Economists are having fits about President Trump’s trade and immigration policies. For good reason: The profession is ignoring what the textbooks say about open commerce and migration.
The theory of comparative advantage demonstrates free trade encourages specialization — America designs iPhones, China assembles them — and should raise living standards but is built on a pyramid of assumptions often not met in the real world.
From first lessons, economists are taught to put aside personal biases and consider how the world outside violates model assumptions, the implications for their conclusions and the practical consequences for public policy. Sadly, those are disciplines that are honored more in the breach among my colleagues at leading universities.
They are too busy crafting new ways to tax Americans to finance big government programs, push up inflation and lower interest rates in ways that rob old folks of their savings and cast blame for lower female and minority participation in technology careers on white male exploitation.
Comparative advantage assumes balanced trade and full employment, but under the trade deals Mr. Trump inherited America has a huge deficit. Unemployment is at 3.8 percent, but the share of adults employed or looking for work is well below pre-financial crisis levels.
The Obama administration — where Ivy League economists held great sway — dramatically built out the welfare state. We now have 1-in-20 working age adults receiving Social Security disability pensions, and those are concentrated in middle America where factories are shuttered, main streets boarded up and opioid addiction rampant. Medicaid and food stamps are now freely offered to adults without children who refuse to look for work.
Simply, President Obama — who many of my colleagues viewed as the messiah who would lead America into French social-democratic paradise — used those programs to mop up the workers left unemployed by free trade agreements he championed.
According to the theory of comparative advantage, workers displaced by imports are assumed to move to where the new jobs are. However, economists refuse to consider that often means relocating from places like Hershey, Pennsylvania, to cities like New York. Without friends and rents being what they are, a relocating blue-collar worker would have to pitch a tent in Central Park to enjoy housing affordable on the Big Apple’s $13-an-hour starting wage.
It gets better.
Comparative advantage assumes all countries and businesses are equally endowed with technology. Hence, it ignores or is agnostic about the principal source of American advantage — intellectual property — and Beijing’s requirements that foreign firms locate in China and transfer technology to domestic joint venture partners to make sales there.
Feel like you are in Alice in Wonderland?
The trade deficit with China alone comes to $350 billion a year and falls most heavily on manufacturing and technology-oriented services. Together those bankroll the bulk of business-sponsored R&D — you know stuff like how to build a better router or artificial intelligence but not government-funded research that links high crime rates in Chicago to cultural insensitivity and police instincts for survival.
If we sliced the trade deficit in half, domestic GDP growth would be lifted from the 3 percent accomplished by Mr. Trump to 4 percent to 5 percent a year, more or less permanently.
Think of all the welfare Democrats could finance with that but with work paying so well, who would want it.
Finally, in the modern economic theory of comparative advantage trade and immigration are substitutes, not complements — yet look at what globalization has wrought. Neither the European Union nor America can control the flood of immigrants, and many are not employable in the skills categories advanced industrialized economies need most.
In low-unemployment Germany, many loiter in railway stations and parks for lack of language skills, and in America more than half are on means-tested programs and pull down the wage of ordinary folks when they do work.
Economists are falling prey to the classic academic trap of investigator bias. They are so invested in their failed free trade prescriptions and worried about being called racist if they question open borders that all they can do is call Donald Trump ignorant and unfit.
The hard reality is that most of my colleagues are the ones practicing willful and malicious ignorance and ought to be hoisted from their cossetted lives.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.