The Grand Bargain is the Grand Bamboozle

According to a recent article in InsideSources–Grand Bargain—some republican stalwarts who subscribe to the climate orthodoxy want to “substitute all the contradictions, preferments, subsidies, tax anomalies and self-defeating rules with a simple, revenue-neutral carbon tax.”  To promote this trade-off, they have created the Alliance for Market Solutions.  It is claimed that the backers of the Alliance are “rock-ribbed Republican business executives, academics and think-tank fellows” who are committed to turning the GOP toward taking a positive stance on climate change.

People like John Graham, former administrator of OIRA and Chris DeMuth, former president of the American Enterprise Institute who are Alliance backers should know better than to take part in what only can be described as a legislative/regulatory bamboozle.  Their Grand Bargain is another house of cards that has a non-existent foundation.

While no one disputes that human activities affect climate, claiming that the science has spoken is to be deaf to what it is actually saying.  Climate advocates consider the IPCC to be the gold standard for the state of climate science. And yet, the IPCC can only make guesstimates about natural variability.  Its estimate of climate sensitivity—the effect of doubling CO2 on global temperatures varies by a factor of 3 and fairly precise temperature measurements since satellite measurements that began in 1979 give every indication that climate sensitivity is no higher and probably lower than low end of the estimate—1 degree C. While evidence is getting stronger that the solar-climate link is not trivial, the IPCC has not given it weight of evidence that it deserves .  Those are just a few of the factors that undermine climate certitude.

Before the Alliance gets too far with its lobbying and PR campaign, it should answer the following question.  Why should anyone support a carbon tax when the US is already doing better in reducing CO2 emissions than the nations that are the biggest promoters of the Paris Accord?

Here is a chart from the 2018 BP Statistical Review of Global Energy–BP.

The real answer is the alleged trade-off is another Trojan Horse that hides an anti-fossil energy agenda and opens another door for Bootleggers and Baptists to pick the pockets of tax payers while pretending to be saving the earth from a climate apocalypse.  The culture of corruption known as The Swamp would get even more entrenched if this or any other of the proposed carbon tax schemes actually would get enacted.  The net effect would be virtually zero since the alleged connection is global emissions and temperature.  And anyone who believes that a carbon tax would be or stay revenue neutral surely believes in unicorns and leprechauns.   Revenue neutral carbon tax proposals are a scam!

Consumers Win; Bureaucrats Lose

The Trump Administration decision to roll back the second phase of Obama’s CAFÉ standards is a small v victory for consumers. A large V Victory would be an amendment to the Clean Air Act that abolishes the CAFÉ provision all together.

CAFÉ proves how difficult it is to get rid of bad policy once it is enacted into law.  Originally CAFÉ was justified as a means to reduce oil imports at the time of the Arab oil embargo as well as a way to reduce air pollution from mobile sources.  At the time, and since, almost all economists have argued that a gasoline tax would be far more cost effective in reducing gasoline consumption and achieving increased efficiency.   But legislators and regulators always believe that they know best what is in consumers best interests.  That is an example of the fatal conceit.

At the time the first CAFÉ standards were imposed they benefitted Japanese automakers because they specialized in manufacturing small high mileage cars.   Domestic automakers were forced to retool and make substantial investments to manufacture small cars and sell them at a loss to induce buyers to purchase them.  The larger effect was to make domestic automakers less competitive.

The other effect that was well documented was to increase highway fatalities and injuries because physics tells us that lighter vehicles hit by heavier ones will sustain more damage.  In spite of this fact, pressure continued to increase CAFÉ mileage standards.   In 2007, Congress passed energy legislation that mandated an increase from 22.2 mpg to 35 mpg in light duty vehicles.  In 2009, the wrong-headed Supreme Court decision on CO2 emissions allowed the Obama Administration to put CAFÉ on steroids by raising the standard to 34.1 mpg and then 54 mpg by 2025 as a weapon to fight climate change.

Since California had the worst air quality in the nation and had more stringent air quality standards at the time the Clean Air Act was passed, the Act contained a provision that allowed California to apply for a waiver to impose stricter auto emissions than federal standards. Over time, its standards for low emission vehicles were adopted by the auto industry.  Over the past 40 years, California like all other parts of the country has made tremendous progress in improving its air quality, especially in the LA Basin which is challenging because of its physical geography and population growth.  A 20- year study by the University of Southern California that was published in the New England Journal of Medicine reported in 2015 that “decreasing air pollution in Los Angeles has led to healthier lungs for millennials when compared to children in the ’90s. … Ozone was below the federal eight-hour standard for most of Los Angeles and the coastal basin and exceeded the standard fewer than 20 days a year. … It’s an environmental success story.”

