It's hard to know how much economic sophistication to expect from the average politician. We're talking about massive impersonal systems of modern economies here, which isn't the ideal fodder for those who go chasing cameras to score cheap political points.
That's a problem for presidential campaigns, where constantly having something to say for the cameras is more or less a requirement for the job. Yet even by that low bar, the Republican candidates outdid themselves this time.
A slew of major and minor GOP contenders — including Donald Trump, Chris Christie, Scott Walker, Carly Fiorina, and Mike Huckabee — have all popped up to offer their takes on the turmoil roiling financial markets in China, America, and the rest of the world. And the degree to which they indulged in economically illiterate gibberish is striking, even for the GOP.
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Let's start with Trump, who declared on Twitter that the stock market dive was "caused by poor planning and allowing China and Asia to dictate the agenda." What poor planning? What agenda would that be? China's destruction of its own economy? No one seems to know.
In an interview with Fox News, Trump made the somewhat more substantive suggestion that "we're tying ourselves so closely to Asia and in particular to China that this is going to be trouble for our country." That's certainly true at the very broad level: In a globalized world, kerfuffles in a very big economy like China are going to have international ripple effects. But economist Dean Baker observed that the way a slowdown in China's real economy would effect the U.S. is by driving up our trade deficit — and if you do the math, China's slowdown would have to be simply enormous to pose any threat of triggering a recession by that route.
Chris Christie made a similar argument: "Our economies are becoming so interdependent that if they don't do well, then all of a sudden it's going to be affecting us. The tail is wagging the dog, everybody." Unfortunately, Christie said the mechanism for that tail-wagging is the debt America owes to China. This is a more specific claim than Trump's, but it is one that makes even less sense.
As everybody knows, debt is usually a problem when the debtors can't pay back the creditors. The latter has presumably built their business model and other financial trades on the assumption that debt will be repaid. So when it isn't, things can go haywire. Conversely, it's not really clear how economic problems for the creditors could set off problems for the debtors.
Paul Krugman did note the possibility that financial panic could inspire Chinese creditors to demand repayment faster. But if that were the case, we should be see interest rates on U.S. debt go up as demand for our bonds shrinks. Instead, those interest rates are headed into the basement.
As for Scott Walker, he called on President Obama to cancel his state dinner with Chinese President Xi Jinping, as if this would send a strong statement to the Chinese to cut out all the funny stuff. He then went off on a multivariate tangent concerning Chinese militarization, cyber attacks, and persecution of Christians.
All of which is perfectly fair, but has little to do with the financial panic at hand. The closest Walker got on this point was that China's government "manipulates" and "interferes" with the economy. Which, yes, the Chinese do — but then so does the U.S. government. Every time we cut or hike taxes, bulk up or rein in government spending, we are manipulating the economy. The unspoken assumption in Walker's quote seems to be that, because China's manipulations sit outside the sphere of what center-right economic views in America consider wise or appropriate, those manipulations are illegitimate. It just amounts to Walker saying he doesn't like China's domestic economic policies.
Which, you know, fine. But if any foreign country were to start diplomatically pressuring the U.S. to change its spending priorities or something, there seems little doubt Walker and the rest of his party would be spitting nails over the prospect.
Carly Fiorina took a more interesting tack. She ignored China and instead blamed the problems in U.S. markets on the Federal Reserve and its ultra-low interest rates, which ensured that "the stock market is the only place you can earn a return," hence more volatility.
But again, by what mechanism do low rates generate more instability on the financial markets? The going theory is that market players "reach for yield," taking more risky bets to compensate for the lack of returns elsewhere. But it's extremely hard to describe in theory how this would work, much less to find clear evidence in the data of it actually happening. Fiorina also ignored the fact that raising interest rates before the country is well into full employment is a pretty surefire way to squelch America's ongoing recovery and kick workers out of jobs all over again.
Finally, that brings us to Mike Huckabee. He also largely ignored China, and instead took the financial turmoil as an opportunity to decry the sorry state of American workers. "It's time to build America's economy, not China's or Mexico's, and quit importing cheap labor and exporting jobs overseas." (Trump said something similar, that China has "taken our manufacturing.")
That's a sympathetic take, but it misunderstands the effects and implications of immigration in much the same way Bernie Sanders did. As for the exporting of jobs, they're certainly going to China. But there's nothing magical about manufacturing in particular.
The problem is rather that U.S. elites have used globalization to drive a wedge into the distribution of wealth and incomes in America, reshuffling them towards the top. In particular, our ongoing trade deficit with China and others means demand is leaving the U.S. economy to create jobs elsewhere. The way to fix that would be to devalue the U.S. dollar — the exact opposite of what Fiorina called for, ironically — or to just have the U.S. government borrow and spend a ton to pump domestic demand back up. In short, Huckabee's biggest problem seems to be that he's in the wrong party.
This may all seem like a random smorgasbord of wrong. But one overarching theme might be the attempt to moralize economics: the notion that things like debt and low interest rates are always indulgent and bad, or that economic relations are a competition between "us" and "them" rather than mutual trades for mutual benefit.
How economic choices like debt and interest rates and trade all come together — the aggregate way they distribute money around our society — certainly has moral implications. But the tools themselves are neither right nor wrong. They're just wise or unwise, depending on the circumstances and what your vision for a just society looks like.
Unfortunately, that requires more than a sound bite to explain.
