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Interlink Managing Director Alan Beard shares his thoughts on the contentious political debates on free trade and climate change, stressing the need to not overly put trust in theoretical models and expert opinions over common sense.
“Settled Science” on Climate Change and Free Trade
By Alan J. Beard
Listening to a recent incredulous reporter on NPR grill President Trump’s National Trade Council Advisor, Peter Navarro, was an object lesson on how the press and their so-called experts are blinded by conventional wisdom. Mr. Navarro, who is known for his anti-Free Trade views, was aggressively questioned on the validity of his position when the vast majority of economists have “definitively” shown the benefits far outweigh the disadvantages. When he pushed back and cited antidotal evidence of factories closed throughout the Midwest and the mirror image of thriving manufacturing centers overseas in China, S. Korea, Germany, Japan, etc., the reporter predictably pointed out from the consensus of economists that there are always winners and losers, but overall the benefits of Free Trade are unquestionable (settled science as it were). Mr. Navarro’s response must have shocked the more enlightened reporter when he pointed out that most economists work off of theoretical models with limited value and haven’t analyzed the existing evidence as he has done for the last 35 years. The U.S. with its massive chronic trade deficits has essentially transferred wealth to our trading partners at an unprecedented rate, thereby reducing American workers’ standard of living and mortgaging our country’s future with the corresponding sale of trillions of dollars of financial assets, businesses, factories and land to foreign ownership.
Navarro’s comparison of theoretical models by undisputed experts to actual results witnessed by the rest of us not only applies to the debate on Free Trade, but also is almost identical to the raging fight over Climate Change science. In that case the “overwhelming consensus” is that Climate Change is occurring and it is caused by manmade abuses to the environment. Even though there is an inconvenient disagreement on the actual evidence of significant temperature change when compared to the millions of years of unrecorded history, as well as the causality by CO2 emissions, the bulk of Climate Change models show “without a doubt” the earth is at a dangerous tipping point and humans must therefore make huge adjustments in behavior if we are to avoid calamity.
For anybody who works with theoretical models to project the future, at best these tools provide valuable information on how relationships are affected by certain changes to the assumptions (i.e., stress tests). More often than not the actual outcomes vary greatly from what was projected. In the financial services industry where financial modeling is the bedrock of analysis, everyone knows it is difficult to impossible to accurately project financial results one year out never mind five or ten years. The Congressional Budget Office using sophisticated modeling seldom accurately predicts the true cost of government programs – just look at the recent debate surrounding Obama care and its actual costs versus what was projected. Self effacing economists who recognize the limitations of their inexact science frequently point out they have predicted 12 of the last 3 recessions!
Perhaps part of the reason Donald Trump became President is that the collective wisdom of the American people understands that the technocrats in Washington and New York (or Brussels) and their bellicose friends in the press aren’t infallible and the empirical science on which they base “well thought” out policies isn’t always settled. To be sure “experts” lend valuable insights into decision-making. But it is folly to suggest theirs should be the final word when so much of what goes on in public policy debates -- particularly as reported by the press -- is opinion and belief wrapped in the disguise of science and conventional wisdom.
The Founding Fathers created a government whereby the people and not their highly educated bureaucrats should have the final word on the direction of the country. After years of pursuing policy goals based on “settled science” Americans have voted for somebody who appeals to common sense and not conventional wisdom. Whether or not President Trump’s vociferously stated changes to the ingrained orthodoxy on Free Trade or Climate Change will deliver better actual results to the American people only time will tell.
Alan Beard is an international trade expert and adjunct professor at Georgetown University who co-founded an export trade fund (ExWorks Capital) and a renewable power fund for the German government (Geothermal Development Facility) as well as a management-consulting business (Interlink Capital Strategies) focused on financing U.S. exports.