Monday, January 23, 2017

When Change Becomes Catastrophe

The current issue of the Economist has an excellent profile of Peter Navarro - the head of President Trump's new National Trade Council.  Navarro has promised "a seismic and transformative shift in trade policy."  The critical issue that we face is what policies the new administration will put in place to increase manufacturing employment and reduce the trade deficit.  From the article:

"When manufacturing production moves overseas and then returns, productivity has usually risen in the interim; so far fewer jobs come back than left.  Messrs Edwards and Lawrence find than even though the trade deficit in manufactured goods in 2010 was about two-and-a-half times what it was in 1998, the number of lost manufacturing jobs the deficit represented rose only very slightly, from 2.5m to 2.7m.  In any case, if China lost low-skilled jobs, manufacturers would relocate to other low-cost emerging economies, not America, says Eswar Prasad of the Brookings Institute, a think-thank."

Before we start down the trade policy change path, it is important to remember the words of Nassim (The Black Swan: The Impact of the Highly Improbable) Taleb - - "Don't mess with complex systems, because we don't understand them."

The Black Swan: Second Edition: The Impact of the Highly Improbable Fragility" (Incerto) by [Taleb, Nassim Nicholas]


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