Since 1973, air quality in the US has improved dramatically as emissions standards from stationery and mobile sources became more binding.  To justify ever more restrictive emission standards from light duty vehicles and trucks. EPA and its environmental supporters found ways to create health benefits out of thin air.  In the case of climate change which California uses as its justification for tighter standards and opposition to the EPA proposed rollback, any benefit, which is doubtful, is well within the margin of measurement error.

In issuing its phase1 CAFÉ standards for model years 2017-2021, EPA and the National Highway Transportation Safety Administration estimated that the annual implementation costs would range from $5.4 to $7.6 billion. The costs for the standards that are being rolled back would likely be as high if not higher since EPA assumed technologies that do not exist or which have not proven commercially practical.  Since the higher costs of CAFE are passed on to consumers through high prices for vehicles they represent an involuntary redistribution of discretionary income.

Advances in automotive technology some of which has been forced by the CAFÉ will continue because of on going R&D and the forces of competition.  Technology forcing by government is a blunt tool that produces unintended consequences exceeding intended ones.

 

The Disuniting of America: Pogo’s Wisdom

For most of our history, our political system reflected the importance of bipartisanship to find common ground on legislative issues.  This value was based on the understanding that the Constitution’s guarantees of individual rights was intended to protect the minority from tyranny by the majority.

For the Founding Fathers, common ground was essential to building the foundation of our government. The Founders and the colonists were motivated by England’s abuse of their rights as free men which became the catalyst for articulating “self-evident” principles. The prevailing philosophy for governing was best articulated by Henry Clay’s perspective that has been discarded in recent decades.  He said, “Politics is not about ideological purity, or moral self-righteousness, it’s about governing. If you cannot compromise you cannot govern.”

Although the political extremes of the left and right represent a minority of the public, they are disproportionately active and this has led to the polarization, that is an obstacle to progress. Polarization is reinforced by identity politics, which increasingly involves people acting on a preference for associating with people who share their views and for sources of information that reinforce those views.  They live in an echo chamber that produces black and white views and an intolerance for those who do not share them.  The current political system rewards those who pursue conflict and demonization, and punishes those who show a willingness to compromise.  People respond to incentives and the prevailing incentives are misaligned with the Clay’s principle of governing.

Several decades ago (some say in the mid 1990’s), bipartisanship and the search for common ground were replaced by the forces of polarization.  While this is seen in the inability of Congress to do the people’s business, Congressional dysfunction is the result, not the cause, of the polarization that is rampant in society.  As a society, we have become “Balkanized” and intolerant, with too many seeing only black or white with few if any shades of gray.  As a result, many of those who are sent to Congress reflect the ideological purity of the voters who elected them.  Ironically, the loss of bipartisanship and the collegiality needed to find common ground has led to the loss of trust in Congress.

If we want Congress to function better, we need to have representatives who do not view compromise as a character flaw, and who are more interested in solving problems than in scoring political points.  We will only get them when voters look in the mirror and realize that, as the cartoon character Pogo observed, “we have met the enemy and it is us”.

Too many in society have become less tolerant, less accepting, more judgmental, and single-issue voters.  Senator Orrin Hatch of Utah recently wrote that we need a Geneva Convention for the culture war…“we need a detente in partisan hostilities, an easing of tensions that can be realized when both side adopt certain rules of engagement”.  He’s wrong; what we need are not rules to govern incivility—we need a restoration of the principles of civility and good citizenship.  We also need to recognize that the actions of a minority are infectious and are spreading. The antidote starts with us; not in the halls of Congress. The majority needs to be a counterforce to the radical, political activists on the right and left who engage in demonization, intolerance, and scapegoating.

Character matters, and character is the foundation of good citizenship.  The majority needs to recognize the consequences of the downward spiral that is proving so corrosive. More citizens, the media, and thought leaders need to become more active in promoting respect for the rights of others, tolerance,  respect for laws and authority, and contributing to our communities.  Left and right—and everyone in between—would do well to remember words from Abraham Lincoln’s first inaugural address: “We are not enemies, but friends. We must not be enemies. Though passion may have strained, it must not break our bonds of affection. The mystic chords of memory will swell when again touched, as surely they will be, by the better angels of our nature.”

