“Global trade hit a record $33 trillion in 2024, expanding 3.7% ($1.2 trillion), according to the latest Global Trade Update by UN Trade and Development (UNCTAD), which warns that while trade remains strong, uncertainty looms in 2025…

Developing economies outpaced developed nations, with imports and exports rising 4% for the year and 2% in the fourth quarter, driven mainly by East and South Asia. South-South trade expanded 5% annually and 4% in the last quarter.

Chain and India outperformed global trade averages. In contrast, trade in the Russian Federation, South Africa, and Brazil remained sluggish for most of the year, with some improvement in the fourth quarter.

Meanwhile, developed economies’ trade stagnated, with imports and exports flat for the year and down 2% in the last quarter.”

From UN Trade and Development.

Summary: For decades, dire predictions of environmental and economic collapse have failed to materialize, as human ingenuity and technological progress have consistently found solutions to resource scarcity and pollution. The 1972 Limits to Growth report, along with warnings from figures like Paul Ehrlich, misjudged the resilience of markets, innovation, and human adaptability. Today’s degrowth movement echoes past alarmism even though history shows that economic growth remains the key to solving environmental challenges and improving global prosperity.

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The news of the impending end of the world reached a small European country first. On August 31, 1971, the Dutch newspaper NRC Handelsblad made headlines with a global scoop: “Disaster threatens the world.” The article set a pretty grim tone in its opening sentence: “If the world carries on as we are doing now, there will be a huge catastrophe within a few decades.” In case you’ve forgotten about the end of the world, or were too young to have lived through it, the news was about a draft version of Limits to Growth, the famous report commissioned by the Club of Rome that had circulated confidentially among Dutch journalists.

Before long, the alarming news spread across the rest of the imperiled world. More than 30 million copies of Limits to Growth were sold worldwide in over 30 languages. The report’s aim was ambitious: to chart the current state and future of the world. Its credibility largely stemmed from its groundbreaking use of a technology that was still novel and awe-inspiring at the time: computer models. Developed by Massachusetts Institute of Technology computer scientist Jay Forrester, the “dynamic model of the world” in Limits to Growth used five basic parameters: population, food production, industrialization, pollution, and consumption of raw materials. The computer then projected the future state of the world using various assumptions about population growth and technological innovation. The journalists at NRC got the message: Unless humanity drastically altered its course, the world was on a path to total catastrophe—either mega-famines, catastrophic pollution, or depletion of resources, most likely all three at once.

These looming disasters had a single, fundamental root cause: unchecked growth. If you read the 1972 report, it’s clear that the only scenarios promising a happy outcome involve curbing the growth of both the human population and the global economy. Time and again, the mighty machine spat out the same answer: Stop growing, or you’re doomed. Thus warned the jacket flap of the first edition of Limits to Growth: “Will this be the world that your grandchildren will thank you for? A world where industrial production has sunk to zero. Where population has suffered a catastrophic decline. Where the air, sea, and land are polluted beyond redemption. Where civilization is a distant memory. This is the world that the computer forecasts.”

A Gloomy Era

If you think ours is a gloomy time, you haven’t visited the 1970s lately. After the first Earth Day in 1970, the New York Times editorial board issued a dire warning: Rampant pollution and resource depletion were steering humanity toward “intolerable deterioration and possible extinction.” In his wildly popular book, The Population Bomb, the biologist Paul Ehrlich famously proclaimed that “the battle to feed all of humanity is over.” Despite any measures we might adopt, hundreds of millions would face starvation in the coming decades. Throughout the 1970s, Ehrlich continued to forecast one disaster after another. More than 20 times, the charismatic Stanford professor with his handsome sideburns appeared on The Tonight Show to preach hell and damnation. Much like the Club of Rome, Ehrlich predicted the exhaustion of resources within a few decades and the “end of affluence.” And that’s not even to mention the ozone problem. When Sherwood Rowland, the chemist who discovered the ozone hole, returned home one fine day in 1974, his wife asked how his work was going. He replied: “It’s going very well. It just means, I think, the end of the world.”

