by President Trump talking bollocks President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted: “Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.” Adding that this is “very unfair to the United States!” This, of course, is bollocks. The US would actually gain from monetary stimulus to the extent that it strengthens the euro zone economy, thus allowing US
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President Trump talking bollocks
President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted:
“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.”
Adding that this is “very unfair to the United States!”
This, of course, is bollocks. The US would actually gain from monetary stimulus to the extent that it strengthens the euro zone economy, thus allowing US firms to sell more to it: exports are more sensitive to demand than they are to exchange rates. What’s more, insofar as expectations of low interest rates cause investors to reach for yield and buy shares they are likely to also buy some US equities thereby giving Americans the benefits of a positive wealth effect and lower cost of capital. Sure enough, the S&P did indeed rise after Draghi’s speech. Trump tweeted that the index hit an all-time high this week, but failed to connect this fact and Draghi’s words.
Yes, Draghi deserves criticism. But it is for not responding soon enough to the weak economy and low inflation rather than for belatedly talking of doing so.
This is not the only example of Trump’s zero-sum “thinking”. He also recently tweeted that:
“The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars.”
You don’t need me to tell you that this is also bollocks. It is like me complaining that I lose money by my trading with Lidl. I don’t, of course. I merely exchange goods for money – which is exactly what US citizens with China are doing. Free exchange benefits both buyer and seller. It’s positive sum. In believing otherwise, Trump is expressing the pre-Smithian mercantilist idea, that wealth consists in piling up money by running a trade surplus, rather than in the expansion of consumption opportunities and increased productivity that comes from trade.
Confirms — again — what we already knew: Trump is a reckless, untruthful, outrageous, incompetent and undignified buffoon!