The below may be a surprise to the Trump administration:Sources: 1, 2

writes Jeff Pross. It was no other than Alexander Hamilton, the first US Secretary of the Treasury, who instituted the first US tariffs in 1792 with the explicit intent of raising funds and paying off the first States’ debts and developing US industries. (Here is the full story).

In 1944, global institutions were established to assure free trade (IMF, World Bank, GATT, WTO), which impose tough rules that guarantee free movement of goods across borders. These rules prohibit public subsidies and “industrial policy” (tariffs to safeguard industries threatened by imports). Sure, China and many other nations flout those rules (here is a list of the nearly 600 WTO trade disputes since 1995), but neither the US nor Europe became rich by following these rules themselves! Quite the contrary, Pross suggests that China’s current trade strategies are basically plays from the 1800-1944 US/European development playbook. In fact, the US/Chinese trade tensions hold an “uncanny resemblance to the German/UK trade tensions in the nineteenth century… Both rivalries feature countries enmeshed in tariff threats, standard-fights, technology theft, financial power struggles, and infrastructure subsidies for advantage.”

“Between 1816 and the end of the Second World War, the U.S. had one of the highest average tariff rates on manufacturing imports in the world.” Over its history, the U.S. has never shied away from using subsidies and industrial policy to support everything from agriculture to transportation to health research. Right after independence and technologically behind Britain, America was absolutely shameless about snatching technology and intellectual property from other countries. By comparison, China’s “forced” technology transfer is pretty tame: It simply demands that any foreign investor who voluntarily decides to do business in China’s domestic market must engage in a joint venture with a Chinese partner.

European countries followed the same playbook of development. Britain built up wool manufacturing in the late 1500s through industrial policy.. lowering tariffs on imports of raw materials, but raising tariffs on imports of manufactured products — in order to keep the resources coming in but to protect its high value-added industries. In the mid-1800s, Britain pulled off the original “technology transfer” with China as its victim: Britain sent agents through China to steal tea plants/seeds and learn agricultural practices to introduce tea plants to India and marginalize China in the global tea market. And oh, to “fix” its trade deficit with China, the British government (!) resorted to overt drug trade, flooding China with Opium; and once addicted, the British sold China opium at exorbitant prices to reverse the trade deficit into a surplus.

I’d like to keep the blog academic and fact-based, and at the same time, some of the recent economic events are just so surreal and frankly (in my opinion) dangerous that I fear some of my posts start to read like partisan politics (see my posts on Turmp’s trade person, Peter Navarro here, here, here, here,  and here). But what has to be said in the name of truth, has to be said.

If you think I am harsh on the people Trump employs to lie about economics, I should note that even arch-conservative magazines like “Fortune,” (to the right of the WSJ) call the Trump’s economic policies “stupideconomics.” (here and here).

It has long been Trump’s goal to dismantle government agencies by installing critics who hate the very agencies they were supposed to lead. These critics then proceeded to dismantle with impunity key agencies such as the US Department of Agriculture, the US Department of Energy, the US Environmental Protection Agency, or the US Consumer Financial Protection Bureau (or 68 minor agencies and programs that are being eliminated directly through proposed 100% funding cuts). While it is difficult for me personally to see these agencies and programs go, I accept that the will of the people (in form of the electoral college) apparently supports Trump’s concept of “instant deregulation” through agency shut down.

But when it comes to the dismantling of the Fed we are starting to talk not just about the dismantling of an agency, but about the dismantling of the very economic foundation of our society. I have written about the two new nominees for the Fed positions before. In a recent New York Times OpEd, Paul Krugman puts it eloquently:

“The Fed’s governing board currently has two vacancies, and Donald Trump has proposed filling those vacancies with ludicrous hacks. If he succeeds, one of our few remaining havens of serious, nonpartisan policymaking will be on its way toward becoming as corrupt and dysfunctional as the rest of the Trump administration. Stephen Moore and Herman Cain are, of course, completely unqualified — I say “of course” because their lack of qualifications is, paradoxically, a key qualification… for Trump…”

As I pointed out before, both Moore and Cain were “Hard Money Men” during Obama’s presidency, meaning both demanded higher interest rates when unemployment was high (to fight inflation they predicted would appear but which never materialized). Now, strangely, both demand lower interest rates while unemployment is at an all-time low — only because it conforms with Trump’s view of the world.

Krugman characterizes Moore and Cain succinctly: Moore “is basically a classic right-wing hack who tries (incompetently) to impersonate an economic expert. Cain, on the other hand, is a spam king whose business model involves making his email list available to direct marketers… Moore has been out there predicting magical results from tax cuts, putting out fake economic numbers, and giving speeches to FreedomFest. At the same time, Cain has been offering a platform for peddlers of get-rich schemes and cures for erectile dysfunction.” This reminds me of Trump’s choice Attorney General,  whose prior job was to promote hot tubs and toilet seats for well-endowed men for a scam company that was shut down by the FTC.

Tampering with the independence and competence of the FED by nominating either a pizza exec who peddles erectile dysfunction spam or an unscrupulous economic liar is dangerously undermining the very foundation of the US.

This from the conservative WSJ

President Trump said Thursday he intends to nominate former GOP presidential candidate Herman Cain to the Federal Reserve’s board of governors… The selection of Mr. Cain, following the president’s decision to nominate his former campaign adviser Stephen Moore, marks an effort to install two Fed critics and loyal Trump supporters on the central bank’s powerful seven-seat board… Messrs. Cain and Moore both staked out positions quite critical of the Fed’s easy-money policies earlier this decade —stances that would appear to be at odds with Mr. Trump’s desire for rate cuts now. Messrs. Cain and Moore have previously advocated, for example, a return to the gold standard… 

…JPMorgan Chase & Co. Chief Executive James Dimon said he hoped senators would “do their homework” on Messrs. Moore and Cain. “I don’t think they are the right people,” he said at an event in New York. “They should put professional people on.”

What does Dimon mean by “professional people?”  Probably “economists.”

Cain’s background — other than his sexual harassment allegations and settlements is in the burger and pizza business. I am not making this up, zero economics background. No wonder he is a gold bug.

Moore’s background — other than his refusal to pay debts to child support – is an MA in economics with zero peer-reviewed output and a long, scary history of flagrant lying about economic facts. Here are some direct links from Menzie Chinn that are well worth reading to understand how scary his appointment would be — and he is the “more qualified” of the two candidates…

• Stephen Moore: … “Powell Should Resign”
• Stephen Moore Lies Again
• Stephen Moore Lies & Lies & Lies
• Stephen Moore: “When It Comes To Electric Power, Coal Is No. 1
• Further Documentation on “Stephen Moore Is a Liar”
• Stephen Moore Is a Liar, Part 2
• Stephen Moore Is a Liar
• CNN: Fire this Buffoon
• Homosocial Reproduction and Economic Policy Formulation in the White House