This pervasive sense of gloom and doom reached the highest echelons of political power. At the end of his presidency, the late Jimmy Carter released Global 2000, a comprehensive assessment of the world’s current state and future prospects that echoed the message of the Club of Rome’s Limits to Growth. If prevailing trends continued, the report warned, the planet would be “more crowded, more polluted, less stable ecologically, and more vulnerable to disruption than the world we live in now.” Hardly an original take in the foreboding atmosphere of the 1970s, but as Time magazine pointed out: “For the first time, the US Government has added its full voice to the chorus of environmental Cassandras.”

In Europe, no less, quite a few powerful people were swept away by the prevailing mood. A striking example is Sicco Mansholt, the socialist and architect of the European Union who had read a draft version of Limits to Growth and was converted almost overnight. In a long letter to the president of the European Commission in 1972—just a month before he was to assume that very position —Mansholt made no bones about it: “It is clear that the society of tomorrow cannot be based on growth, at least not in terms of material goods.” Mansholt’s plans were far-reaching: Europe should prioritize food production and other basic provisions while imposing heavy taxes on nonessential goods. The ultimate goal was a “strong reduction in material goods per capita.” Mansholt had grand plans to defuse the population bomb as well: imposing fiscal penalties on families with too many children and applying diplomatic pressure on poor countries to “stabilize” their “frightening” population growth. If we failed to act, he said, catastrophe was inevitable.

A Self-Defeating Prophecy?

And yet, amazingly, we’re still hanging in here! Despite countless confident warnings, the catastrophes that were predicted in the 1970s have not materialized.  In fact, by many measures, things have improved dramatically. Environmental pollution has dropped sharply in the past 50 years (certainly in rich countries), global poverty plummeted, and raw materials have actually become cheaper and more plentiful. Not only has the predicted mass starvation never materialized, but famines are almost a thing of the past. So, should we be grateful to the Club of Rome for sounding the alarm just in time? Is this a classic case of a self-defeating prophecy (also known as the “prevention paradox”) where a major disaster doesn’t happen precisely because people heeded the warnings? Not at all! As a matter of fact, humanity never changed course in the way the Club of Rome counseled. Global population and gross domestic product kept climbing, and people continued to deplete finite resources. It is true that a handful of developing countries like India and China, pressured by Western doomsayers, turned to harsh birth control policies, which led to disastrous humanitarian outcomes. But that didn’t significantly alter their long-term demographic paths, and in any case, even in countries without such coercive measures, the forecasted famines never happened.

Everyone was scared out of their pants for a while, but in the end, people carried on as usual, at least in the West. Whatever their true convictions, most European politicians understood that Mansholt’s plans for mass impoverishment amounted to political suicide. In the United States, Jimmy Carter suffered a landslide defeat against Ronald Reagan, who had railed against Carter’s environmental gloom in his presidential campaign and promised to usher in a new era of growth and prosperity. In the next decades, milder forms of growth skepticism—think sustainability, circular economy, soft energy paths, planetary boundaries, and environmental, social, and governance—seeped into public discourse and were adopted by mainstream politicians, especially in Europe. But let’s be real: Policymakers never really tried to hit the brakes on economic growth. A growing pie was just too important for maintaining social harmony and covering the rising costs of social security and pensions.

What happened instead is that humanity figured out smart solutions to our environmental challenges—ones that no doomsayers had anticipated. Just look at the supposed global food shortage. In 1972, Mansholt expressed doubts about whether we could “offer a population of six billion a reasonable level of comfort.” Ehrlich was absolutely confident that “millions of people will starve to death” by the end of the decade. Fast-forward to today, and the global population stands at eight billion people. We’re harvesting more food than ever, all while using less agricultural land, and more people are suffering from obesity than hunger. The massive famines were averted not because we took the doom-mongers’ warnings to heart—like a self-defeating prophecy—but because we innovated our way out of trouble.

