Ray Keating’s podcasts – the PRESS CLUB C Podcast and the Free Enterprise in Three Minutes Podcast 

The Economy Constantly Changes, Sound Economics Doesn’t

by Ray Keating

The Keating Files – April 7, 2020

In these hard, uncertain economic times, it must be kept in mind that while the economy constantly changes, sound economics largely doesn’t.

In good times, dynamism and innovation generate rather awesome beneficial changes in an economy. But in bad times, the economy changes via reduced production, bankrupt businesses, and lost income and jobs. However, the fundamentals of sound economic thinking rarely change. 

Indeed, many people miss or don’t grasp the difference between the economy and economics, and therefore, spout off various baseless claims, such as, “This change in the economy has altered how we should think about economy.”

Really? No.

Consider a variety of ways that the U.S. economy has changed in some fundamental aspects in recent times. On the positive side, for example, entrepreneurship has generated innovation (i.e., bringing new products, services and techniques to the economy) and growth, and in turn, has been further fed by innovation and growth. Technological advancements have accelerated the rate of dynamism across most industries. International trade as a share of the U.S. economy vastly expanded over the past six decades, and has generated greater opportunity for entrepreneurs, businesses, workers and consumers. 

As for the negatives, the 2008-09 economic and credit mess – often called the Great Recession – inflicted considerable harm, much of which proved to last or linger throughout the subsequent recovery/expansion period, such as reduced labor force participation and employment as shares of the relevant population, a diminished rate of entrepreneurship, fewer employer firms, a failure of U.S. manufacturing production to fully recover, and an average real economic growth rate languishing well below its historical norm.

And now we face historic changes due to the coronavirus and the shutting down of much of the economy. There have been breathtaking alterations to our lives, including in terms of massive jobs lost, and how many people are working (such as at home). Government’s attempt to alleviate at least some of the economic suffering created by the  pandemic, and the necessary governmental responses to limit illnesses and deaths, has been to pass unprecedented aid measures.

These changes and more have led assorted politicians, TV talking heads, many analysts, and yes, assorted economists to proclaim that we need to think differently about how the economy works. That would not only would be incorrect, but by doing so, it could sentence the U.S. economy to a much longer period of economic losses, including even permanently placing the U.S. on a path of short and long-run decline.

The fundament tenets of economic thinking that I taught MBA students for a decade, for example, have not changed. No matter the course I taught, I took at least one class to briefly teach foundational guideposts or principles of economics (usually as laid out in my favorite textbook Economics: Private and Public Choice by Robert Gwartney, Richard Stroup, Robert Sobel, and David Macpherson). 

Here are 15 key concepts guiding economic thinking that I always brought into the lesson:

• The use of scarce resources is costly and decisions require trade-offs. As the saying goes, there’s no such thing as a free lunch. Whenever there is less of a good or a resource freely available in nature than people would like, there is scarcity and choices are required. And there always is a cost, no matter who pays. 

• Individuals choose with purpose. That is, economizing behavior means choosing the option with the most benefits and least costs. 

• Incentives matter. Choices are affected in a predictable way by incentives, with, again, costs and benefits influencing decisions. 

• Individuals make choices at the margin, that is, considering the difference in the costs and benefits of a decision, and between alternatives. 

• Decisions have secondary effects, i.e.,  unintended or overlooked consequences. These tend to be big sources of economic errors, especially on the public policy front. For example, the most reliable is raising taxes to fund a program without considering the negative effects of increased taxes.

• The value of goods and services are subjective, and entrepreneurs and managers excel when they can determine and provide such value.

• Economic thinking is scientific thinking in that an economic theory is useful based on its ability to predict future consequences, in particular, to predict how incentives affect decision makers. 

• Good intentions do not equal or guarantee desirable outcomes. Politicians often talk about intentions, while ignoring economic realities. 

• Association is not causation. Actual causation must be explained logically.

• Economics is not about dividing up a fixed economic pie. The size of the economy – or the economic pie – actually is not fixed. Economics is not a zero-sum game. Economic growth occurs, and wealth is created. Higher income for one person, for example, does not mean less income for another. 

• Freedom, human knowledge and ingenuity drive economic growth and progress. When individuals are free to create, innovate, invest, work and trade, everyone benefits and prospers, including millions of individuals and entire economies being lifted out of poverty. Study after study confirms that the world’s freest economies overwhelmingly are the wealthiest.

