Definitely a problematic situation.
Economists (depending on how that is defined) are very valuable as long as they stay in their lane - analysis and forecasting. But the moment they become ideological they become worthless, if not worse. Whether it's people like Reich or Krugman on the Left or Kudlow or Moore on the Right, getting an ideologue means you're putting a great deal of responsibility on the shoulders of someone who simply isn't thinking clearly.
Greenspan being the most blazing example.
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For the most part, economists aren't ideologues. They perform research and publish their findings. Those findings happen to support the predefined ideology of one or another political persuasion, and the economist who published his/her findings gets tagged by ideologues as being in this or that ideological camp. Given their druthers, economists would discard normative economic notions and stick to and implement policy based almost purely on the findings of positive economics.
Consider, for example, the latest economic "hot button" issue, Trump's 10% and 25 tariffs. As goes that, economists look at it and immediately recognize that classical economics has shown that tariffs generally are deleterious to the well being of the polities that implement them [1]; however, they acknowledge too that there is the such a thing as an optimal tariff. Recognizing those two things, the question economists ask is whether the magnitude and provisional structure of Trump's tariff and the existential nature of the environment in which it'll be extant make it an "optimal tariff." [2]
That said, anyone having an economic background worthy of even pretending to be an economist will, upon asking that question, know immediately that 10% and 25% tariffs on imported
raw materials (Who the hell would f*ck their economy by taxing at 10% and 25%
infrastructurally essential raw materials rather than discretionary finished goods? Donald Trump, obviously.) isn't at all going to qualify as optimal.
To illustrate just how glaringly un-optimal are Trump's tariffs, think of this. Ecologists have found that, in nature, fires, though they are destructive, are essential to the health of the environments in which thy occur. Implementing Trump's tariff is tantamount to one's thinking that if fire is good for the natural habitat, it must be in the same ways good for their home and in turn setting one's home ablaze.
Notes:
- The net decrement in well being is, of course, not universal throughout the tariff-implementing economy. There are specific winners and losers -- the winners being the owners of the largest firms benefited by the tariff and the losers being everyone else, and the economy as a whole. It's plausible (but hardly probable) too that a tariff, if it's an optimal one, can generate a net increase in government revenue, however, to do so, it must produce more tariff revenue than the decrease in income tax revenue resulting from the sales decline the tariff effects.
The ultimate impact of a tariff -- optimal or not -- within the nation that implements it is to redistribute income/resources so that the "winners" experience resource increases -- mostly, but not exclusively, money -- from the "losers." The magnitude of Trump's tariffs make them the closest thing to a mandated "buy American" law that he can lawfully implement and that economics novices, which is most folks, won't construe as a mandate and means of income redistribution from "average consumers" to well heeled owners of steel companies. (It's important to note that U.S.-owned firms both import and export steel.)
- Terms-of-trade argument (the optimal tariff theory) states that a country with market power can gain national welfare when it imposes a tariff for foreign exports and thereby generates well being at the expense of foreign trade partners. This argument has been long-term applied as an assumption in many theoretical trade models. Feenstra showed that the theoretical optimal tariff is equal to the inverse foreign export supply elasticity which implies if we can get the value of inverse export elasticity for each good then we can set up the optimal tariff to maximized our national welfare.
It's important to note that while Itagaki proposes that there might be a model whereby optimal tariff theory can apply to economically small countries (within the sector(s) the tariff will affect), the reality of the math (let me know if you want the formulas; or read the book linked in the preceding paragraph) indicates that it's highly improbable that such a tariff can be implemented.
History gives us plenty of examples of un-optimal tariffs. The Smoot-Hawley Tariff Act (SH) of the 1930s is a fine example of tariff impacts at the upper margin, though Bush II's and Obama's are more recent tariffs that were dramatically smaller in quantitative and qualitative magnitude and that yet did more harm than good.
The goal of SH was to protect the American working opportunities and agriculture. But the high SH duties caused a “trade war” situation at that time. Followed by the imposition of SH, Canada, Great Britain, and other European countries imposed trade barriers to U.S. products. "Real world trade contracted about 14 percentages” from 1929 to 1932 due to “deflation-deduced discretionary tariff changes, nontariff barriers and income.” As for the effect on U.S. national market, “it alone accounts for about 7 percent of decrease in U.S. import and the higher effect tariff accounts for about 22 percent of the observed 40 percent decline in the volume of U.S. import in two years after Smoot-Hawley’s imposition”
he didn't.