While Ehrlich was busy predicting millions of deaths on The Tonight Show, other scientists were rolling up their sleeves and finding solutions. In a backwater region in Mexico, agronomist Norman Borlaug dedicated years to developing new and improved varieties of corn, wheat, and other crops—first to make them resistant to blight and then to raise yields and improve taste. Thanks to fertilizers, modern irrigation, and mechanized farming, the Green Revolution led to a staggering increase in yields—at least doubling outputs, and in Mexico, the increase was sixfold. Ehrlich opined that India would never be able to feed itself and suggested tying food aid to forced sterilization programs. Less than two decades later, India became a net exporter of food, and Ehrlich still hasn’t changed his tune. The Club of Rome warned that, even under optimistic land-use scenarios, we’d face “desperate land shortages” by the year 2000. Spoiler alert: None of this happened either.

The specter of resource depletion was also solved by human ingenuity. Though the Club of Rome’s computer models may have looked fancy, they completely overlooked the magic of the price mechanism. When a resource becomes temporarily scarce and thus more expensive, the invisible hand prompts mining companies to dig deeper and find new reserves, encourages manufacturers to shift to more cost-effective alternatives serving the same purpose, and persuades consumers to switch to different products. All three of these responses occur simultaneously. Of all the predictions about resource depletion since the 1970s, not a single one has materialized. In fact, resources have grown more abundant, even as the global population has increased. In their book Superabundance, Gale Pooley and Marian L. Tupy argue, somewhat counterintuitively, that resources actually become more abundant with each percentage increase in population. The “ultimate resource” in our universe, and the only one that truly matters, as economist Julian Simon asserted, is human ingenuity. Ideas, after all, are inexhaustible.

A similar story can be told about environmental pollution. Instead of driving less, we banned lead in gasoline. Rather than shutting down industrial plants or having fewer babies, we installed scrubbers and filters on chimneys to capture soot and sulfur emissions. One of the most remarkable achievements in environmental policy was the 1987 Montreal Protocol, which phased out the chlorofluorocarbons responsible for depleting the ozone layer. While people continued to use aerosol sprays, companies switched to alternative substances that provide the same function—such as pressurizing aerosol cans—without harming the ozone layer.

Far from anticipating these technological developments, many catastrophists in the 1970s had expressly warned against relying on techno-fixes. As the authors of Limits to Growth cautioned: “Faith in technology as the ultimate solution to all problems can divert our attention from the most fundamental problem—the problem of growth in a finite system and prevent us from taking effective action to solve it.”

The problem was not so much that prophets like Paul Ehrlich were overly pessimistic, as Jason Crawford writes. Pollution and food scarcity were genuine and urgent issues, and they would have spiraled out of control if left unaddressed. But rather than rallying people to take action, Ehrlich and the Club of Rome mostly took a defeatist stance, either suggesting remedies that were worse than the disease or standing in the way of real solutions. Instead of the false dichotomy between optimism and pessimism, Crawford calls for “solutionism.”

A New Generation of Degrowthers

The dark prophecies of the 1970s are not just instructive as yet another chapter in the long and embarrassing history of experts failing to predict the future. As you may have heard, we are currently threatened by a novel ecological disaster. When the Club of Rome was founded, global warming was not high on the agenda yet. Limits to Growth only briefly mentions the “greenhouse effect,” and Ehrlich was still uncertain whether human industrial activity would end up cooling or warming on planet. Regardless, true to his style, he forecasted disaster.

Just as in the dark ’70s, a generation of new doom-mongers has arrived on the scene, with a message that is virtually identical: We are heading for disaster unless we curb economic growth. If anything, the latter-day critics are more radical than their predecessors. Timid warnings about “limiting” growth have been overtaken by outright calls for degrowth, which means the wholesale reduction of economic or industrial output. Bizarrely, most of these advocates of mass impoverishment call themselves progressives—a real misnomer if there ever was one.

In his book Less Is More, the anthropologist Jason Hickel contends that only degrowth can save the planet. Nature imposes hard limits on humanity, which we are ignoring at our peril. In Hickel’s generous reckoning, poorer nations are still permitted to grow a bit to alleviate the most extreme forms of poverty, but wealthier countries must dial back their current levels of prosperity. Just like the Club of Rome, Hickel compares growth to a “cancer” and warns against the false allure of technological innovation, which he likens to the “Get out of jail free” card in Monopoly.

