And, on Fareed Zakaria's show "GPS" on 2024-04-13 Su, Larry Summers wipes the floor with him. Shame on Oren...
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There are three reasons to want to have a strong industrial sector.
Blue collar mass production factory jobs – especially unionized ones – are an important channel promoting less inequality of opportunity and of result. They are one of the few ways in which people who do not pay close attention in elementary school can accomplish upward mobility and reach middle-class status.
Plus factory work greatly aids in the self-organization of the working class. Without that self-organization, the working class tends to get the shaft relative to other economic interest groups that have an easier time assembling themselves into politically relevant forces.
There are very powerful positive technological externalities generating useful knowledge about products and production processes. Many of those are generated by the growth and working of effective communities of engineering practice. Such communities necessarily grow around where the key and technologically difficult—and also evolving and changing—parts of the production network take place. Manufacturing production, equipment, installation, and a capital goods manufacture have long been those key places in the production network.
Reasons (1) and (2) are now off the table. With the successful war against the union movement, both are greatly weakened. Add that to the fall in share of true manufacturing production workers from 20% down to 4% of the labor force, it is no longer large enough a sector to matter.
Thus reasons (1) and (2) to boost manufacturing are now dead.
Reason (3) however remains.
But why would it call for tariffs to support manufacturing, rather than for the Pigovian response of painting a bulls-eye on the externality itself and subsidizing the training and employment of engineers?
There is a reason to want to use tariffs as a tool to boost the strength of our industrial sector:
Undervaluing your currency and then using tariffs on manufactured imports to boost the prospects for your own manufacturing sector creates an export surplus in those industries you have targeted. Using that export surplus as a guide, you can borrow the judgments of the middle classes of other countries to assess which of firms are actually productive and worth subsidizing.
If you do not undervalue your currency and use tariffs to create space for your manufactures to grow, then you are reduced to using merely the intelligence of your bureaucrats to decide, which of your firms are actually productive and worth subsidizing. And your bureaucrats may be easily bribed and certainly are easily flattered by those better at giving presentations than running efficient production networks.
This last is not an argument that fits easily with economics—it is more of a management cybernetics argument.
But that may well mean that it is more likely to be right than an economics-based argument.
And that certainly means that there is every reason to think that it is underweighted in the public-sphere discussion, and needs more attention.
But all such attention and discussion needs to begin with this: Such intellectual arguments have absolutely nothing to do with Trumpist tariff policy. And people who do claim they have something to do—or in some way support—Trumpist tariff policy are big liars, grifters hoping to use chaos as a ladder in some way.
I am thinking about this because this morning I saw another example of one of the (admittedly few) great life lessons that the universe has managed to pound into my brain over the past 64 1/2 years. They are:
Never play cards with a man named “Doc”.
Never eat at a place named “Mom’s”.
Never bet against the Jack of Spades jumping up and pissing in your ear.
Never get involved in a land war in Asia.
Never go up against a Sicilian when death is on the line.
It is good to have Larry Summers on your side.
This AM it was #6.
Indeed, when Larry Summers is on your side, your side really does tend to win intellectual arguments. You even have a good chance of winning them when you probably should not. But when your case is strong ex ante, Larry can be counted on to wipe the floor.
Exhibit “A”, from this morning, the morning of April 13, on the only Sunday Morning Politics & Policy show that makes you smarter rather than dumber, Fareed Zakaria’s “GPS”:
Professional Economist Larry Summers vs. Professional Republican Oren Cass:
Fareed Zakaria, Larry Summers, & Oren Cass: GPS—April 13, 2025 <https://transcripts.cnn.com/show/fzgps/date/2025-04-13/segment/01>:
FAREED ZAKARIA: As Timothy Carney from the conservative think tank AEI notes, Trump's first election created a trade lobbying boom from 921 entities who hired lobbyists to work on trade to a peak of 1,419 by 2019. With the highest tariffs in the industrialized world, the American bazaar is now open. Countries and companies will descend on Washington to cut deals and gain carve outs, exemptions and special terms....
The India I grew up in was a country riddled with tariffs, high barriers designed to protect the country's domestic industry and shielded from what was regarded as unfair foreign competition. It produced stagnation, poverty and lots of corruption. Thoroughly politicizing the economy. No business of any size in India could survive without a good relationship with the government.
When I got to America, I was delighted to see that most businessmen went about their work with little care as to who was in the White House. But now I watch tech pioneers give interviews slavishly extolling Donald Trump's genius and Wall Street titans race to post-North Korea style congratulations to the president for his brilliance in rescuing the economy from his own actions. And I wonder what country am I living in?...
The Trump tariffs have roiled the global economy, and America's too. Markets are all over the place and some experts believe a recession is quite possible. Most mainstream economists argue the tariffs and these tariffs in particular are a terrible idea. But the president's aides and MAGA faithful beg to differ. What are the arguments on both sides? Well, you're about to hear them. Larry Summers served as Treasury Secretary under Bill Clinton, and Oren Cass is known as a MAGA intellectual. He's the founder of the conservative think tank American Compass.
Welcome both.
Oren, let me start with you. You've long argued for a 10 percent across the board tariff, and you've long argued for tariffs that would help America decouple from China's economy. So I think it's fair to say that where we have ended up at the end of last week has ended up pretty much where you want it to be. And I just want to begin by throwing up a few charts to show you what the market reaction to those policies has been.
