A New Global Order, or the Same Old, Same Old???

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

This is a post from the government's trade rep, as it appeared as an op ed in the NY Times.

U.S. Trade Ambassador Jamieson Greer: Why We Remade the Global Order

I agree with the criticism of how the "Old Order" trade system worked against the U.S., but I disagree with using tariffs to re-align the broken system. The Trump Administration agrument is always about what foreingers -- our allies -- have done to us. My argument would be what we did to ourselves, by not fighting back and using fiscal measures of stimulus/incentives to protect specific industries affected by the unfair trade practices we faced or by using specific disincentives against the specific industries of specific countries.

With respect to the argument that our trading partners and adversaries took advantage of us, which is the argument that you most often hear from Trump and his officials, I would offer this; just because a nation, and take China as an example, builds and subsidizes factories for exporting, and especially for the U.S. market, doesn’t mean the U.S. is forced to then make itself the importer of such goods. We made a decision ourselves to be the importer of these so-called cheap goods. All you have to do is go back and listen to economists like Milton Friedman make this argument. It was criticized then, just like today; and that opinion was ignored. We could have enacted specific policies to punish specific nations who engaged in this type of trade practice, but chose not to.

The problem with Trump's tariffs is that they are going to affect a broad base of Americans as consumers, and that should be inflationary in nature. That inflationary pressure can be offset if we raised our productivity (output per hour; not just GDP) substantially; but I don't see this administration inacting enough broadbased incentives to do that. That effort is being left up to our private sector to shift for themselves; so maybe it will work, maybe it won't. In time we will see, you cannot hide the affect of tariffs.

And just to note: When I say (in the first paragraph) that we did it to ourselves I am saying this is a result of economic policies we put into effect which worked against our industrial base. This started under President Reagan and continued under President Clinton during the implementation of globalization policies. [You can look below for the graph of the change in our Balance of Trade.]

I think the Black Friday stock market crash in 1987 – the worst percentage drop in the market in our history – resulted from some of these policy changes. Changes that affected our currency value and the U.S. position as the dominant currency internationally.

These policy changes, in my view, reflected the battle between the economic forces in our society. And especially during the Clinton Administration, reflected what is called the financialization of our economy – where our financial sector will have a more prominent influence in the political power struggle between different sectors of our economy. And I think the Financial Crisis of 2008 really highlighted just how influential the financial sector was in the manner they were bailed out – because that sector, so we have been told repeatedly, represented a systemic risk to the whole economy/society – while the rest of our society had to shift for themselves.

This battle of economic forces is reflected in the growing inequality in our society that manifests itself in how wealth is generated. In the 1960s, when we had the best peacetime performing economy in our history, with a shrinking gap for income and wealth inequality, basically an industrial economy where the different sectors benefited from each other’s improvements, not without issues that resulted in social conflicts, wealth – the value of your assets – and income – derived from the performance of the economy – were closely linked. But by the 1980s, and especially by the 1990s, that linkage was showing signs of deterioration, and the gap in both wealth and income inequality were also spreading apart.

With globalization, the wealthy elite had sources of wealth and income increasingly tied to financial transactions that did not always have a benefit to the broader good of the society. And that was what was revealed during the Financial Crisis of 2008, when a $600 trillion derivatives market (by notional value of the underlying assets) with maybe $60 trillion of that in play and directly related to the mortgage housing market in the United States – and really just a few states, like California, Arizona, Florida, Nevada, and Georgia where the mortgage underwriting was speculative – where the total mortgages outstanding were no more than $10 trillion, so that a slight movement in price on the derivative contract could result in wild swings of profit, or in the case of 2008, great losses. The Crisis showed you did not need a derivative market that large to support the funding of mortgages, and thus a “casino analogy” was applied to this type of economic activity that only the wealthy could play; and had to be bailed out to prevent the whole international financial system from collapsing when the casino crashed and the financial liquidity needed for all financial transactions to flourish was internationally frozen.