In 2023, the prophets of degrowth convened in the buildings of the European Parliament in Brussels for the Beyond Degrowth conference. With more than 7,000 participants, it marked the largest gathering ever held in these venues (though fortunately not organized by the European Commission itself). The concept of degrowth has gained significant traction within the climate movement, with iconic activists like Greta Thunberg chiding world leaders about their “fairy tales of eternal economic growth.”

To date, no mainstream political party has officially endorsed degrowth, as most recognize that doing so would amount to political suicide. Still, it would be a mistake to dismiss the movement as fringe. The UN’s Intergovernmental Panel on Climate Change (IPCC), in its most recent report, references degrowth dozens of times, often in a favorable light. Many political parties, particularly green and left-leaning ones, have adopted what could be termed “degrowth light.” While they do not entirely abandon the pursuit of economic growth, they are advocating for significant reductions in energy consumption through efficiency measures and energy conservation. Even French President Emmanuel Macron and the EU’s climate czar Frans Timmermans now mouth pieties like, “The best energy is the energy not consumed” (a meme that, unsurprisingly, goes all the way back to the 1970s). In their climate action plans, many Western governments and scientific institutions increasingly rely on substantial cuts to final energy consumption. The mindset of degrowth is starting to catch on.

A Self-Fulfilling Prophecy

These intellectual heirs of the Club of Rome have learned nothing at all. Growth is not the problem but the solution to our environmental problems. If we want to reduce CO₂ emissions to zero, we need technological innovation and massive infrastructure projects. For every useful application of fossil fuels, we need to come up with a low-carbon alternative. By continuing to innovate and grow, we can discover ways to decouple economic growth from carbon emissions. While it may seem intuitive to halt growth to curb emissions, as the embryologist Lewis Wolpert once said: “I would almost contend that if something fits in with common sense it almost certainly isn’t science.” By contrast, if we curb economic growth, we will lock in our current and relatively dirty technologies with no hope of ever reaching net-zero emissions (except by going extinct). Consider the spring of 2020, when the pandemic brought the global economy to a near standstill. People were working from their homes, millions of flights got canceled, global tourism was virtually suspended, and cars sat idle in garages. Yet, this involuntary experiment in degrowth resulted in a mere 7 percent reduction in global emissions. Significant, but still quite disappointing given all the hardships the world experienced,  and which nobody would want to live through again.

Imagine if we had heeded the warnings of the Club of Rome 50 years ago and curbed economic growth. In doing so, we would never have witnessed the development of dirt-cheap solar panels, shale gas, lithium-ion batteries, or innovative nuclear reactors. These technologies, which represent our best hope for combating climate change, were either invented or significantly improved in the past five decades. The same principle applies to agriculture. Had we relied solely on 1970s agricultural technology—without the advancements of the Green Revolution or genetic modification—rainforests would be decimated, and millions would still face starvation.

If anything, calls for degrowth to save the planet threaten to become a self-fulfilling prophecy, the more famous cousin of the self-defeating prophecy. If our politicians are ever stupid enough to halt economic growth, we will hamstring our ability to tackle any challenges, including climate change. In a stagnant economy, there would be no new inventions or clever fixes to reduce emissions, capture already emitted CO₂, or artificially tweak the global temperature. Not only would we be stuck with our current and relatively dirty technologies, but we would become more vulnerable to the harmful effects of climate variability, whether natural or man-made. The “remedy” of degrowth would be worse for humanity than any climate catastrophe it purports to prevent. Thankfully, our grandparents didn’t pay heed to the Club of Rome in the 1970s, and we owe it to our grandchildren to ignore the degrowthers today.

Listen to the podcast or read the full transcript here.

Why is trade important to human progress?

Trade helps us access goods and services from around the world at low prices. That improves our living standards, allows our wages to go further, and makes life more fun. Thanks to international trade, we have year-round access to fruits and vegetables that used to be seasonal or simply not available at all.