• Trade creates value, whether a transaction takes place across town, across the nation or across an international border. Why? 1) Both parties are better off when making a voluntary exchange. If not, why would they trade? 2) Goods and resources are moved away from products/services valued less to those valued more. 3) Specialization and division of labor mean higher output and increased productivity, as we learned from Adam Smith in 1776 in his Wealth of Nations. 4) The law of comparative advantage – courtesy of early-19^th-century economist David Ricardo – makes clear that total output is greatest when the individual or firm with the lowest opportunity cost (i.e., “opportunity costs” is the highest valued alternative sacrificed in order to choose an option) produces each good or service. Another way to put it: Produce what you are best at, and trade with others, and as a result, everyone is better off. (Please take note President Trump and White House adviser Peter Navarro.)

• Private property rights are essential to economic development, as individuals and businesses have incentives to take care of and properly manage what they own, and to develop resources valued by others. 

• Prices, profits and losses serve as signals in the marketplace, directing resources to activities that increase value and away from activities that diminish value. In comparison, government works under very different incentives, with resources being allocated and decisions guided by political incentives, including power and control, getting votes, sizes of budgets and staff, and serving special interests. Waste in government comes about, in part, due to spending other people’s money; a tendency to subsidize and/or reinforce failure (like providing more dollars and staff for failed programs – think public schools); and a lack of necessary knowledge.

• Key sources of economic growth in a free market economy (see the importance of freedom above) are: 1) Private investment and entrepreneurship mean new and improved technologies, tools, skills, abilities, and productivity in generating goods and services, and enhanced innovation. 2) Essential rules under which the economy operates are critical, including, for example, the rule of law, enforcing contracts, stopping fraud, limited governmental interference or costs (such as in terms of taxes, regulations and government spending), and strong property rights. 3) Working harder – more work and less leisure – will boost growth as well.

So, as much as assorted experts will be spouting off in coming days, weeks and months that this pandemic has changed our economic thinking, don’t buy it.

Economics hasn’t changed. Therefore, we know and should be concerned about certain aspects of government aid packages. 

While there will be plenty of waste in the near term, I will not quarrel with the necessity of emergency government aid given that the current situation is a product of a true public health crisis and government ordering a widespread economic shutdown. 

However, at the same time, we cannot toss aside sound economics in favor of magical political wishes. Therefore, it must be recognized that short-term aid  is not a “stimulus,” as government is draining resources from the economy in order then to reallocate those resources. And there will be real costs to these actions, in addition to the sharp economic downturn we are now experiencing. 

For good measure, given the mindboggling costs of the coronavirus itself, the government-led economic shutdown, and government aid packages, the U.S. economy faces a longer road back to where the economy was than, I think, most people are anticipating – never mind where we should be when economic growth is factored into the equation.

And make no mistake, the longer that government interferes with the workings of the economy, the longer the road to full recovery and expansion. That’s why when this pandemic is brought under control and managed, it’s critical that the government quickly step back, and allow freedom, the private sector and the economy to, once again, flourish and grow. In contrast, if we choose to persist with increased government controls and intervention, the U.S. will surely be sentenced to economic decline, with real and significant costs for all.

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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. You can also order his forthcoming book Behind Enemy Lines: Conservative Communiques from Left-Wing New York– signed books or for the Kindle. The views expressed here are his own.

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2008, Obama, Trump and 2% Growth

by Ray Keating

The Keating Files – March 11, 2020

Amidst banter over the economy on Fox Business News early this week, reporter Susan Li asked, “What’s wrong with two percent growth?” Well, actually, a heck of a lot.

Now, I’m not picking on Ms. Li, in particular, as many of her colleagues in the financial news business think that two percent real economic growth is just dandy. Indeed, in the political world, it apparently depends on who happens to be sitting in the Oval Office as to whether or not two percent growth is good or bad. For example, Republicans criticized a recovery/expansion period under President Obama in which economic growth averaged 2.2 percent, but Democrats argued it was just great. And now, with the Trump presidency, real growth averaging 2.5 percent is a downright great economy, according to Trump and the GOP.

To put this all in perspective, since 1950, real GDP growth has averaged 3.3 percent, and during economic recovery/expansion periods (that is, factoring out recessions), growth averaged 4.4 percent. So, 2 percent, 2.3 percent or 2.5 percent doesn’t cut it.

Some actually ask: What real difference does this make? 

Well, consider the “Rule of 70.” What is that? Divide 70 by the average annual real rate of growth, and one arrives at the number of years it takes for GDP, income or living standards to double. At 5% annual growth, it takes 14 years for real living standards to double, while at 1%, it would take 70 years. At 2 percent, it takes 35 years for living standards to double, while at 3.3 percent, it’s 21 years. These differences matter, having substantive effects on human beings. 

Last month, Barack Obama tweeted about his signing of the American Recovery and Reinvestment Act 11 years earlier, claiming that it paved “the way for more than a decade of economic growth and the longest streak of job creation in American history.” Naturally, President Trump had to respond, “Did you hear the latest con job? President Obama is now trying to take credit for the Economic Boom taking place under the Trump Administration. He had the WEAKEST recovery since the Great Depression, despite Zero Fed Rate & MASSIVE quantitative easing. NOW, best jobs numbers ever.”

