It seems Barack Obama read my post on Bastiat–
B: And for this there must be two simple laws made, in which money will not even be mentioned. By the one, my subjects will be forbidden to buy anything abroad; and by the other, they will be required to sell a great deal.
F: A well-advised plan.
B: Is it new? I must take out a patent for the invention.
F: You need do no such thing; you have been forestalled. But you must take care of one thing.
B: What is that?
F: I have made you an absolute king. I understand that you are going to prevent your subjects from buying foreign productions. It will be enough if you prevent them from entering the country. Thirty or forty thousand customhouse officers will do the business.
B: It would be rather expensive. But what does that signify? The money they receive will not go out of the country.
F: True; and in this system it is the grand point. But to insure a sale abroad, how would you proceed?
B: I should encourage it by prizes, obtained by means of some good taxes laid upon my people.
F: In this case, the exporters, constrained by competition among themselves, would lower their prices in proportion, and it would be like making a present to the foreigner of the prizes or of the taxes.
B: Still, the money would not go out of the country.
F: Of course. That is understood. But if your system is beneficial, the governments of other countries will adopt it. They will make similar plans to yours; they will have their custom-house officers, and reject your productions; so that with them, as with you, the heap of money may not be diminished.
B: I shall have an army and force their barriers.
F: They will have an army and force yours.
B: I shall arm vessels, make conquests, acquire colonies, and create consumers for my people, who will be obliged to eat our corn and drink our wine.
F: The other governments will do the same. They will dispute your conquests, your colonies, and your consumers; then on all sides there will be war, and all will be uproar.
B: I shall raise my taxes, and increase my custom-house officers, my army, and my navy.
F: The others will do the same.
B: I shall redouble my exertions.
F: The others will redouble theirs. In the meantime, we have no proof that you would succeed in selling to a great extent.
That’s why he’s concerned about trade wars– “I think we need to make sure that any provisions that are in there are not going to trigger a trade war.”
If only he had read Bastiat’s complete essay (pdf), he would have also kicked out all his Keynesian advisors and scrapped the gazillion dollar “stimulus package” altogether.
Peter Klein of O&M writes in a post titled “We Are All Monetarists Now”–
Even Dick Armey, writing in today’s WSJ, gets it:
Keynes’s thinking was a decisive departure from classical economics, because arbitrary “macro” constructs like aggregate demand had no basis in the microeconomic science of human action. As Hayek observed, “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”
As Keynes’s Cambridge colleague Gerald Shove supposedly remarked (according to Joan Robinson), ”Maynard never spent the half hour necessary to learn price theory.” Sadly, the same seems true of many of Keynes’s modern disciples.