But it’s deeper than that. Trade is part of the great prosperity machine of free markets. Individuals trade not only goods and services but also for knowledge. That boosts our society and prosperity. It allows for innovation, either via competition or by importing innovations from abroad. Trade also allows individuals to learn about other places. And in general, trade tempers the desire to go to war. You don’t want to kill your customers. And that helps make the world a little safer.

Now, let’s assume that you don’t like foreigners. You think they are nasty don’t treat us fairly and whatever else. We have 350 million people in America. Why can’t we make everything we need here?

We technically could make everything ourselves, especially in a place like the United States, but that would just make us poorer and less productive.

I’ll give you a good example. It pays about $12 an hour to work at a T-shirt manufacturing plant in South Carolina. It pays much more to go work at Amazon or Costco. So why not purchase T-shirts from a place like Guatemala, where working in a T-shirt factory is a good, high-paying job? It just makes sense for us to trade for those things and not force American workers into those low-wage jobs.

Instead of making clothes and shoes, we can outsource those things and focus instead on higher-value production. We can work in tech, services, or advanced manufacturing. That specialization is critically important for raising living standards.

Trade is also about opportunity cost. At any given time, we only have a set amount of raw materials, workers, and capital, and if you devote those resources to lower-value production, those resources can’t flow to higher-value options. This is part of the unseen aspect of protectionism. When we put tariffs on washing machines, we might get a washing machine plant in South Carolina, but what we don’t see is that all of the resources that went to making and operating that factory could have been deployed in more productive endeavors if we had just simply bought washing machines from abroad.

Resources are also wasted on the consumer side. If you and I are forced to spend an extra hundred dollars on a washing machine, that’s money we can’t spend elsewhere in the economy. Those washing machine tariffs I mentioned created about 1000 washing machine jobs, but it cost American consumers around $800,000 a year per job created. That’s simply a loss of financial resources that could have been deployed elsewhere.

What do you make of the arguments that consumption should take second place to something else, such as national cohesion or pride or security?

First we should simply note the facts.

The first thing to know is that the United States today is the world’s second largest manufacturing nation. So, we are still a large manufacturing nation; we just don’t need a lot of workers because our workers are very productive, probably the most productive in the world.

The second is that American manufacturing is very dependent on trade. All manufacturers are consumers at some level, but that’s especially true for more advanced manufacturers like we have in the United States. They need access to cheap raw materials and parts. If you jack up the price of steel and throw a bunch of tariffs on auto parts, you end up lowering production in these more advanced industries. Steel was a case study of this. We imposed a bunch of tariffs on steel during the first Trump administration, and studies have shown that we saw a modest increase in steel output and employment, but overall manufacturing output and employment fell. According to the United States International Trade Commission, we had about a $500 million yearly net loss in manufacturing output because of the steel tariffs.

I should note one of my favorite stats: about half of everything imported into the United States today is a manufacturing input. It’s stuff that our manufacturers use to make other stuff. A lot of that also comes from their own companies abroad. So, Airbus has a facility in South Carolina that imports from Airbus France. BMW, also in South Carolina, imports from BMW in Germany. If you shut down their ability to access their parts and equipment abroad, you’re going to reduce their output in the United States. If you care about national defense, kneecapping BMW, Airbus, and Boeing is a bad thing.

Our manufacturers also need access to overseas markets and overseas consumers. About 95 percent of the world’s consumers live outside the United States. And so, if you deny American companies the ability to access those markets or make them globally uncompetitive by raising their input costs, then you’re harming the manufacturing sector.

So if you remember those things, as well as access to foreign capital, you realize that openness and production are not exclusive; they’re complementary. The former boosts the latter.

I also think there is a misunderstanding here about national security and trade. The criticism is that if we don’t have steel mills in the United States, we will depend on Chinese steel to build our aircraft carriers and tanks. But that’s not really how it works.

