Ronald Reagan notoriously claimed that the “nine most terrifying words in the English language are: ‘I’m from the Government, and I’m here to help.’” Speaking for myself, an economist with complicated feelings about mainstream economics, it’s a different set of nine words that I dread the most: “I know what to do—I’ve taken Econ 101.”
I don’t mean to imply, of course, that taking Econ 101 isn’t worthwhile, or that only those who have slogged through years of more advanced coursework are capable of fully understanding economic issues. (The opposite sometimes seems closer to the truth.) The problem is that introductory classes in the subject tend to place inordinate emphasis on certain highly simplified models of the economy—for example, those involving “perfectly competitive markets”—that can prime students to ignore important complexities in the real world and cause them to lose sight of the contingent and contestable nature of most economic “facts.”
Worse, these models are often used to rationalize deeply misguided positions, like that minimum-wage increases necessarily lead to higher unemployment or that rent control always harms those it is intended to help. I once came across a satirical tweet that perfectly captured this tendency to justify antisocial politics by pointing to a supply-and-demand diagram: “You see where this line meets that line? That’s why the poor should starve.”
I’ve been thinking a lot about how “Econ 101” has been deployed in public discourse these past few months while reading and listening to commentary on President Donald Trump’s ill-conceived and possibly illegal tariff spree. Among academics, elected officials, and pundits opposed to the administration’s erratic moves on trade, the phrase has become a go-to rhetorical cudgel.
In early March, new 25-percent tariffs that Trump had imposed on most imports from Canada and Mexico finally kicked in after an earlier postponement. Harvard professor Greg Mankiw, a former chair of the White House Council of Economic Advisers under George W. Bush and the author of a widely used introductory reference text called Principles of Economics, blasted Trump-administration economist Kevin Hassett for his full-throated defense of the tariffs as the key to reviving manufacturing in America. Hassett “misleads the public,” Mankiw insisted on his blog, and “insults those of us who have spent our lives teaching (and writing textbooks for) Econ 101.”
On the website formerly known as Twitter, Democratic congressman Jake Auchincloss of Massachusetts posted that “[t]he tariffs [announced on April 2] were calculated via methodology that would flunk Econ 101.” Financier Steven Rattner, who served as Barack Obama’s “car czar” and now manages Michael Bloomberg’s investment portfolio, riffed on a New York Times podcast about how “we all learned in Economics 101 that trade is good, and that if somebody else can make something cheaper and better than you can, you let them make that.” When prompted by the host to consider whether Trump himself may not actually be part of that “we,” Rattner replied that he was only assuming the president took Econ 101 “because he went to Wharton.” But then again, as former Democratic senator Claire McCaskill of Missouri remarked on MSNBC, maybe he “skipped Econ 101” when he was there.
The talking heads are not wrong about how Trump’s indiscriminate and haphazard imposition of tariffs on virtually all foreign imports—even those from countries that are usually politically untouchable, or from islands inhabited only by penguins—makes little sense. His actions are likely to end up causing considerable self-inflicted damage, assuming that they are not soon reversed through the order of a court skeptical of his claims of emergency executive powers, a legislative override by an anti-tariff majority in Congress, or Trump’s own caprice.
The tariffs will almost certainly result in some degree of “stagflation”—a combination of rising prices (as foreign goods are subjected to new levies and domestically produced substitutes become more sought-after, and perhaps as some firms take advantage of the chaos to charge even higher markups) and rising unemployment (as firms find fewer buyers for their goods or have trouble sourcing critical inputs and begin to scale back what they produce or sell). And although targeted tariffs can have a role to play in incubating up-and-coming industries or safeguarding the domestic supply of essentials like medical equipment, the notion that they can be used to “reshore” all jobs that have gone overseas is wishful thinking at best.
Taking a step back, however, commentators who are focused on the irrationality of Trump’s trade war are mostly failing to ask a bigger-picture question: How did we end up with more than 75 million Americans willing to vote for a return to protectionism? Some might say that this just goes to show how few of us have really taken Econ 101 after all. For my part, I think it means we need to take a careful look at what Econ 101 typically leaves out.
One common example from introductory economics courses (and Greg Mankiw’s textbook) features the castaway Robinson Crusoe and his Indigenous servant-companion Friday, who must decide how to divide up the work of catching fish and picking wild coconuts. The pair discover that they can generally gather the greatest total amount of food if each of them specializes in the task at which they have a comparative advantage—that is, the task at which they are relatively more productive—and they then enjoy the gains from trade. Similarly, countries can be uniquely well-suited to producing particular goods or services, whether on account of their climate, natural resources, technology, or other distinctive attributes. As such, there is an opportunity for specialization and trade among nations to make every nation better off. For instance, maybe it’s best for a place like Greenland not to bother trying to grow its own coconuts. Instead, it could just catch some extra fish and trade for coconuts on the world market.
