Great or Again?

The question for Trump's economic legacy

Photo by Kanchanara on Unsplash

Hello,

Welcome to Known Unknowns, a newsletter where no one beats the market without taking risks. Trade-offs are inescapable.

Tariffs: What Are They Good For?

Two questions have been troubling me lately:

1. How has it become conventional wisdom that economic neoliberalism was a failure and that we need to try something else?

2. Can I, an ardent free trader, come to terms with tariffs, given that they seem to be the future for now?

I suppose these questions are related. After all, tariffs are the ultimate rebuke to neoliberalism. I may sound elitist and out of touch—after all, people in my demographic and geography were the big winners of the neoliberal economy—but I just don’t buy the narrative that it failed. Living standards are higher everywhere, not just in what used to be very poor countries (and more than a billion people escaping poverty is nothing to sneeze at). Yes, I know many communities once dependent on manufacturing have not recovered from the “China shock.” But much of that was due to technology, not trade. And many, perhaps far more, Americans benefited from increased trade. Don’t they count too?

The central premise of neoliberalism is that there are trade-offs, and most policies create winners and losers. The people who reject neoliberalism seem to believe they can tinker with markets and create a free lunch for everyone. But that’s not how it works.

Still, neoliberals fell short by not adequately appreciating or addressing the challenges faced by the Americans who lost out. But that’s not a reason to scrap the entire system or reverse it. How did we become convinced that what worked so well was actually terrible?

I wrote for Bloomberg that one disconnect lies in the distinction between life being legitimately hard versus harder than it used to be. Making your way in the world is hard for most people. Achieving financial stability while raising a family, with small savings, wages that barely keep up with inflation, and a constantly changing world, is truly hard. But that doesn’t mean it’s harder than it was before. In fact, it used to be even harder. Most people didn’t benefit from the manufacturing-based, unionized economy of the past. Living standards today are much higher; we live longer, and wages and job tenure are more stable.

That doesn’t take away from the fact that things are hard today, but the distinction matters. Making life easier for people doesn’t mean going back to the past. Yet, we seem to confuse what is hard today with idealizing a past that never really existed before neoliberalism supposedly “ruined” it.

And This Brings Me to Tariffs

I’m not a fan of tariffs, but I can be less upset about them depending on their purpose. Are we using tariffs to recreate the economy of the past or to make things so expensive that we start manufacturing toasters domestically? That would be very bad.

Alternatively, are tariffs being used as a negotiating tool to secure better trade deals or to push China to respect intellectual property and curb its mercantilist tendencies? It is not like we live in a truly free trade economy, or ever did. There is scope for improvement. I would have preferred the TPP to bilateral deals based on fear of tariffs, but you can’t have everything.

I’m unclear about the goal of the Trump tariffs. For the JD Vance faction of the party, the operative word in MAGA is again—a desire to return to a past economy they believe was better for the people they know. This faction wants tariffs to restore the old economy, which wasn’t all that great.

Meanwhile, the Scott Bessent faction seem to lean toward using tariffs to make better deals.

As for Trump himself, he has expressed both views. What he ultimately decides will not only shape his economic legacy but also define the Republican Party’s direction for years to come.

Say It With Me: Crypto Is Not a Safe Asset

I admit I’m a long-time skeptic, which probably means I have less money to show for it. I just can’t grasp the point of cryptocurrencies. Though I’m starting to see some of their appeal, it seems they mainly add volatility to your portfolio—and with it, the potential for significant upside.

But here’s the contradiction: believers argue cryptocurrencies are the ultimate hedge against dollar debasement or the collapse of our entire economic structure (assuming we still have functioning internet). That would make them a “safe asset.” But how can something be a safe asset while also adding volatility to your portfolio? It can’t.

This brings me back to my skepticism. All financial blow-ups (or scams) follow the same story, no matter the asset class, time, or place. Someone claims they can beat the market while reducing your risk. Think mortgage-backed securities in 2008 or Bernie Madoff. It’s always the same and it can go on for decades—-until it doesn’t.

If people enjoy investing in crypto, I wish them well. But they need to see it for what it is—a speculative asset. It’s not a hedge against anything. At best, it’s a “negative hedge,” or a creative way to take on leverage. Even if the Trump administration mainstreams it, crypto remains just another risky asset—and that’s why it offers the potential for upside.

Until next time, Pension Geeks—have a happy Thanksgiving!

Allison