The Dubious Basis for a Carbon Tax

Rep Curbelo of Florida has introduced a carbon tax bill even though the House of Representatives have voted 229-180 to oppose any carbon tax legislation.  It is clear that no legislation is going to be passed and most likely that Rep Curbelo is simply using his proposalto bolster his campaign for re-election in November.

He has proposed a $24 per ton tax—the social cost of carbon– beginning in 2020 with the proceeds replacing the federal gasoline tax.  How did he pick $24 when the estimates often cited range from $15-$150 per ton?  It really doesn’t make any difference since the choice is driven by the climate orthodoxy, model estimates and judgments and assumptions by climate advocates.  In reality, the social cost of carbon which is reflected in any proposed carbon tax is nothing more than an intellectual exercise that has very little basis in science or empirical facts.

There are two fundamental pieces of information that are needed to make a more accurate calculation of the social cost of carbon.  First, it is necessary to know how the climate responds to emissions of CO2. That is how much global temperatures will increase from doubling of CO2– climate sensitivity.   The most recent estimate by the IPCC is between 1 and 4.5 degrees C.  That is a wide range of uncertainty and underscores how little is really known about the effects of CO2.

The second piece of information is how much of past temperature increases are due to natural variability and how much are due to human activities?  Climate advocates assert that humans are primarily responsible for temperature increases over the past 60 or so years. But the results of model runs based on this assumption significantly over-prediction actual temperature increase.  Roy Spencer has pointed out that the “pause has caused them a real problem.  “They are now coming up with reasons why there has been a “pause” …and spinning it as if it is bad news …. But when they assume that natural climate variations can cause a cooling influence, they are also admitting there can be natural sources of warming”. In other words, the climate establishment is masking its ignorance with more assumptions.  But, assumptions are not facts and neither are computer model results.

In addition to these problems, carbon tax proposals attempt to address a very long-time horizon which makes it impossible to know the effects of policies, how they will change over time, advances in technology and most important the extent of any future warming or change.  There is also the factthat atmospheric CO2 produces benefits in plant, crop, and forest growth as has been documented by the CO2 Coalition.

Rep Curbelo should abandon election year stunts and look at facts and think seriously about policy.  First, he should learn that the US is doing much better in reducing emissions than other countries without subjecting itself to too many overly stringent regulations or energy taxes .  Over the past decade for example, the US has reduced emission by almost 12% while Germany one of the greenest and most aggressively environmental counties.  Instead of prescribing a carbon tax, the right approach to climate policy is to first become familiar with the actual scientific facts and then adopt incremental policies based on changes in our state of knowledge. That is the proven approach to effective planning when uncertainty dominates.

 

 

Market Manipulation is Not Market Choice

Florida Congressman Carlos Curbelo plans to introduce a carbon tax bill to reduce carbon emissions, create incentives for clean energy, and use the proceeds to replace the gasoline tax. Although he refers to his legislation as market choice, it is just another example of market manipulation and energy suppression…

All of the carbon tax proposals that have been pushed in recent years are promoted as a cost-effective means to mitigate catastrophic damage from human caused climate change by reducing carbon dioxide emissions. The alleged damages are a collection of environmental hobgoblins–rapidly rising temperatures, rising sea levels, and increased hurricanes, tornados, and droughts.

It has been 30 years since climate change—aka global warming—became the number one environmental apocalypse. Over this three decades the asserted climate damages have been unsupported by empirical evidence. Temperatures have only risen a few tenths of a degree. Hurricanes have not gotten stronger, tornados have been declining, and sea level rise has not been accelerating. None the less, advocates continue to market an artifact of computer models and ignore what is taking place in the real world.

The problems with a carbon tax are much greater than just the lack of empirical evidence. To begin with, the so-called damage function that would be mitigated by the tax lacks precision because the estimate of climate sensitivity—how much temperatures increase from doubling of CO2—vary by a factor of 3. In addition, concern about atmospheric concentrations is global while the proposed Market Choice act only applies to the US. Dr. Ben Zycher of the American Enterprise Institute did an analysis of a carbon tax that was larger than the one being proposed by Rep. Curbelo–$30 versus $23. He concluded that the carbon tax effect in 2100 would be twenty-five one-thousandths of a degree. On a chart, that would be less that the width of a line drawn with a number 2 pencil and given the inherent uncertainties of models is essentially zero.

A carbon tax may be intellectually elegant to many economists and very appealing to free spending members of Congress because it is like an ATM machine without limits—small changes in the tax generate large sums of money.