And on it goes. Quite frankly, neither of these guys should be all that excited about the economy of the past 11-plus years in which they resided in the White House. 

The December 2007 to mid-2009 recession still matters, in a certain sense. Again, in terms of the key economic number, real GDP growth from 1950 to 2007 averaged 3.6 percent. From 2008 to the end of 2019, growth averaged a mere 1.7 percent, that is, less than half of where we should be.

To further drive home the problem, let’s focus on the full years during this current economic recovery/expansion period, that is, from 2010 to 2019. If the U.S. economy had grown at an average rate of 4 percent (not even at the 4.4 percent historical norm), then the 2019 economy (measured by real GDP) would have been $3.5 trillion larger in 2012 dollars than it actually was. That’s $3.5 trillion in real lost output!

Indeed, 2008 matters. The credit meltdown and falling into what often is referred to as the Great Recession left a deep mark. Some lost faith in free enterprise. Others came to fear trade and immigration. Still others came to see government as some kind of savior. In reality, the lesson from the 2008 economic mess and its aftermath should be the gross failure of government. 

For example, an aggressive “affordable housing” regulatory and spending agenda incentivized bad loans and laid the foundation for the housing/mortgage mess. Government bailouts, stimulus efforts and loose money failed to revive strong economic growth. We should have snapped back from that deep recession, but we didn’t. Increased taxes and regulations made matters worse, and played key roles in a poor recovery. And the U.S., under Obama, moved to the global sidelines in terms of international trade, and then, under Trump, moved aggressively in a protectionist direction. That hasn’t worked out, with U.S. businesses facing increased costs, fewer opportunities and reduced incentives for investment, and trade paring back economic growth, rather than feeding it as had been the case for most of the post-World War II period.

The tax and regulatory relief achieved so far under the Trump administration has been a plus, but it has not been enough given what happened under Obama, and given Trump’s own costly trade, government spending and, in certain areas, regulatory (like antitrust) policies.

No, two percent growth is not positive, and it should not be considered the norm for the U.S. economy. A pro-growth agenda of substantive and permanent tax and regulatory relief, advancing free trade, reining in government spending and monetary policy focused on price stability would get the U.S. back on a robust path of economic growth, which would make a real difference for every American.

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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. You can also order his forthcoming book Behind Enemy Lines: Conservative Communiques from Left-Wing New York – signed books or for the Kindle. The views expressed here are his own.

A Coronavirus Recession Likely

by Ray Keating

The Keating Files – March 10, 2020

Whether the coronavirus meets the worst or best of expectations in the United States, it’s difficult to see how a recession is missed – or at best, narrowly avoided with growth slowing to a crawl.

Consider that despite the happy talk – or tweets – emerging from assorted political sources, the U.S. economy has not been rocking and rolling. In fact, after some respectable growth numbers from mid-2017 through the third quarter of 2018, the economy has slowed notably since, with real GDP growth averaging only 2.1 percent over the past five quarters.

For good measure, real business investment (as well as overall private investment) has declined in the past three quarters (i.e., the second quarter through the fourth quarter of 2019), and trade has been drag on the economy for the past two years.

Finally, much of economic growth over the past two-plus years has been about the consumer. However, the consumer is a follower, not a leader. Consumers take their cues from what’s going on with business. That is, if new enterprises are being started, and businesses are investing and hiring, then consumers are pleased and spending. While entrepreneurship has been lagging, businesses have been hiring. But given the recent decline in business investment and the uncertainties of the coronavirus, business investment is likely to continue to falter, in the near term, and along with it, now, hiring.

To sum up, when you look at the current status and coming months, there’s little positive to see for major sections of the U.S. economy. Private investment is likely to continue to falter (or at best stagnate), trade will continue to be a drag, and the consumer is likely to be hunkering down. That combines to spell either a recession or no growth in the short term.

Another question to ponder: Is the U.S. well-positioned from a policy standpoint so that economic growth snaps back afterwards – either later this year or into 2021? Consider that we were not positioned to do so after the last recession, and have since suffered through an under-performing recovery/expansion period since mid-2009. Quick answer? Trade policy remains anti-growth, as does government spending (with big spending increases over the last two years). Taxes generally have been a policy positive since December 2017. The regulatory story has been mixed, but overall a net plus. And monetary policy remains unhinged from economic reality, with the hope being that Fed cluelessness continues to be corrected or ignored by the private sector.

Oh yes, and then there’s this presidential and congressional election thing coming in November?

