More Economic Ignorance from Trump

Here's another horribly ignorant statement from Trump, during a Rose Garden ceremony with South Korea's president, concerning economics:

"From when the US Korea trade deal was signed in 2011 to 2016 - you know who signed it, you know who wanted it - our trade deficit with South Korea has increased by more than $11 billion, not exactly a great deal. 

I was gratified to learn about the new investments South Korean companies are making in the United States.

This month Cheniere is sending its first shipment of American LNG to South Korea in a deal worth more than $25 billion. We will do more to remove barriers to reciprocal trade and market access."

Let's start with the first statement. Yes, the US - South Korea trade deficit has gone up by about that much, at about the time the deal was implemented. The trade deficit in 2016 totaled $28 billion. That is a tiny deficit for an $18 trillion economy; it's a rounding error.

Now to the second. Anyone who took notes in their first macroeconomics class should know that a current account deficit is the equal opposite of a capital account surplus. What does that mean? The "current account" is a fancy term for the trade balance[1]. The "capital account" is the investment balance. As an accounting identity (of international flows of dollars that must net out) an international trade deficit means an international investment surplus. Why again? see note 2 below. Another way to put it is that we have an investment surplus with the world because we have a trade deficit, and vice versa. 

The dollars that flow to South Korea for purchasing imports do not have to come directly back in the form of investment. South Korea may trade goods services and investments with other countries who then trade with us, balancing the flow of dollars out. This means it is possible for a country with no trade deficit / surplus in general to have a bilateral trade deficit / surplus with individual countries. It is illogical (and betrays basic ignorance of a topic Trump supposedly cares a lot about) to worry about bilateral trade balances trade, and equally illogical to be mad about a trade deficit and happy about an investment surplus[3].

Trump then goes on to highlight an export deal to South Korea worth almost the entire trade deficit, again underlining how small it is[4], and promises to pursue even freer trade with South Korea. What else is free trade besides seeking to "remove barriers to reciprocal trade and market access"?

So, if I've got this right, the free trade deal with South Korea was bad. But the South Korean investments it facilitated are good. Also South Korea is an export opportunity for american companies, and we should do more to remove trade barriers between the US and South Korea. 

Um, what?

Populist/Nationalist economics makes no sense. It's just xenophobic knee jerk reactions. Now maybe it's expecting too much of a president to be this knowledgeable on every topic. That's why presidents have advisers. But this president has not even staffed the Council of Economic Advisers and has otherwise hired rich businessmen and populist hacks who have betrayed similar economic illiteracy[5]. Either they are plain stupid, out of their depth, afraid to contradict Trump, or have tried to teach him and given up[6]. Any of those would be concerning. The president has no idea what he's talking about and endorsing a mutually exclusive and incoherent mix of policy.

Economic Related Incompetence

Here's a few funny economics-related items I'm late in commenting on that reflect how ignorant, incompetent, and out of depth the Trump administration is. 

First, Trump thinks that he came up with the common economic stimulus metaphor "priming the pump". Here's the transcript from his interview with The Economist:

But beyond that it’s OK if the tax plan increases the deficit? 

It is OK, because it won’t increase it for long. You may have two years where you’ll…you understand the expression “prime the pump”?

Yes. 

We have to prime the pump.

It’s very Keynesian. 

We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?

Priming the pump? 

Yeah, have you heard it?

Yes. 

Have you heard that expression used before? Because I haven’t heard it. I mean, I just…I came up with it a couple of days ago and I thought it was good. It’s what you have to do.

It’s… 

Yeah, what you have to do is you have to put something in before you can get something out.

The "prime the pump" metaphor has been around since at least the Great Depression, back when people actually had to prime pumps. Trump is such an ignorant dumbass that he's never heard this common term before and he thinks he invented it recently, or he forgot he's heard it before and thinks it popped into his head because he's so clever.


Second, the White House Office of Budget and Management made a multi-trillion dollar math error that its director couldn't even catch, or admit to making afterwards. Basically, they assumed that their proposed tax cuts (estimated to cost trillions over a decade) would pay for themselves through induced higher economic growth. Which is nonsensically optimistic, but whatever. 

So the tax cuts will supposedly generate growth required to make them deficit neutral. Then, to close a $1.3 trillion deficit by 2027 in Trump's budget proposal, they assume that tax cuts will increase economic growth enough to close the gap. Notice the problem? It's the same trick twice. How could the tax cuts be revenue neutral and increase revenue on net? Maybe they meant the tax cuts would be revenue positive, but they never made that claim. This is a very dumb, simple mistake. That it escaped the notice of everyone at OMB who laid eyes on it, including the director, further displays the utter incompetence of this administration.