Peter Navarro's Trade Math Says the US Lost 55 Million Jobs

Mish

Donald Boudreaux, Professor of Economics at George Mason U, calls out Peter Navarro for his impossible trade math.

I recently started following Donald Boudreaux at Cafe Hayek and he has been writing some incredible stuff.

Here is a letter Boudreaux sent to Peter Navarro, president Trump's alleged "trade guru".

15 March 2018
Dr. Peter Navarro
White House
1600 Pennsylvania Ave., NW
Washington, DC 20500

Dr. Navarro:
Interviewed this morning on CNBC you said that according to “some estimates” - estimates that you obviously take seriously - for every $1 billion in U.S. trade deficits, America loses 6,000 jobs. Let’s do the math, and let’s increase the plausibility of your “estimate” by looking only at the years since China joined the WTO - that is, the years from 2001 forward.

In each of these 17 years (2001-2017) the U.S. ran trade deficits in the hundreds of billions of dollars. For this entire 17-year span, the U.S. trade deficit was $9.259 trillion. According to the “estimate” that you wish us to take seriously, therefore, the number of jobs that America “lost” as a result of these trade deficits is 55,554,000 - a number of jobs more than one-third of today’s entire U.S. labor force, and nearly nine times larger than is the number of Americans who are today unemployed!

Your “estimate” doesn’t pass the smell test; indeed, it’s beyond laughable. Can you tell us then, given your proneness not only to fall for such absurd “estimates” but to perpetuate them as if they’re a sound basis on which to formulate policy, what reason have we Americans to take you seriously? Why should we pay any heed to your economically and arithmetically illiterate bloviations?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Boudreaux's email comment: "Entrusting trade policy to Peter Navarro makes less sense than entrusting your life savings to Bernie Madoff."

How can one not like that?

Kindergarten Arithmetic 101

In Kindergarten Arithmetic 101, a Mish reader offers a real-world example of what happens when trade collapses.

If Trump extends his wall to cover the entire border, instead of just the one shared with Mexico, and then bans or punitively tariffs every single good that uses steel as an input, recursively, as well; he just may succeed in driving up the domestic price of final goods, to the point where both nominal labor compensation and nominal raw materials prices can be increased at the same time.

In doing so, he will ensure that not a single American made product of any kind, will be internationally competitive over time. This is exactly what the Latin American import substituting “structuralists” did, back in the 50s and 60s.

Mathematical Explanation of Deficits

Professor Steve Hanke provides a more rigorous example of trade math: Trump's Tariffs Show He's "Clueless About Trade".

Root Cause

Once again, the roots of this problem date back to August 15, 1971.

That is when Nixon closed the gold window, ending foreign redemption of dollars for gold.

Image placeholder title

For further discussion, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Self-Inflicted Wounds

By the way, those tax cuts, not balanced with spending cuts, will increase the trade deficit.

It seems Navarro and Trump need more than one math lesson.

Mike "Mish" Shedlock

Comments (48)
No. 1-48
Kinuachdrach
Kinuachdrach

Mish, on many topics you are a perceptive and insightful commentator. But the topic of trade seems to cause you to blow a fuse. You keep recycling the same dubious points, and never address the obvious questions -- Since other governments have fiat, not-backed-by-gold currencies, and manage to have trade surpluses, why did Nixon going off the gold standard cause the problem? And if other countries run budget deficits and trade surpluses, why is the US trade deficit caused by a budget deficit? It seems that there are important factors left out of your analysis, such as the fact that this world does not have Free Trade, only Managed Trade. Is it possible that the usual suspects managing the US side of Managed Trade deals have the same level of competence demonstrated by, say, the FBI?

AWC
AWC

If these knuckleheads would just stand back, and let Free Market Economics do it's natural thing, it would save the masses, and the knuckleheads as well. The rising tide would raise all ships, but some dunce would try and turn back the tide.

AWC
AWC
whirlaway
whirlaway

Well, it is very likely that the third of today's labor force that is so poorly paid is the one that was impacted by the job losses. And everyone knows that unemployment numbers are rigged - if you are on unemployment benefits this month, you are counted as unemployed; but if your benefits run out next month, you are no longer counted under any column. You may be alive still but the stats treat you as if you are dead.

AWC
AWC

The larger the safety net, the poorer the performance. Very few sailors drown on a boat with no lifelines.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

AWC
AWC

I guess I must have a trade surplus with my local peers. I have assets, but no debt. Surely, some external savior needs to help those poor folks out, by giving them more credit cards?

whirlaway
whirlaway

That is the neoliberal Reagan-Thatcher "solution" - giving credit cards to people whose jobs were lost. That has run out of steam now. Neoliberalism is collapsing all over the world.

shamrock
shamrock

Maybe Navarro means for every $1B in annual trade deficits, not cumulative, which makes a lot more sense. In that case divide the Professors 55 million jobs number by 17 or 18 to get a much more believable 3 million jobs lost.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

AWC
AWC

@ whirl, "That is the neoliberal Reagan-Thatcher "solution" " Reagan made those folks take on debt to buy things they didn't need, with money they didn't have? How has he done that all these years, from the great beyond? Through some kind of seance?

