Suppose Trump had crashed the stock market by sharply raising the corporate tax rate. In a certain sense, "wealth" would have been destroyed, but our actual prosperity would not be impaired. 1/
It would have been a purely distributional change, stockholders would have gotten poorer but the "pie" we share would have been unchanged. 2/
Highly disruptive tariff moves are not like that. The stock market is declining because long-term economic plans, on the production side as well as the sales side, have been upended. Firms that would have been productive will disappear. 3/
We will in aggregate be poorer. The change is not merely distributional. 4/
In the long-term, of course, if the policy environment stabilizes, um, somewhere, new production arrangements will be planned, and it's possible we find a new equilibrium more prosperous than the one we left, short-term pain for long-term gain. We have no evidence this is likely, but sure. 5/
But even if so, there was no need to so sharply destroy in-pipeline production. We could have telegraphed and gradually imposed over five years a more autarkic trade policy, if that's what we want. 6/
We'd have achieved the same putative long-term gain without throwing much of the existing pipeline and several years of aggregate prosperity, in the US and around the world, into the wood chipper. /fin
Text: At least when the Court went off base in the past, it left a record so posterity could see how it went wrong. See, e.g., Korematsu v. United States, 323 U. S. 214 (1944). With more and more of our most significant rulings taking place in the shadows of our emergency docket, today's Court leaves less and less of a trace. But make no mistake: We are just as wrong now as we have been in the past, with similarly devastating consequences. It just seems we are now less willing to face it.