Snap back or no, then? It’s hard to tell. My best guess is that a short recession or no-growth period is followed by a short snap back, and then barring some strong pro-growth policy changes, the economy falls back into the slow-growth scenario that we’ve suffered under for too long.

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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.

Presidential Elections Mean Wall Street Talking Heads Slip into Denial

by Ray Keating

The Keating Files – February 24, 2020

Well, 2020, of course, is a presidential election year, so get ready for some ridiculous political analysis courtesy of various Wall Street, business, and even on occasion, free-market analysts. Many will be in denial regarding what candidates pledge to do on assorted policy issues.

And given that the race for the White House this year will feature a hard-Left Democrat – with socialist Bernie Sanders in front at least for now – against the populist Donald Trump, who exhibits no self-control while on Twitter or near a hot microphone, denial might be ramped up in unprecedented ways. 

Why the denial? As a recent Fox Business article by Randy Swan opened, “Conventional wisdom has long held that investors should dismiss most of what they hear from presidential candidates on the campaign trail.”

Consider a few examples. When Barack Obama ran for president in 2008, assorted business – and even a few free-market – analysts argued that if elected, Obama certainly wouldn’t carry through on his agenda of expanding government’s role in health care, raising taxes, and pushing ahead with protectionist measures on trade – as he most clearly pledged to do on the campaign trail. 

Yet, Obama and Congress imposed ObamaCare; taxes were increased under ObamaCare and at the start of 2013; and while Obama thankfully didn’t push ahead with his protectionist promises, he did largely move the U.S. to the policy sidelines when it came to trade, until his support for the Trans-Pacific Partnership trade accord very late in his administration and to no avail.

So, contrary to widespread assumptions among assorted Wall Street talking heads, Obama pretty much did what he promised to do.

And then there was Donald Trump’s strident anti-free-trade rhetoric on the campaign trail. Many in the chattering class tried to assure investors that Trump wouldn’t go protectionist and/or start a trade war. After all, the argument went, no one would benefit. Well, of course, no one would benefit, yet, Trump shifted U.S. trade policy into a protectionist mode – pulling the U.S. out of the TPP; threatening and imposing higher tariffs on an array of products; attacking our closest trading partners with threats and/or the imposition of costly trade policies; and yes, starting a trade war with China.

So, despite assurances emanating from various “experts,” Trump did exactly what he said he would do on trade.

Go figure.

Why are the carriers of conventional wisdom in denial? Part of it might be a belief that politicians will say anything to get elected, so why believe them? While one is tempted to buy into that, in reality, most people run for the White House for a reason, and even if they seek power, it is power to do something.

More likely, the conventional wisdom-eers actually seem to think that politicians are too smart to do what they’ve promised to do, such as raising taxes, getting government more involved in health care, and engaging in trade wars. Wow, that really is denial!

Politicians have long served up dumb ideas that, for example, fly in the face of sound economics, and they’ll continue doing this, as evidenced by an astounding number of bad ideas being served up by Democrats seeking the White House this year. They, in fact, aren’t smart enough not to believe it. That was the case with Obama and taxes; is the case with Trump and trade; and most certainly is the case with, for example, Bernie Sanders and socialism, and Pete Buttigieg falling in love with seemingly every tax imaginable to man.

Don’t be talked into anything else. In the end, playing the denial game when it comes to politicians willing to do what they promise is highly dangerous. As is often the case with conventional wisdom, it’s dead wrong once again. Investors and everyone else should take what they hear from presidential candidates on the campaign trail very seriously.

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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.

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Here’s a wide-ranging collection of columns and essays from Ray Keating covering faith, economics, politics, history, trade, New York, foreign affairs, immigration, pop culture, business, sports, books, and more.

Keating is a longtime newspaper and online columnist, economist, policy analyst, and novelist. 

In these often confusing and contradictory times, Keating describes his brand of conservatism as traditional, American and Reagan-esque, firmly rooted in Judeo-Christian values, Western Civilization, the Declaration of Independence, the U.S. Constitution, and essential ideas and institutions such as the Christian Church, the intrinsic value of each individual, the role of the family, freedom and individual responsibility, limited government, and free enterprise and free markets.

Here are the major sections of Behind Enemy Lines from the Table of Contents...

• Introduction: What is Conservatism?          

• Faith Matters

• Economics Isn’t Dismal ... Unless Left to Politicians, the Media and Professors    

• Politics: Unsavory and Not-So-Unsavory

• Why Does Anyone Live in New York?          

• The Not-So-Ugly American

• Trying to Learn from History

• Business Isn’t Evil

• Trade: Opportunity and Stupidity

• Immigration: Hope and Opportunity

• Pop Culture Ponderings

• Sports: The Great Diversion ... Mostly

• Thoughts on Assorted Books