Advocates of a carbon tax attempt to portray it as being simple. Has anyone known of a tax that was truly simple? In the case of a carbon tax, building political support would require provisions that benefit supporters—environmental groups, rent seeking corporations, affected populations like the poor and politically powerful users of energy, and groups dependent on government largesse. There is virtually zero probability of a carbon tax being a simple straight forward $X per ton of carbon emitted. Instead, a coalition of Baptists—those whose support is based on moral fervor and Bootleggers whose support is driven by profit and rent seeking.

Finally, Rep Curbelo’s proposal is predicated on shifting US energy use from fossil fuels to “clean energy” which continue to exist in the market place only because of subsidies and government mandates. Our economy needs energy to grow and prosper but that energy needs to be abundant and affordable. Rep. Curbelo wants to make it scarce and expensive. The example of Germany proves that point. Germany’s emissions reduction crusade has produced the highest electricity price in Europe, a prices three times greater than the average US electricity price.

30 Years of Manufactured News

We have just observed the 30th anniversary of Jim Hansen’s explosive and infamous testimony before a Senate committee claiming that climate change was taking place, humans were causing it, and that an environmental catastrophe would occur in the near term unless prompt action was taken.

How this came about and the accuracy of Hansen’s predictions are a case study in “manufacturing” news. Anyone who objectively looks at claims about a climate catastrophe and the evidence that supports them would have to conclude that the climate agenda disguises a political agenda, which it does.

The background to Hansen’s testimony is illuminating. Al Gore and Tim Wirth, Senator from Colorado and committee chair, orchestrated the hearing to gain maximum publicity and push the US to join European greens in the battle against climate change which was called global warming back then. Gore and Wirth had become true believers in the sustainable development movement under the leadership of Maurice Strong who was the founding director of the UN’s environmental program. Strong was a tireless advocate for global governance, believing that national sovereignty must yield to the “imperatives of global environmental cooperation.”

According to the book, The Real Global Warming Disaster by Christopher Booker, Wirth has bragged about how he had committee staff call the Weather Bureau to find out what was likely to be the hottest day that summer. Armed with that information, Wirth scheduled his hearing and to make sure that it had the desired effect, he had all of the windows in the committee room opened and made sure the air conditioning would not be working. Under those steamy conditions, Hansen’s testimony received national attention and provided Gore, Wirth, and their environmental allies the ammunition to make global warming the number one environmental issue.

While Hansen continues to be a prophet of doom his credibility has taken a hit as his predictions of a climate apocalypse have become like the horizon, receding as it is approached. While he has become embittered and ever more shrill, his puppet master, grifter Al Gore, has become a multi-millionaire.

Around the 30th anniversary of Hansen’s testimony, Pat Michaels, former Virginia state climatologist and a senior scientist with the CATO Institute did a look back on Hansen’s predictions that was published in the Wall Street Journal. He pointed out that based on 30 years of data, Hansen missed the mark on his three warming scenarios. His first based on business as usual was that temperatures would increase 1degree C by 2018. His second, based on emissions rising at the same rate today as in 1988, was that temperatures would rise about 0.7 degrees C while his third was constant emissions beginning in 2000 that would result in temperature rising a few tenths of a degree C. The outcome of his third scenario proved correct but not for the reasons he cited.

Hansen’s other predictions also missed their mark as pointed out by Michaels. There was no spike in temperatures in the southeast and mid-west in the 80s and 90s. Hansen also predicted that Greenland’s ice would melt raising sea levels 100 feet by 2107. Wrong again, just as he turned out to be wrong about hurricanes getting stronger. And, tornadoes have declined, not increased.

Models are useful analytical tools for gaining insights and testing hypotheses. When they are used to confirm preconceived outcomes and ideology, they are no different that the sorcerer’s bag of tricks.

It’s economics and Trustworthiness Mr. President

At the opening of the NATO meeting, boorish Donald Trump was on full display as he lectured NATO’s Secretary General about Germany’s purchase of natural gas from Russia. Even he should know that is the type of discussion that is best had in private.

When you don’t take time to become familiar with issues, don’t understand history, or have a strategic perspective, it is easy to do dumb things. The President’s ignorance was evident from his lecture about Germany’s buying Russian gas and the Nord Stream pipeline. Germany isn’t buying US LNG for a very simple reason. In an article, Just Business, Sputnik News wrote, “Russian natural gas will remain significantly cheaper in the long run than shipments across the Atlantic. With the Nord Stream 2 pipeline, Germany wants to ensure a technologically secure basis for supplies from Russia,” –sputniknews. Does this carry risks and make Germany vulnerable to political manipulation by Russia? Of course, but the same is true for Western Europe which relies on Russian for about 30% of its gas demand.

