Yes of course Donald Trump is wrong about Nafta

donaldtrump.jpg

More interesting is why Trump is wrong about Nafta:

Recently, Donald Trump made a strong claim about the North American Free Trade Agreement (NAFTA) in an interview on CBS 60 Minutes:

"It's a disaster. ... We will either renegotiate it, or we will break it. Because, you know, every agreement has an end. ... Every agreement has to be fair. Every agreement has a defraud clause. We're being defrauded by all these countries."

And we have an, admittedly incomplete as yet, theory for why we think businessmen are often quite as bad as they are at economics. We would expect them, given that they are usually playing in the private sector, to be rather better than they are at how private markets work. And certainly someone in Trump's industry should understand public choice arguments.

But our theory is that so much of what a business actually does is trying to beat economics that the knowledge of the underlying theory rather gets missed. Just as one example, every business is trying to gain market power, the ability to set prices. From the economic theory point of view this is a very bad idea: and it's the competition that markets provide that stops every business from gaining that market power.

And something similar happens with trade: when running a business you are obviously going to try to reduce your inputs. Of anything: one of the ways to succeed is to minimise inputs. And yet when we talk about the whole economy, about trade, the aim and point of the entire exercise is to maximise those imports, those inputs. That's why we're doing it, to gain the maximal amount possible of the resources and labour of foreigners that our people get to consume.

So, much of the time, running a business is trying to beat economics. Thus a businessman can often have a distorted idea of what desirable economic policy is.

There are those who will make the leap from this claim to the one that therefore we must regulate businesses because they are "anti-economic". To which we would respond yes, of course , we must do so. And we do do so, we insist on competitive markets which is exactly the correct antidote to such attempted behaviour.