AWC
AWC

Or maybe he should have followed in Nixons footsteps, and continued with the double digit inflationary stagnation of the 70's caused by excessive printing?

AWC
AWC

In this country, you still have the liberty to A. Go on the dole. B. Continue on your present course, and scream for "protection" from the elements. or C. Get off the old posterior, buck up, and run with the opportunities offered. Again, we can make choices.

her_hpr
her_hpr

Given that the #1 reason for bankruptcy in the US (and thus presumably of unmanageable debt) is medical bills your statement would translate to something like "all these people had cosmetic plastic surgery"? I mean it can't be for things like heart attacks . . . or cancer right?

AWC
AWC

I'm not in a debate over cherry picked stats as a means of goal seeking political talking points. Take a trip down through Mexico, Cambodia, Indonesia, Vietnam or myriad other international utopias, and get back to me on how bad we have it here. If you expect free health care, might I suggest Cuba. Otherwise, the only way I know of getting it, is if I can find a doctor who will work for nothing.

AWC
AWC

In all my working career, I never went uninsured. Never bought a new car, or had cable TV, or took Caribbean cruises either, but my priorities, combined with a bit of deferred gratification, has payed off.

AWC
AWC

Not being as well off as some, I rarely used charge cards,,,,,couldn't afford the interest.

whirlaway
whirlaway

Reaganism has been the norm beyond his term until even today. Even Democratic administrations have pushed his agenda further - like NAFTA and other trade deals, deregulation, non-enforcement of antitrust etc. It destroyed the American working class and one of the coping mechanisms for those people was to get into debt. It worked great for the Reaganites too, as it continued the illusion well beyond his tenure.

Your choices going forward will be either Corbyn/Sanders style left-wing economic populism, or Trump/LePen style fake right-wing economic populism, mixed with nationalism, racism and bigotry, while still continuing the status quo for the well-heeled. I am quite sure you and your ilk will opt for the latter.

JohnnyJingo
JohnnyJingo

I don't think so, Shamrock. Navarro on FOX: "Some analysts calculate that for every billion dollars in trade deficit we have, that's 6,000 jobs we lose - so a $150 billion trade deficit with Europe means we're sending over a million jobs." But think about it. Jobs abroad, maybe not in Europe but certainly in places like China and Mexico, cost far less than they do in the United States. You can buy an awful lot of labor with US dollars. Just since 2012 China has added 65 million new jobs, so over the long haul of US trade deficits the 55 million number Boudreaux uses to mock Navarro is hardly unimaginable globally, even if it is here. That said, Jeffrey Snider of Alhambra routinely writes of a 16+ million below trend labor utilization gap in the US.

whirlaway
whirlaway

Looks like you are so ignorant that you don't realize that health care is universal (there is no such thing as "free" health care - only the moron status quoists take that line of argument) in all the Western democratic developed countries as well. So you take your BS talking points and shove it where the sun doesn't shine.

Realist
Realist

It’s hilarious that Trump complains about “fake news” when he and his minions dole out a steady stream of ridiculous lies and complete falsehoods. I guess they hope that if you just lie repeatedly, eventually people will believe you. And apparently, it is an effective policy, based on some of the folks who comment on this blog. I don’t agree with Mish on everything, but he sure has it right on free trade!

hmk
hmk

BTW we have the highest per capita health care expenditures in the world and the worst health, dead last among the industrialized nations, 38th. Warren Buffet stated we spend 18% of our GDP on healthcare vs around 10% world average in advanced industrialized countries. That is a huge competitive disadvantage no matter how a big a tax cut companies get.

Realist
Realist

Hmk; completely agree with you on the health care problem. It is a big disadvantage for both businesses and consumers. This is one area where I disagree with Mish. If other industrialized countries can make single payer work for half the price (I know that single payer isn’t perfect) then why can’t the US do it?

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Other nations make it "work" because there are caps on doctor salaries, there is "free" education, there are caps or set prices on services. In the US we have none of that. Nor do we allow drug imports. If we went to single payer, costs would skyrocket. There are no price controls or even any incentives to control price anywhere.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Try controlling doctor and nurse salaries coupled with "free" education. What do you think would happen?

hmk
hmk

Re universal healthcare. In Canada education isn't free I don't know about the rest.