So it depends on if you see a problem with the way wealth – the value of assets – is generated in relation to income; with wealth increasing at a greater rate than the economic growth rate which reflects people’s income and not their asset holdings. And as I have said in previous posts, our annual economic growth rates for the past twenty-five years – since 2001 – have been well under 30% of our historic average. And that has a cumulative effect because the growth rates are compounded growth rates, each succeeding year builds on the previous year. Where our present GDP is around $30 trillion, it could have been between $40 trillion and $50 trillion if we had just average growth rates, they wouldn’t have even had to be better than average.

The globalization policies implemented in the 1990s opened up the international economies to the free flow of capital; and at that time the United States was experienceing an international wealthy elite who could take advantage of these new circumstances. And our Wall Street firms were consolidating, and as financial intermediaries they have no real counterparties, so they were in a unique and competitive position to take advantage of the "New Order" shaping the international community. And they have been exerting their political influence to push their economic and business agenda.

And the Trump Administration -- their policies -- are not fixing any of this. Ambassador Jamieson Greer mentions the agreements they have already worked out to the tune of hundreds of billions of dollars in foreign investments coming into the United States; but the total foreign investment in the United States is over $60 trillion. We have never had a problem in attracting foreign investors. And you don’t know if this figure he is floating around is new investments that never would have been made otherwise, or if the foreign countries are just outwitting the administration with investments they intended to make anyway.

And President Trump, who rode into the White House on a populist backlash, is oblivious to this. None of this – the use of tariffs to bring manufacturing back to the U.S.; the use of tariffs to increase revenues and reduce the national debt burden; the use of tariffs as a bargaining weapon to bludgeon your opposition – is reflected in the remaking of the “Global Order”.

This is the Net International Position: Total U.S. Assets ($269 trillion) minus Total Liabilities equal a Net Position of almost -$124 trillion. The graph is the quarterly results.

Trump’s reckless rhetoric and meandering modus operandi

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

We are a very big continental nation where our economic output is determined 75% by our private sector – what businesses and people decide to do in spending their money – and only 25% by our federal government.  But that difference by the federal government can be a stimulant or roadblock to what the private sector does.  And Trump’s reckless rhetoric and meandering modus operandi of on again/off again policies creates enough uncertainty that leaves business decisions and people’s choices in a state of frozen action that interferes with the nation’s forward progress.

Tariffs: Inflationary, or Not Inflationary?

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

Several Federal Reserve officials, including Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, both appointed by President Trump, have suggested that the inflationary effects of tariffs are likely to be a one-time price level shift rather than a persistent inflation problem.

I disagree with that. A one-time hit on prices is like the sales tax you pay when you go shopping. The tariff is like a value-added tax; it is imposed on our importers at the time it hits our shores, and then it is passed along the supply chain.

The difference between the two is the sales tax comes at the end of the transaction stream; whereas the tariffs come at an intermediary point in the transaction stream, where the system is more dynamic as these transactions become more repetitive. Because it is at the intermediary level you have many different activities involved -- shipping, transportation, warehousing, and even service activities like firms who finance transactions and payrolls with accounts receivables -- with each one taking their cut, passing it along or absorbing the cost. So as these tariffs continue to get imposed over and over again as shipments are repeated, you are never sure how the different intermediaries are going to react to the extra charge each time and how that either gets absorbed into their operational costs or gets passed along as a cost to the next party.

The chart shows that prices at the wholesale level are more volatile than at the consumer/retail level. In other words, the prices in the supply chain at the intermediary level do not always result in getting passed to consumers -- sometimes they do, sometimes they don't.

Trump''s World View: Replacing The Old Order

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

Dr Vivian Balakrishnan, the Singapore Minister for Foreign Affairs delivered his Committee of Supply speech in Parliament on 3 Mar 2025. In his speech, he spoke about how Singapore should navigate a more uncertain and volatile world, characterised by rising geopolitical rivalries, protectionism, and weakened international norms that have reshaped the global landscape.

[Note the speech was given one month before President Trump's "Liberation Day".]

So what are the purposes of Trump's tariffs? Do you want to waste time talking about the economics of it? It should be very apparent that the tariffs become one more tool for his transactional way of viewing business.