But even if trade can make whole countries better off, it doesn’t automatically follow that it will make every individual living within those countries better off at the same time. What the Econ 101 story may fail to mention is that trade can have adverse distributional consequences: as nations specialize in various kinds of production, the jobs that support other kinds of production are liable to dry up—and those who used to work those jobs might find themselves unemployable. In short, globalization may make the pie bigger, but some of us may still end up with a smaller slice.
According to research by the economists David Autor, David Dorn, and Gordon Hanson, the rise in Chinese imports over the decade following the establishment of “permanent normal trade relations” between China and the United States led to persistent job losses in American industries that faced especially large increases in competition from those imports, such as furniture or electrical-appliance manufacturing. Though the average U.S. consumer might have benefited from less expensive household goods, U.S. workers in the most affected sectors were confronted with lower rates of employment and reduced earnings. As Autor put it in summarizing the findings of studies on the “China shock” in 2021, “[e]conomists have made the phrase ‘creative destruction’ famous. We’ve seen the destruction but not the creative rebound yet.”
When the gains from a policy are dispersed (slightly cheaper products for everyone) and the losses concentrated (the disappearance of jobs in particular industries), the anger of those who bear the losses will tend to be more intense and politically salient than the satisfaction of those who reap the gains. Even if globalization has produced economic benefit on net, it has nevertheless come with real costs. The failure of establishment politicians to fully reckon with those costs helps explain the rise of right-wing populism and the widespread appeal of candidates who sell protectionism as the ticket back to a golden age.
In his 2022 book The Wall and the Bridge: Fear and Opportunity in Disruption’s Wake, former Columbia Business School dean Glenn Hubbard, Mankiw’s predecessor as the top economic advisor to George W. Bush, recounts how he tried to talk the forty-third president out of implementing a new set of tariffs on foreign steel that were being considered as part of an effort to juice manufacturing in politically important states. Reflecting on why he ultimately lost that argument, Hubbard admits that, while “I continue to be convinced that Econ 101 is right, that such calls [for tariffs] end poorly,” the “economic reasoning so attractive to economists just didn’t quite make it with ‘real people.’”
He goes on to write that, “[w]hen confronted with structural, disruptive forces like technological change and globalization, real people—or, more accurately, their political leaders—have pushed back throughout history. Change is hard, often intolerable. The common response is walls—physical or metaphorical barriers to change or the unknown.” Hubbard contrasts the image of the wall, a metaphor for tariffs that literally evokes one of Trump’s other hobbyhorses, with the image of the bridge, which represents policies that are meant to help those buffeted by major economic dislocations transition into new lines of work.
Despite his willingness to go further in the direction of “government intervention” than many other neoclassical economists, Hubbard’s own ideological commitments ultimately circumscribe the types of “bridges” he is willing to consider (job retraining good, public health insurance bad). Yet his basic conclusion is sound: “creative destruction” is inevitable and can even be desirable, but without concerted state action to clean up the wreckage, demagogues will inevitably feed on the resentments of those who are left to deal with it on their own.
When your house is on fire, the immediate priority is clearly to extinguish the flames. But after the blaze is put out, the next order of business should be to figure out what caused it and what can be done to prevent another fire in the future. Some seem to be hoping that the harms of Trump’s tariffs will be so apparent that voters will learn never to try something like this again. But leaving aside the issue of how difficult it will be to dislodge Trump’s brand of authoritarianism once he and his allies have further dismantled our democratic institutions, such predictions assume that simmering discontent with our economic system will not simply continue to fuel new forms of political extremism. Rolling back the new tariffs is a necessary first step, but doing so will not resolve the deeper structural problems that give rise to the popular demand for protectionism.
So what will? For starters, we should recognize that flip references to Econ 101 and sloganeering about how “trade is good” flatten the issue in ways that are ultimately unhelpful. Just because “somebody else can make something cheaper and better than you can” does not mean you should always “let them make that”—as when, for instance, that somebody else is employing child labor or spewing toxins into the air and water. So-called “free trade” agreements must promote respect for the dignity of workers and care for the environment, not just further the interests of large multinational corporations. Seeing to it that they do can help prevent a race to the bottom that immiserates workers in the United States and elsewhere.
We also have to restructure our economy so that it doesn’t matter nearly as much whether any given commodity is produced here or somewhere else. Commerce Secretary and Haverford College megadonor Howard Lutnick may salivate at the thought of an “army of millions and millions of human beings screwing in little screws to make iPhones” here in America, but why is it important where iPhones are made as long as those who make them have decent working conditions and receive just compensation—and those who don’t can find other meaningful work? Some encouraging steps were taken during the Biden interregnum to develop a more proactive “industrial policy,” such as the CHIPS and Science Act, but direct government investment of this kind should be happening at a much larger scale.
If we made it a priority to ensure that new jobs are always created to replace the old, that being laid off doesn’t mean losing one’s health coverage or retirement security, and that “gains from trade” translate into tangible improvements in everyone’s standard of living rather than just higher profits for big business, I suspect there would be less resistance to globalization and less traction for dangerous ideas like Trump’s. What is needed is more than just leaders who have taken Econ 101, but a commitment by all of us to build a society that leaves no one behind.
