It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
There really are people who believe this is true:
Stephen Miller, the White House deputy chief of staff, signalled on Sunday that “reciprocal” tariffs will mean emulating VAT policy.
He told Fox News: “I do want to explain a very important point the president feels very strongly about. Other nations all around the world use the VAT to get an unfair trade advantage against the United States.”
Mr Miller described European VAT policy as “massively unfair” and claimed that a US manufacturer exporting a car to Europe pays a charge of 30pc when VAT and duties are added together.
“The president’s making clear that we are going to pursue a policy of reciprocity. In other words, if we’re getting charged 30pc by Europe, we need to charge them 30pc in return,” Mr Miller said.
Now, with The Donald and his administration it’s never certain what is actually believed and what is being done for effect. But there really are those who believe this claim - that VAT acts as a subsidy to exporters, a barrier to imports. That it’s not even vaguely true isn’t the point - people believe it (sorry, some do) and it’s beliefs that run politics, not facts.
Our point here though isn’t specifically about this incorrect belief. Rather, it’s that as humans can be persuaded to believe some pretty strange things then and therefore politics - running the place on beliefs, not facts - is a sub-optimal method.
Half the country is absolutely certain that it’s capitalism putting ordure in the waters - never, not once, considering that this is a testable proposition by looking at state owned and run Scottish Water. Gary Stephenson is vying for a career as an economic commentator by insisting that inequality is growing. In the UK it’s currently a little below the levels of 2007 for income and wealth inequality is largely unchanged these past 15 years (both from ONS). And, of course, global inequality continues to plummet. Some of the MMT crowd have convinced themselves that as the loanable funds theory isn’t wholly applicable in modern banking therefore banks don’t need deposits at all - gasping nonsense of course.
It’s also true that markets can be persuaded - more accurately, some people in markets - of some pretty strange things. The difference is that markets reintroduce that reality rather faster than politics does. We might agree that financial markets went a little too enthusiastic starting around 2003/4 but that pustule burst by 2009 at the latest. The Soviet Union lasted 70 years.
Yes, yes, some things really do have to be done by politics. But given that it’s reality which actually matters the trick is to do as little as possible by that less useful method and leave the rest to the people.
Tim Worstall