What's wrong with that since it seems to be working? Well, it's a pure power play. The rules of the game have been thrown out.

So it is like what the foreign minister of Singapore said, when the big powers exercise their might, the smaller players have to stay on the sidelines and wait for things to settle out. The American system of international commerce after WWII differed from previous systems whereby trade was conducted for mutual benefit and not just with the colonizing attitudes that preceded it under the British system. But this system of commerce exercised by the United States also reinforced our national security strategy that was being pursued against communist expansion, by forming alliances based on common interests in commerce. But that was the old system.

We have always conducted our commerce and national security strategies with “carrots and sticks”; “carrots” being incentives to encourage the behavior we desired, and “sticks” being the disincentives, or punishment by exercising our power. Where under the old system it relied mostly on “carrots”, Trump is more inclined to use “sticks”. Trump thinks that we have conducted our policies with too much reliance on using incentives, and this has created "free riders" as allies who would not take full responsibilities in a shared leadership position.

Trump has continually violated our old alliances. The way he exercises “America First” is a beggar thy neighbor attitude; and, that has weakened our alliances. It is weakening our alliances at a time when the world is more unstable – the Middle East, still important for crude oil; the Southeast Asia arena, which has become since the late 1990s, a hub for low cost manufacturing which is less suited for the more advanced economies in the North American bloc as well as the European Union. The Southeast Asia manufacturing hub has been integrated into the more advanced economies. But Trump thinks these smaller nations, and China, are taking advantage of us... us being the Super Power???

This is what Trump’s “America First” strategy is disrupting. It not only disrupts commerce, but also affects the way we have conducted our national security strategy. And he really hasn’t left us – or our former allies or adversaries – with any clear vision of where he is going because of his inconsistent manner of handling affairs in a transactional manner.

So last week he was threatening India. Today we find him threatening Canada with tariffs because they may recognize a Palestinian state. Tomorrow it will be somebody else.

The problem in his power play, like the foreign minister of Singapore said, is that there is another power, China. Trump in being transactional has left voids when he retreats from a former American presence in the international community. And when you leave a power void, somebody will fill it.

And this is related to the economic growth argument I make: that we have a GDP that is $30 trillion but should be $40 to $50 trillion hadwe had our normal historic growth rates, where we have been at least 30% below that over the past 25 years. That "starve the beast" mentality that contributes to our failure to have government policies that address the growing needs of our society -- that constrain investment -- has resulted in the GDP we have today. And that doesn't raise the revenues the government needs to finance our national security strategy of the past, which was an involvement all over the world; one that we financed with our good growth. And we not only lose the government revenues when we have a GDP of $30 trillion instead of $40 or $50 trillion, but we lose the extra $10 to $20 trillion of economic activity in our private sector that addresses the wants and needs our people have, not to mention the jobs that go vacant.

 

Lessons Learned

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

In my opinion, the reason we had such a successful clandestine nighttime strike on Iran, which we learned this morning involved a multitude of resources, stems from the lessons learned from an unsuccessful clandestine nighttime strike on Iran in 1980 to free American hostages.

The 1980 strike was a bold move; but, it failed.  It failed for a variety of reasons.  Our military went back and studied the failure.  And over the years practiced and prepared themselves for special operations that would be successful.  Many of these operations were small in scale, but our military learned as they went along.  The initial attacks in Afghanistan after 9-11 and even in Iraq in 2003 demonstrated coordinated action among some of the small units.  The Desert Storm attack on Iraq in 1990-1991 demonstrated the coordination of much larger forces.

The real success of our special forces operation in a small strike was probably demonstrated with the capture of Osama bin Laden.  It is a demonstration of the resilience and adaptability of our military establishment and the professional leadership and people who are part of that.  It shows a willingness to change, that you have to be open to change to meet new contingencies.

Well, the same is true of the American people.  Like our military, we are innovative and have shown through the years our ability to adapt to  change to meet new opportunities.  Afterall, in our democratic governance, our military personnel come from “The People”.  For quite some time we have been mired in a status quo that has resisted the change that is needed.  We have become deeply divided politically which has hampered our governing ability to function effectively.  We can overcome this.  If our military can change, so can we.  And when we change, new leadership will come out of that.