Right. We do import a good amount of steel, but the top steel suppliers to the United States are countries like Canada, Europe, and Japan. Countries like Russia and China are not in the top 10. And when you talk about a country like China with a billion and a half people and a massive manufacturing footprint, it makes sense for us to pool our resources with our allies and enter into trade and defense agreements. That allows us to work together boost the overall productive capacity of our defense industrial base. The US Defense industrial base includes Canada right now. That’s how close of an ally Canada is. So slapping tariffs on stuff from Canada just doesn’t make much sense, and it’s even more baffling that they’re doing it on national security grounds.

This is a good place for you to tell us about what’s been happening since Donald Trump took over the presidency. Where are we currently?

It’s been a busy few weeks. Shortly after President Trump’s inauguration, he issued several executive orders invoking a national emergency with respect to fentanyl coming from China, Mexico, and Canada. By invoking that national emergency, he unlocked tariff or trade powers under the International Emergency Economic Powers Act. It’s a cautionary tale about congressional delegations of power, but that’s an issue for another podcast. The President has since then imposed 20 percent tariffs on all Chinese goods. And those are on top of the 25 percent tariffs from his first term on half of Chinese goods and 25 percent tariffs on imports from Canada and Mexico.

He has also jacked up tariff rates from 10 percent to 25 percent for aluminum, and he kept the 25 percent steel tariffs, but he closed all of the exemptions that had been there before.

This is a huge change because around half of all steel and aluminum imports were exempt from the national security tariffs that Trump imposed the first time around. There were a series of agreements with companies going to the administration and saying, “We can’t get the steel and aluminum we need here,” and getting an exclusion. Trump has now shut all of those down. Not great for our manufacturing sector.

The President has also promised reciprocal tariffs. So, if India has a 20 percent tariff on American motorcycles, we’re going to put a 20 percent tariff on Indian motorcycles.

Markets are not thrilled. Not only with the tariffs but also the uncertainty. Economic policy is not supposed to enacted via a switch in the Oval Office. The President is turning on tariffs and then turning them off, sometimes in the same day. As any investor or lawyer will tell you, the thing that companies hate more than taxes is uncertainty. Without that predictability and consistency in the market, they can’t hire or invest. They freeze up and sit on their hands. That’s probably a bigger immediate problem than the tariffs themselves.

The other thing they’re going to do is stockpile. Right now, people in the construction industry are filling warehouses with construction materials because they’re worried about tariffs on Canadian lumber and steel. Having a warehouse full of stuff is a huge cost. You have to rent the warehouse and buy all the stuff, and that’s capital that you can’t deploy by hiring more workers or boosting output. Instead of focusing on their business, people are focusing on these emergency game plan scenarios.

And by the way, they’re all also lobbying in Washington. Trade policy lobbying has skyrocketed. Trade lawyers are making fortunes. They’re building beach houses in Delaware, all because of this tariff uncertainty. That’s good for them but bad for the economy. And it contradicts so much of the rhetoric coming out of this administration about eliminating inefficiency and waste and reducing the government’s role in the economy. It seems they’ve forgotten all of that on the trade front, and they’re doing basically the opposite. That will counteract the good parts of their economic agenda.

But what about fairness, Scott Lincicome? Is it fair that the Indians are placing a 20 percent tariff on us, and we are only placing 5 percent?

I have to tell you, when I heard about the reciprocal tariff, my lizard brain said to me, “Absolutely yes. Let’s make it fair.” What’s wrong with that argument?

A lot of the global trading system is based on this notion of reciprocity, but there are a few problems.

The first is the economics: matching other countries’ tariffs will make Americans poorer. Going back to the example of food, Mexico imposes certain tariffs on food, and we get a lot of food from Mexico. Does it make economic sense to impoverish our citizens in the way that Mexico impoverishes theirs? No, it doesn’t. So that’s the first issue.

There’s also a collectivist logic to this, that the government should punish some citizens to benefit others. But most of us don’t work in an export industry. We won’t benefit personally from any sort of expanded access to a foreign market. A few businesses might, but the vast majority of individuals won’t see any gains.

