Economics really isn't all that complicated: We get wealthier by making more with less. OK, maybe you'll need to know a little more to pass a micro comprehensive exam, but never forget that general rule...it doesn't change no matter how fancy the math gets.
Making more with less seems so simple, so intuitive, but entire political campaigns are run these days on preaching exactly the opposite; that society is somehow better off forcing inefficiency. For instance, Trump's promise to "Make America Great Again" is centered on forcing businesses to produce inefficiently in the U.S. while taxing consumers for buying more efficiently produced goods from abroad.
Wealth Comes From Productivity
This madness comes at a time when "US Productivity Growth Has Never Been This Low For This Long:"
But don't worry, ZeroHedge has a way of sensationalizing everything. Productivity has still never been higher in the U.S., but it is still concerning that productivity growth has approached a 50 year minimum and seems to be stuck there.
It's important to keep things in perspective and realize that productivity growth is cyclical, there have been plenty of other drop offs, and yet still our material well-being has continuously improved. Still, this is concerning...
Productivity Comes From Specialization and Trade
Raise your hands if you think that trade makes for higher productivity. OK, for those of you who didn't...really?
Just think about the computer or smartphone you're using to read this article: do you think you could mine the metals, build your own factory with all of the requisite machinery, learn computer science, software design, and piece it all together yourself without first starving to death trying?
Of course trading with broader society is more productive so you can focus on what you do well; this process doesn't become less productive because it takes place across imaginary lines.
This is why Trump's anti-trade ideas are troublesome. He is threatening to inhibit trade, and hence reduce productivity, at a time when we're already experiencing a drop off in productivity growth.
What's Wrong With the American Economy?
The Grumpy Economist, John H. Cochrane, notes in "What's Wrong With The American Economy?" that:
Growth in the end comes from productivity. New ideas, new companies, new processes, new ways of doing things. Each worker producing more per hour. That's it.
Here's the full interview, which is full of wisdom:
Conclusion
In case you missed it, we get wealthier by making more with less...this is called productivity. When people specialize in what they're good at--or more specifically, what they have relative advantage in--and trade with others, productivity increases; hence, trade makes us wealthier.
Sadly, politics is about appealing to special interests to gain power, which often leads entire countries down dumb policy paths. And yes, if you think you're life will be better off by forcing out foreign competition, you are a special interest because overall society is always better off in the long run with competition, freedom, and choice.
This populist backlash against trade is coming at a bad time of already sclerotic growth and stalled productivity.
What are your thoughts?
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Rob Viglione is a PhD Candidate in Finance @UofSC with research interests in cryptofinance, asset pricing, and innovation. He is a former physicist, mercenary mathematician, and military officer with experience in satellite radar, space launch vehicles, and combat support intelligence. Currently a Principal at Key Force Ventures, LLC, a start-up consulting group in North Carolina, and Head of U.S. & Canada Ambassadors @BlockPay, Rob holds an MBA in Finance & Marketing and the PMP certification. He is a passionate libertarian who advocates peace, freedom, and respect for individual life.
Image source: https://www.cs.cmu.edu/~tlm/homebrew.html
Charts: http://www.zerohedge.com/news/2017-02-02/us-productivity-growth-has-never-been-low-long