Which is more disconcerting, the possibility of a Mid-East War, or President Trump?

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

You would think with the outbreak of hostilities between Israel and Iran and the possibility of a Middle East War, the center for much of the world’s crude oil production, that the international stock markets, the overnight American stock markets, the price of crude oil, would all be reacting extremely volatile. Actually there is very little movement in the action. Crude oil is only slightly higher. Some of the overnight markets are actually positive; and the one’s that are negative are by no more than 0.5%. The value of the dollar, the world's reserve currency which has been slipping since Trump took office, and the value of gold, which is supposed to be a safe haven in times of trouble, are little changed. The bond market has little reaction.

Now remember when Trump announced “Liberation Day”? All the markets – in Asia, Europe, the overnight American markets, and the daytime markets – plunged, about 4%. The value of the dollar dropped precipitously. The bond market became unsteady. And gold rose in value as investors fled to safety.

Now you know what worries international investors.

Economic Activity: Are we doing better under President Trump?

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

Well Trump has only been in office just under five months, so we need to give him a little more time before we make an evaluation – perhaps at the end of the year.  Opinions are mixed on the outcome we will have as they read the current data of a somewhat slowing economy, with some more positive while others are negative.

I don’t think anybody really knows the outcome of how the tariffs will play out, and that includes President Trump and his own people.  We have a very big economy, with many sectors, and international trade – both exports and imports – being only around 30% of our GDP, with exports around 12% and imports around 15% to 20% prior to Trump getting into office.  Still, we have a lot of economic activity that is indirectly tied to international trade. 

Trump and his people are trying to remake our economy, and after five months that appears to be happening.  For the past twenty-five years – since 2001 – we have had difficulty achieving economic growth rates above 3%; and our historic average is well above 3.5%.  We just had a report from the Atlanta Federal Reserve’s GDPNow that this quarter’s growth rate is humming along at close to 4% -- that’s where it stands right now, it is not a prediction of where it will be at the end of the quarter.  But their model has been pretty elevated most of this quarter, which started in April right after Trump’s “Liberation Day” where he imposed very high tariffs.

How did we get to around 4% Real GDP growth if most people think our economy is slowing; some even said it was shrinking?  Well here is their report today.

And let’s make a comparison to the report one month ago.

Notice that one month ago -- May 8th -- the GDPNow number was 2.3% and Net Exports was a negative number, because we had more imports than exports, and in the GDP accounting that results in a negative number for the Net. Today -- June 9th -- the GDPNow number is 3.8% and Net Exports are a positive number, over 2%. That change in the Net number from a negative (-0.6%) to a positive (2%) explains most of the difference between a 2.3% GDP and a 3.8% GDP -- Consumer Spending also slowed from 2.3% to 1.7%, with the other factors for investment, private inventories, and government spending fairly constant.

So the irony is that while the productivity, as measured by the GDP (Gross Domestic Product), took a big increase, the economic activity actually decreased because we had less imports coming into our economy and this was not made up by increasing our exports – less than a 2% increase from last quarter – or our domestic consumption and spending.

We will see if this continues.  If it does, President Trump and his people are going to be in for a big surprise.  And I would not expect the GDP numbers to stay elevated – above 3% -- if our economic activity is shrinking.

How could we tell?  Well we could look at some other indicators beside measuring broad based productivity like the GDP.  We could look at employment – if the economic activity is picking up, even though Imports are decreasing, we would expect more jobs to be created.  

Doesn't look very good at present when you compare it to some of the better times like the '60s or 1990s; does it?

We could look at Industrial Production.  President Trump said the reason for the tariffs is to get more investment in our own economy.

Doesn't look much better, does it?

And we could look at incomes and personal spending.  If economic activity is picking up we should expect, with more jobs, more spending following more income.

Kind of disappointing, isn’t it?  I would say Mr. Trump and his associates have some work to do.  Let’s wait till the end of the year to make our evaluation.