The other issue is America First. If you match other countries’ tariffs, you’re effectively letting them set your trade policy. I’ll give you examples because this can get very absurd. We buy a lot of coffee from Colombia. We do not grow coffee, except for a little bit in Hawaii. Well, Colombia has a 10 percent tariff on coffee beans from America, and we don’t send them any coffee beans. Should we let the Colombian government dictate our tariff policy in applying a 10 percent tariff on Colombian coffee? That’s not America First; it’s America Second. We should set tariffs and any other policy based on what’s good for America and what’s good for us as individuals, not what another country does.

Finally, practically speaking, this is a mess. You’re talking about thousands and thousands of different products from 200 different countries. You’re talking about trying to quantify not just tariff barriers but non-tariff barriers, subsidies, value-added taxes, you name it. Trying to administer this system would be incredibly difficult and would require thousands of new customs officials and tons of new paperwork, going back to how the administration is contradicting itself.

China is looming very large in this conversation. There is a lot of talk about the millions of jobs lost in the United States because of China. But my understanding is that most manufacturing jobs have been lost to automation.

First of all, is it true? And if so, should we be against automation? Tucker Carlson famously said he would be against autonomous vehicles if they took jobs away from truck drivers.

It is true that increased trade with China, starting around 1999, caused around a million manufacturing jobs to be lost. But there are two big caveats. First, those studies only looked at the jobs lost, not the jobs gained from lower input prices in manufacturing, jobs gained in services, and jobs gained from exports to China. When you include those figures, the overall net effect is a wash.

The second point is that those million manufacturing jobs were just a fraction of the total manufacturing jobs lost over the last several decades. Most of the manufacturing job loss over the last several decades was due to improving productivity. Not just robots, but computers, improved business practices, that kind of stuff.

And look, losing a job is painful, but it is an essential part of economic progress. The reason wages improve over time is productivity growth. In general, we want those robots. We want to outsource manual labor, unsafe labor, and the rest to machines because that allows us to make more stuff and have higher wages.

You can go back to telephone operators in the 1920s. That was a huge labor market shock, particularly for young women. But we would be worse off if we still had to pick up a rotary dial phone and have some woman connecting us like you see in the old movies. She’d have a job, but we would be worse off as a society. It is better to let that disruption happen and make it easy for people to adjust and move into other industries. We have all of these different policies in place—labor policy, occupational licensing, housing policy, regulatory policy—that make it harder for American workers hit by disruption to move on. That’s what we need to be focusing on.

I want to bring up one last subject. There’s a lot of discussion about Donald Trump playing some sort of four-dimensional chess. One of the arguments I’m hearing is that the tariff system is part of a concerted effort to reduce government spending and transition away from income taxes to a more consumption-oriented model. What do you think of that?

I’m extremely skeptical. One reason is the administration’s words and actions. There really isn’t a concerted effort in Washington right now to cut spending in the long term. The nips and cuts that DOGE is making are not going to make a dent in our spending trajectory. Mainly it’s Social Security and Medicare that need reform, and those are not being touched.

The second issue is the math. Tariffs aren’t a broad-based consumption tax; they are attacks on a narrow band of our consumption. Imports make up about $4 trillion out of $25 trillion in total consumption. And if you raise tariffs too high, you don’t get any imports, and you don’t get any revenue. So, there’s only so much revenue you can get from tariffs. You’re looking at maybe $400 billion a year maybe, and that’s generous. Others have said maybe $200 billion. Any more than that and imports will start shrinking. You would need to replace $2.5 trillion a year to eliminate the income tax.

The other big issue is that tariffs tend to cause the dollar to appreciate, which will make it harder for our exporters.

I just don’t see a lot of grand strategy here. And that leaves aside all the gossipy stuff we read in Politico. If we apply Occam’s Razor, the simplest answer is that President Trump likes tariffs. He likes using them as negotiating tools. He likes how it makes CEOs and government officials run to him seeking favor. He likes that they’re raising some revenue and that he can use them to push foreign governments around. That’s a far more likely explanation than some deep grand strategy.

 

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