Most of Academia Does Not Understand The Real World

In January 2016, I attended an executive education program at a prestigious business school.  Early on in the program, the professor asked a question: “Do you favor free trade?”  Virtually everyone in that room said yes.  The professor replied, “Of course you do.  Because you all benefitted from an increase in trade.  Do you think the auto worker in Michigan or Ohio feels the same way you do?  If he still has a job, his pay has been stagnant over the last 30 years.  Again, that’s if his job hasn’t gone away.  Yes, he probably pays less for goods at Wal-Mart on a relative basis, but if you don’t have a job, does it matter what things cost?”

I thought about this exchange when Trump was elected.  I also thought about it yesterday when I read an interview with the past chairman of the Federal Reserve, Janet Yellen.  President Trump did not reappoint her to the Fed Chair position.   After months of silence, Yellen finally opened up about President Trump.  An excerpt is below.

When it comes to economics, she (Janet Yellen) said Monday that Trump misunderstands some fairly elementary concepts, citing his stance on reducing trade deficits with China and other global partners.

“And when I continually hear focus by the president and some of his advisers on remedying bilateral trade deficits with other trade partners, I think almost any economist would tell you that there’s no real meaning to bilateral trade deficits, and it’s not an appropriate objective of policy,” she said.

https://www.cnbc.com/2019/02/25/janet-yellen-says-trump-has-a-lack-of-understanding-of-fed-policies-and-the-economy.html

It never ceases to amaze me how little understanding academics and supposedly intelligent people actually possess of how the “real world” works.  While his tactics and communication style leave much to be desired, Trump at least understands that moving manufacturing offshore, while benefitting the country as a whole, did not benefit the people whose jobs went away.  They don’t care about bilateral trade deficits or any other ivory tower theory.  They care about their jobs and their families’ well-being.  Trump might not grasp macroeconomics but he certainly understands the American workers’ microeconomics.  If he can tell the American people he got the Chinese to buy more products from us, he can claim victory.  That’s what this trade war is all about.

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