1 - The clash between politicians and economists

Summary

“It will take a lot for people to get there, although I predict that a few years from now, when you ask people whether they voted Trump in 2016, the vast majority will say they didn’t.”

Paul Krugman, July 2018*

Paul Krugman, an economist with a career at the best universities, Nobel prize-winner, and one of the world's most famous and respected economists, has been one of President Trump's leading critics. Via Twitter (and his column in The New York Times) Krugman has not pulled his punches, taking on the president for his economic policy choices. Moreover, as an expert on international trade, Krugman has targeted Trump's protectionist proposals and measures. He has not been alone in his criticism, as most economists believe that the main measures adopted and proposed by the Trump administration have been wrong.

In fact, the Trump administration seems to have ignored all of the economists’ suggestions. In 2018, it initiated a broad fiscal stimulus including tax cuts and spending increases, which made the US debt dynamic even more unsustainable than it was already. Trump launched a series of bilateral trade negotiations, threatening and implementing tariffs and other protectionist measures, when economic theory argues that what matters is the overall trade deficit (not the bilateral deficits) and that there are benefits from free trade. The insight that countries are better off exporting the products they are relatively good at producing while importing the others, dates back to the ideas of the British political economist David Ricardo (1772–1823).

Observing such a divergence between economists and politicians in the United States, one of the most developed countries in the world, makes one think. Is it possible that the president of the most powerful economy in the world would ground his policies in erroneous reasoning or data that do not exist? Or is it that economists are losing touch with reality and do not understand that their theories no longer work? Indeed, economists are not infallible. They were widely criticized for not having foreseen the financial crisis of 2008, epitomized by Queen Elizabeth's now infamous question, “Why did no one see it coming?” during a visit to the London School of Economics in 2008. They also failed to understand and anticipate the dissatisfaction of the American middle class that led to the election of Donald Trump. So, who has got it right?