US exports of LNG are increasing and could become an important source of energy diversification from over dependence on Russia. Achieving that goal takes time and demonstrating that the US is a reliable trading partner. The president’s behavior on trade, NATO, our European allies and his cozying up to Vladimir Putin all go in the opposite direction.

The New York Real Estate model worked from him in real estate dealings but is proving to be counterproductive in international relations. And, bullying eventually ends when those on the other end decide enough is enough and stand up.

Elon Musk: P T Barnum Flim Flam ?

 

CORRECTED VERSION

The end of the quarter marked the achievement of Tesla’s production goal for its Model-3.  By all reports, it represented a herculean effort That involved setting up a tent and makeshift assembly line.  Given the level of effort to achieve the 5000 per week production goal, it is reasonable to ask whether it can sustain that level of output and whether Tesla can finally make a profit and lower its large debt load?  Most financial analysts still rate it in bubble territory.

Elon Musk has demonstrated that the Tesla roadster is an exciting and fun to drive.  That along with generous subsidies and mandates has breathed life into the future of electric vehicles.  Forecasts going out as far as 2040 show EVs capturing a growing percentage of the light duty market globally.  Bloomberg New Energy Finance projects that EVs will represent over 50% of new light duty vehicle sales in 2040.  Such long range forecasts are based on a lot of assumptions, many of which may be questionable.

These forecasts are driven primarily by two factors—the constantly repeated dread of climate change and a belief that EV costs can be reduced to be competitive with internal combustion vehicles.

While assertions of a climate apocalypse continue to be made, it continues to be always moved to decades in the future.  Last week, Pat Michaels of the CATO Institute did a 30 year look back on Jim Hansen’s dramatic predictions of doom at a Senate hearing in 1988—a very hot summer—in a hearing room with the air conditioning turned off and the windows raised. Pat Michaels reminded readers that Hansen’s testimony described three scenarios—business as usual, emissions continue to rise at the same rate as 1988, and constant emissions beginning in 2000. These scenarios led him to predict that by 2018 the world would warm between 1degree C on the high side to a few tenths of a degree on the low side.  As Michaels points out, Hansen’s third scenario result of a few tenths of a degree C proved correct but not because we achieved constant emissions beginning in 2000.

With rapidly rising temperatures and increased hurricanes, droughts, and tornados being illusions and not actual happenings, it is fair to ask how long the world will continue to act as if the illusions are the reality? The answer is not another 30 years. EU nations that were the foundation of agreements starting with Kyoto are gradually backing away from their commitments as the pain of their cost increases.

The second driver is the ability of EV costs to be truly competitive with internal combustion engine vehicles.  That depends on achieving still lower battery costs and greater range between recharging.  Currently, the price difference between a Chevy Bolt or Nissan Leaf and the gasoline vehicle of equivalent size is about $10,000.  While the Tesla Model 3 is advertised at around $30,000, the cost with features most of us want run the cost up to $50,000.  In addition, there is the range penalty from temperature extremes.  It helps to explain why almost 52% of EV sales last year took place in California.

Overcoming the cost and range limits of the current generation lithium-ion batteries is not on the immediate horizon.  Toyota and several other auto manufacturers are working on solid state battery technology but assessments indicate that developers have not mastered how to mass produce them to last as long as buyers expect. Gong from the lab to the market can take 5 to 10 years and Menahem Anderman, the president of Total Battery Consulting recently said, “Solid-state batteries for automotive technology are still in the research stage with no timeline for commercialization.”

When the Elon Musk Tesla hype wears thin will Tesla be a viable manufacturer or will it go the way of DeLorean Motors?  One analyst was quite pointed on this, “Tesla’s persistent cash burn has been a major investor controversy … In fact, Tesla may be the largest public company in history to have never generated either positive annual cash flow or positive annual profit,” As other manufacturers get deeper into the California market, Tesla’s ability to generate and sell zero emission credits—a major source of revenue—will decline.  The same is true if the Trump Administration lowers CAFÉ mileage standards as appears likely.

Over the next few years, Tesla has over $1 billion in debt coming due while also having to contend with interest payments on the junk bonds it issued last year.  In this time frame, we are likely to learn whether Elon Musk is the visionary who changed the future for light duty vehicles or just another huckster who managed to create a bubble like the great tulip bubble of 1637.