David Brooks, NY Times: The Democrats’ Problems Are Bigger Than You Think

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

David Brooks, with an Op Ed in the New York Times this past week:

"The problem is not the party leaders. The problem is you. You don’t understand how big a shift we’re in the middle of."

https://www.nytimes.com/2025/06/05/opinion/democrats-trump-winning.html?unlocked_article_code=1.NU8.4LEZ.kp5_wkUjqCnX&smid=url-share

I think Brooks is right, we have in place a political system that has resisted change, and that is just what "The People" wanted -- I'm doing fine, don't bother me.

1. “The system is rigged.” This became evident with the international recovery from the Financial Crisis of 2008; in America, Wall Street got bailed out while Main Street had to figure it out for themselves. This resulted in a populist backlash on the political Left (the Occupy Wall Street Movement) and Right (the Tea Party Movement).

2. In my opinion, to disperse the power and influence of organized elites which is concentrated in our political institutions you need to decentralize the decision-making – make it occur at the local level, instead of the federal level. The federal level should give only general guidance and funding without restrictions. The decentralization may be disorderly somewhat, but this should work its way out.

3. Trump, by being disruptive and less than effective, may be helping in this effort of decentralization in an unintentional way.

President Trump, pardon all illegal immigrants whose only crime is minor.

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

The Trump Administration right now is rounding up people in San Diego and Los Angeles who they say are criminals, with the criminality having to do with coming into this country illegally, without documents, and in some cases forging documents (like a Social Security card) so that they could find legal work.

I say if this is the crime then President Trump should use his powers, which he has used many times before, and pardon these individuals so that they can remain in this country legally.

After all, President Trump has already pardoned people who were convicted of rape, sexual abuse of a minor, and the January 6th insurrection to include seditious conspiracy. He also commuted the sentences of the leaders of the January 6th insurrection.

***************************************************

And you can check this out on the web, with an AI Assistant.

“Reports from NPR indicate that among the individuals pardoned by Donald Trump who were involved in the January 6th Capitol riot, some had prior criminal convictions for charges including rape. These pardons specifically applied to their January 6th-related offenses, but their previous criminal records, including for violent crimes, were part of their history.

For example, NPR identified dozens of defendants with prior convictions or pending charges for crimes such as rape, sexual abuse of a minor, and domestic violence who received pardons from Trump for their involvement in the January 6th events."

“On his first day in office (January 20, 2025), Donald Trump issued a sweeping proclamation granting clemency to over 1,500 people convicted or charged with offenses related to the January 6th Capitol attack.

This included:

• Commuting the sentences of 14 individuals, notably leaders of the Proud Boys and Oath Keepers, who had been convicted of serious charges like seditious conspiracy. Their convictions remain on record, but they were released from prison.

• Granting a full, complete, and unconditional pardon to all other individuals convicted of offenses related to the January 6th events.

• Directing the Department of Justice to dismiss with prejudice all pending indictments against individuals for their conduct related to January 6th.

This means that a large number of individuals who participated in the January 6th events, including some who assaulted police officers or engaged in violent acts, had their sentences commuted or were fully pardoned. These actions were met with significant criticism, with opponents arguing that they undermined the rule of law and downplayed the seriousness of the attack on the Capitol.”

If you want to make America Great Again...then you have to restore The Great Society

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

The link between economic growth and progress was broken, and must be restored!

What Were LBJ's "Great Society" Programs?

How did he/we do it?  We had the greatest period of peacetime economic growth -- the 1960s -- in our history.  And it was broadbased, with the narrowest gap in income and wealth inequality.

	Real GDP	Real GDP          per Capita
1790 to 1810	4.96%	1.81%
1790 to 2024	3.77%	1.81%
1790 to 2000	3.96%	1.86%
1866 to 1896	3.96%	1.53%
1947 to 2024	3.09%	1.94%
1947 to 2000	3.52%	2.20%
1947 to 1973	3.87%	2.33%
1958 to 1973	4.11%	2.74%
1960s	4.53%	3.13%
1970 to 1980	2.92%	1.84%
1982 to 1989	3.62%	2.68%
1992 to 2000	3.84%	2.60%
2001 to 2024	2.13%	1.34%
2002 to 2024 Just the positive years, not including 2001, 2009, and 2020	2.76%	2.01%

Citation: Louis Johnston and Samuel H. Williamson, "What Was the U.S. GDP Then?" MeasuringWorth, 2025.  Downloaded May 22nd 2025.  My calculations.