So if you look at expected change in prices over the next year, inflation expectations, they're higher than they've been in I think about 40 years. If you look at U.S. asset performance, the 30-year Treasury is down. The dollar is down. The S&P 500 is down. If you look at the index of consumer sentiment, it's again the lowest in 40 years.
So consumer sentiment has tanked. Inflation expectations have soared. And people are fleeing almost every dollar asset. Isn't that a pretty decisive verdict against your policies?
OREN CASS: Two policies that I'm very supportive of: One is the 10 percent across-the-board tariff....
The other is much higher tariffs on China....
I... critici[ze]... the uncertainty that's been created by the way that some of these tariffs have been put into place.... [That] is not the way to transition there.... [But] I have a hard time swallowing this analysis that... focuses on stock prices as the appropriate measure of good economic policy....
ZAKARIA: But, Oren, I showed you... not just stocks. I showed you bonds... the dollar... inflation expectations... consumer sentiment....
CASS: Consumer sentiment... reflects the uncertainty.... We need to do this in a way that has less uncertainty and a lot more stability.... We need to do a better job getting it right on the specifics.
But I'm really concerned by... people who... say, no... what we really should do is... what we've been doing since... 2000... embraced this kind of hyper globalization....
LARRY SUMMERS: Nobody is saying that the stock prices are the right criterion for judging economic policy, Oren.... What happens to the middle class is what's crucial.
However, when you cause financial markets to gyrate in a way that is where there are only three compares, the 1987 crash, the pandemic, and the 2008 financial crisis... not because of some external event, but because of the rhetoric... and the threats of the president of the United States, you're making a pretty big mistake. When you cause the consensus judgment of economists to be that the main hope for avoiding recession is a policy reversal, you're making a pretty egregious error. When even the leading intellectual in favor of the president's approach, Oren, thinks it's been done in a blunderbuss way... you're... inept....
You pointed out something very important, Fareed, in your comment.... Giving an exemption here and an exemption there... is introducing... corruption... rent seeking... hugely advantageous for people to be friends of the first family, hugely advantageous for people to hire lobbyists.... Tthe big boom that's being created here is in crony capitalism....
When you tank their sentiment worse than it's been tanked in 20 years, you're not looking out for the middle class. When you make inflation... expectations higher... even than it was during the Biden stimulus, you're not looking out for the middle class.... This is the worst self-inflicted wound through economic policy since the Second World War. It's wrong on competitiveness, wrong on unemployment, wrong on inflation, wrong on uncertainty. The best thing we can hope for is that people start to see sense and reverse these errors....
ZAKARIA: Oren... I want to show you... [the] manufacturing share of U.S. employment... basically a straight slope down from about 1950.... The slope is... standard. You can't find NAFTA... [or] China WTO. It just keeps going down from... 30 percent... to about 8 percent.... 80 percent of Americans work in services, 8 percent work in manufacturing.... Aren't your policies taxing most of the middle class to subsidize this very small and shrinking part of the middle class, which is the factory worker? Why is that a good deal for the middle class?...
CASS: There's nobody who cares about manufacturing employment as a share of total employment.... You didn't put up the chart that matters, which is actual manufacturing employment.... That... stayed in a very steady band between about 17 million jobs and 19 million jobs from the 1950s all the way up through the year 2000.... Through all of the technological progress, all of the automation, what we were getting were more and better jobs in manufacturing.... What we see after the year 2000 is a collapse in the number of manufacturing jobs. A sharp, frankly unprecedented collapse that devastated communities.... That's what we care about. That's what economists who are actually debating this issue are grappling with. Does making things matter? Do we care that we have a strong industrial sector? And if the answer is yes, then you have to be very worried about this. And the problem is that too many economists, I believe Larry is among them, says the answer is no. Making things just doesn't matter anymore. And I think that's wrong....
SUMMERS: The 8 percent number is misleading.... 4 percent... are working in production.... The rest... are in marketing or accounting or all that.... We could debate the exact merits about just how much manufacturing and how important it is to get more manufacturing. Here's the thing. The Trump program is completely ill-conceived for the objective. The focus on steel tariffs. There are 50 times more people who work in industries that use steel that are made less competitive.... When we stop imports, we make all the inputs to our export industries more expensive and make our export industries less competitive. There are important things to do for manufacturing.... This administration has destroyed the CHIPS program, which was investing in building capacity in manufacturing....
Let's assume that we want to support manufacturing. There is no reason to believe that this program will be other than counterproductive, especially since it especially burdens our manufacturing teammates, Canada and Mexico, from its design.
With respect to getting people's attention: Look, Fareed, if you punch your erstwhile friend in the face, you will get their attention. They might even suck up to you a little bit for a little while so you don't do it again. But you will have lost a friend for a very long time. You will have driven them into the arms of your adversaries, and I don't think you'll end up getting better deals from them.
There is a winner in what's being pursued.... Xi Jinping and China... scope for influence, scope for new markets, scope to displace the United States of a kind they could not have imagined as a result of the policies that we are pursuing.... [There] is a discussion Oren and I can have about the importance of manufacturing, but that's not the issue with the Trump program...
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