 

 

 

Fake News Isn’t New

Long before “fake news” entered our vernacular, the late historian and former Librarian of the Library of Congress, Daniel Boorstin wrote The Image:  A Guide to Pseudo-Events in America.   Boorstin defines pseudo-events as ones that are fabricated as opposed to those that are real.  These are fabricated by press conference, surveys, press releases, interviews, and leaks that represent synthetic news that creates or foster illusions to influence how we think about specific topics.  He wrote about this phenomenon in 1962 long before twitter, Facebook, blogs, social media, issue advertising, electronic news, and the 24/7 new cycles that reinforces our biases.  All of these mechanisms are used to shape and reinforce our beliefs.

The supply of illusions and pseudo-events has gotten greater because the demand for them keeps increasing.  Boorstin says that “we believe these illusions because we suffer from extravagant expectations.”  As our expectations increase but our capability to separate the real information and facts from illusions and synthetic news does not.  To manage an excess supply we engage in mental triage by shutting out sources that don’t conform to our beliefs and relying on summaries and digests because we suffer information overload.  Our tendency for confirmation bias has become a barrier to finding common ground as our sources push us further from the center and to binary choices.

Almost 60 years ago, Boorstin observed that consumers of information were “less interested in whether something is a fact than in whether it is convenient that it should be believed”.  What would he say today?  Then he concluded that we had become use to using the image to test reality, making it hard to regain the ability to test the image with reality.

In the Introduction to The Image  Boorstin wrote that “To discover our illusions will not solve the problems of our world.  But if we do not discover them, we will never discover our real problems.”  So, what is the solution.  According to Boorstin, illusory solutions are not the cure for our illusions.  There is no easy answer.  Each of us “must emancipate” ourselves.  “Each of us must disenchant himself, must moderate his expectations, and must prepare himself to receive messages …from the outside.”  Most important, “ We should seek new ways of letting messages that reach us…”.

The Image was republished in 1987 as a 25thanniversary edition.  In his commentary on it, George Will wrote,”Boorstin’s book tells us how to see and listen, how to think about what we see and hear.”  He also wrote, “one of the effects …has been to induce in readers a healthy skepticism.  It shows readers how to stand back and squint at the world.”

The Image  may be 56 years old but it is just as relevant today as it was then.  Indeed, it may be more relevant.  A healthy dose of skepticism and an attitude of “I’m not convinced” would go a long way in helping us see more clearly through the fog of illusions and recapturing the ability to find common ground so that once again the influence of the majority will be greater than that of extremists on the right and left.

Looking Backward and Losing

President Trump is attempting to tilt trade in our favor at the expense of our trading partners.  His focus, using national security as the justification as well as the assertion that our trading partners are taking advantage of us, is based on discredited economics and policy.

Other nations are focusing on the fast growing sectors that reflect advances in technology, which is what his predecessors did because new industries contribute to being the world’s leader.   The President is looking backward and focusing on  once iconic industries that are shrinking as a share of our economy.

The President wants to increase exports at the expense of imports.  What he ignores is that increased exports come from increased production.  In a global economy we get those increases by being a more efficient producer than our competitors.  As economists have repeatedly pointed out, we need the market and not government to generate winners.  The president thinks that because we are the world’s largest economy, we can bully our way to achieving his export objective.

He’s wrong, just as nation states of prior centuries were wrong in pursuing mercantilism which is based on the belief that maximizing net exports is the best approach to national prosperity.  To make mercantilism work, nations engaged in protectionism which is what the President’s tariff policy is trying to do. Mercantilism was a flawed and failed policy in the 18thcentury and it just as flawed today. Adam Smith’s Wealth of Nations demonstrated that trade could be mutually beneficial and that exports should be driven by a nation’s comparative advantage, which is based on productivity.

In 1978, Milton Friedman pointed out that if the Japanese flood us with steel, it will reduce employment in the steel industry but increase employment in industries that use that steel.  The dollars that the Japanese got from selling us subsidized steel eventually found their way back here as demand for US goods and services.  In his concluding remarks, he asked, “ why should we object to their giving us foreign aid.”

In an interconnected global economy, it is a fool’s errand to attempt to protect declining industries.  Attempting to shield them from global competition simply makes them more dependent of government and stimulates crony capitalism.

President Trump and his economic Svengali, Peter Navarro, claim that the tariff policy is being pursued for national security reasons. But that has been widely shown to be totally bogus.  Further, A review of industrial policy initiatives decades ago in the journal Science, ended this way. “Here the historical record seems, for a change, unequivocal. Unequivocally negative.”  Nothing has changed since then.  The President’s policy is producing bads; not goods and the bads will just get worse.