Month: April 2018

Peter Navarro Is Wrong Still Again

Theodore A. Gebhard

Once again President Trump’s trade adviser displays his lack of understanding of how nations gain from trade. In an op-ed in today’s Wall Street Journal, Mr. Navarro contends that China’s trade practices victimize the U.S. (“China’s Faux Comparative Advantage,” 4/16/18) In doing so, he makes two errors. First, he is wrong to suggest that trade with China that diverts from the “textbook” model of comparative advantage always generates harm to the U.S.  To be sure, ever since David Ricardo described comparative advantage in terms of relative resource and knowhow endowments, that example has been a staple of textbook discussions of how trade can produce gains.  The gains arise because comparative advantage permits both sides to conserve resources.  Those saved resources can then be deployed in other productive activities, thus increasing national wealth.  This result holds even when one trading partner subsidizes its exports, gives tax preferences to its exporters, or “dumps” goods by selling overseas at a lower price than at home.  Such policies, though harming citizens and taxpayers in the exporting country, conserve resources in the importing country and benefit consumers with lower prices.  Letting Chinese citizens and taxpayers subsidize U.S. steel consumption, for example, means that resources that the U.S. would otherwise have to deploy to making steel can now be deployed elsewhere, i.e., we get cheaper steel and other stuff instead of just steel.  That the Chinese government chooses to harm its own citizens is no reason for the U.S. to retaliate by doing the same to its citizens.

The second error that Mr. Navarro makes is conflating such activities as cyberespionage and intellectual property theft with export subsidies and tax preferences.  Stealing property, whether tangible or intangible, is categorically wrong, and Mr. Navarro is right to call out such illicit activities.  The error lies in failing to distinguish between these harmful Chinese practices and practices that are beneficial to the U.S.  The former of course should be targeted for reprobation and fully proscribed.  The latter should be left alone.  Regrettably, the Trump Administration’s recent trade initiatives toward China, which Mr. Navarro helped to formulate, aim indiscriminately at both the good and the bad.   

Today’s Extreme Rationalism, F.A. Hayek, and Elite Thinking

Theodore A. Gebhard

In a Wall Street Journal op-ed entitled “The Dark Side of the Enlightenment” (April 7-8, Weekend Edition), Yoram Hazony laments the proponents’ of pure reason failure to acknowledge the contributions of tradition, religion, and nationalism to human progress. He identifies Harvard Professor and cognitive psychologist, Steven Pinker, as an especial exemplar of this elevation of the Enlightenment to singular status, a status Mr. Hazony considers to be the height of arrogance. Discussing the significant positive role that tradition, religion, and other human institutions have made to human progress, Mr. Hazony concludes by stating that “[e]nlightenment overconfidence has gone badly wrong often enough to warrant serious doubts about claims made in the name of reason—just as doubt is valuable in approaching other systems of dogma. Such doubts would counsel toleration for different ways of thinking. National and religious institutions may not fit with the Enlightenment, but they may have important things to teach us nonetheless.”

Mr. Hazony’s opinion piece is exceptionally thought provoking and well worth reading. For me, his look at the dark side of the enlightenment brings to mind F. A. Hayek’s distinction between what he called “constructivist rationalism” – the belief that complex social problems, like engineering problems, can be solved by using human reason – and a more limited rationalism grounded in a recognition that no single human mind (or even a group of minds) has the capacity to grasp all of the variables that affect human interactions.  Hence, the more complex the social problem, the less adequate is human reason, properly understood, as a tool to solve the problem without adverse unintended consequences.  Hayek believed that those adverse consequences more often than not outweigh any good results.  Therefore, long-standing existing arrangements whose origins may not be precisely known should be given due respect, as they may be superior to what comes of rationalist intervention.  Regrettably, the elites in Washington, Brussels, and Davos are blind to this lesson.  Instead, these elites see no limitations to human reasoning (at least in their hands), exalt centralized planning, and look to state power (and themselves at the levers of this power) to implement their directives, always to the diminution of human freedom and often with long run results detrimental to the mass of people.