If you just took the positive years of economic growth between 2001 to the present, leaving out the recessions, it would be twenty-five years of economic growth at least 1% below the historic average of our growth since 1790 and almost that bad since the post-World War II days of 1947 to 2000 – 2.8% versus 3.8% or 3.5% -- and that’s just counting the good years of the last 25 years, while leaving in all the panics of the 19^th Century and the Great Depression of the 1930s.

What if we had grown by just the average – an additional 1% per year more than we did over the last 25 years – 3.5% per year?^[1]  Where would we be today?  Our GDP today is around $30 trillion.  In 2001 our GDP was around $10.5 trillion.  Today in 2025 it would be either $40 trillion or well over $50 trillion depending on your starting point of 1790 or 1947, a $10 to $20 trillion difference.

What would be the difference in revenues collected?  Well the federal  government collects about 17% of the GDP.  So for each additional $10 trillion that would be $1.7 trillion ($3.4 trillion with a $50 trillion GDP economy); and that’s each year, and that’s without making the federal government any more efficient or changing anything, just doing what it has normally done.  It would be an additional $800 billion in revenues for all of the states for each additional $10 trillion added to the GDP (that would be $1.6 trillion with a $50 trillion GDP economy).

So think about that?  We currently have a $30 trillion economy and the President and Congress are trying to cut $1.5 trillion in programs, programs that are not waste, but help people.  This rationale would be obliviated if we just had normal/average economic growth over the last twenty-five years.  And I am just talking about doing what we did before, nothing exceptional; just being average.  And the $1.7 trillion additional revenues for each additional $10 trillion of GDP production is only the federal government’s portion.  That additional ten trillion dollars is coming from our private sector, our businesses, their activity.  That’s jobs, the additional jobs that we don’t have today.  That’s the additional consumer spending that we would be generating.  That’s the additional services our private sector would be providing.  

Now do you get it?

 

¹  The formula for compounded annual growth rate of change is used:

^{CAGR = ((Ending Value / Beginning Value)^(1 / Number of Years)) - 1} 

The GDP dollar values are for nominal GDP (e.g. $30 trillion) not the Real GDP which factors out inflation.  But the growth rates I cite (e.g. 3.5%) are the growth rates for the Real GDP.  For the CAGR formula I use the nominal GDP for the Ending Value and the Beginning Value.  These Nominal GDP growth rates are:

1790 to 1810      7.06% 1790 to 2024      5.51% 1790 to 2000      5.62% 1866 to 1896      1.70% 1947 to 2024      6.47% 1947 to 2000      7.35% 1947 to 1973      7.09% 1958 to 1973      7.15%    1960s                6.93% 1970 to 1980      9.86% 1982 to 1989      7.33% 1992 to 2000      5.83% 2001 to 2024      4.49% 2002 to 2024      5.70%  Just the positive   years not including 2001, 2009, and 2020

So the difference in the rates of growth, whether comparing them by nominal values (not adjusted for inflation) or Real GDP (adjusted for inflation), the difference is still 1%.  And you can note that the difference in Nominal GDP would be greater when the excellent growth of the 1960s is used for comparison, or the period from 1947 to 2000 – both being around 7%, and therefore a difference of 2.5% from the present period of 2001 to 2025.

 

I know this may sound mixed up for most folks.  But I did this because these are the ways you read these numbers in the news.  When they say the economy today is a $30 trillion economy they are giving you the Nominal GDP value, and not the Real GDP value of $23.5 trillion.  And when they say the economy has grown at a 3% pace, they are giving you the rate of growth of the Real GDP, in order to factor out inflationary growth.  I hope that clears it up for you.  That’s economists for today.