Realist
Realist

Hey Mish. I understand your concerns. And I didn’t say it would be easy. I’m just saying expensive health care is a big competitive disadvantage for the US. To paraphrase Whirlaway, a large percentage of Americans get into financial trouble because of ridiculous health care costs (one area where I agree with him). Maybe it’s time to change America’s approach to health care.

hmk
hmk

con'td The Canadian system isn't perfect but they voted the politician responsible for universal healthcare in CA as the most popular politican in Canadain history. I always ask Canadians how they feel about their healthcare system and the majority are satisified, like around 90%. I know physician salaries are less than the US but overall it works. In the US the system is run by special interest like everything else over here. Take a look around we are over hospitalized, drugged etc. No one has the balls to do whats right just keep taking the bribe money from the healthcare industry until it eventually hits the fan

Realist
Realist

Hey Hmk. I believe that university/college education is only free in Canada for their indigenous native population. For the rest of Canadians, it is heavily subsidized (I’m not sure how much but will guess 50-80%) depending on the Province. As for Doctors and other Health Practitioners salaries, they are controlled to a large degree, but is is still a lucrative area. I recently read that in the Province of Quebec, 500 health practitioners sent a petition to the provincial government to “lower” their recent pay increase, as they felt it would hurt the health care system (pretty altruistic of them, eh?). I know many people who live in countries with single payer health care, and I have never heard a single one of them say they would like the US system. They all seem to like the single payer system, though of course, they tend to feel their system can still be improved.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

The way to fix healthcare is to introduce genuine competition and stop wasting hundreds of billions of dollars prolonging people's lives for a year. Start there. Single payer does neither! I have made many proposals but am open to others.

tedr01
tedr01

Most of the jobs that the government claims are created(or lost) every month via the Labor Department are really nothing more than guesses. The government doesn't actually count new job creation, they make guesses.

tedr01
tedr01

t

tedr01
tedr01

The answer is to introduce euthanasia for the dying and stop wasting so much money keeping dying people alive. Also build more medical schools so doctors must actually compete with each other in fees and services. We need more doctors.

OkieNomics
OkieNomics

Boudreaux employed a clever, while completely misleading trick with numbers. He took 17 years of CUMULATIVE data and "annualized" it into a number of jobs, which he then claimed was an impossible number. Yep, sounds like a PhD economist to me. What a bunch of B.S. This is what you consider brilliant stuff, Mish? I mean, if you want to argue trade issues, fine, but don't LIE WITH NUMBERS. It makes Hayek look bad.

WarpartySerf
WarpartySerf

The USA spends 25 times per capita on healthcare versus Cuba.

gstegen
gstegen

I seems fairly obvious that Navarro means a $1 billion annual trade deficit results in a loss of 6000 jobs for that year; thus the $500 to 600 billion deficit the US has been running since 2000 results in about 3 to 3.6 million lost jobs. Boudreaux and his calculation are the ones that do not pass the smell test. Mish and most economists like to claim the big benefits of trade, such as lowering the cost of certain goods and providing a way for developing countries generate income to develop their economies. What they do not seem to consider is the negative effects of the very large persistent trade imbalances. Ricardos claimed benefits of comparative advantage says that if you accept in imports that cause your countries production and employment to drop in one area you will get offsetting benefits when the other country spends their export earnings buying some other products that you are better at producing. This can be valid at times, but contains the unstated assumption that your counterparty actually spends the money (i.e. spends their export earnings on other imports). When this does not happen (i.e. persistent trade imbalances) the promised benefits are not fully realized. Boudreaux calculates a $9+ trillion US trade deficit since 2000. What happened to all that money? It has come back to the US primarily via debt (e.g. foreign purchase of bonds) or buy up of US assets by foreign entities (e.g. stocks, companies, farmland, real estate). I believe the US should continue a commitment to reasonably free trade, but in the context of relatively balanced trade (on average over time).

Realist
Realist

So the answer to health care costs is euthanasia? That’s an interesting solution. Who gets to decide who and when?

Realist
Realist

Should the US start at age 70 perhaps. That would eliminate two problems; health care and social security.

hmk
hmk

Don't worry with all the crap they put in our food thats approved the govt as a result of crony capitalism, e.g. roundup etc we will be dying off prematurely anyway. Its their way of getting out of the social security train wreck they created by stealing the money to fund vote buying social programs. I was no fan of Gore but I remember him saying he wanted to put the social security money in a "lock box" during his debates with Bush. Many of the chemical products used in our food chain are banned in most other countries. As far as euthanasia is concerned it will be allowed at some point, again to save money not out of kindness. I do believe that one should be able to specify when they are of sane mind to determine when they can be euthanized instead of living as a human vegetable.

JonSellers
JonSellers

And the USA has a lower life expectancy. And Cuba has a larger share of people of African heritage in their population.

hmk
hmk

There is a new set of articles in JAMA that outlines some of the drivers of high healthcare costs in the US: Drug prices, imaging prices, higher high volume procedure prices and administrative prices. Paradoxically physician salaries were not proportionaltely more in the cost curve. Mainly because we average 3.3 physicians/110k pop. vs 4.3.

Realist
Realist

I certainly don’t have the “answer” for the outrageous health care costs in the US. I just point out that it can be done for roughly half the price in other developed countries. Plus, most projections show that as boomers age, health care will continue to consume more of gdp (over 20%) in the next 10 years. Add on the fact that the US govt. has been squandering social security contributions for decades, and that there is no pool of money to tap into, means that the government will have to come up with the funds to pay future pension Cheques as the contributions will be less than the payouts.

hmk
hmk

Forgot one more thing, the USA has the most obese population on earth.

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