Those slow-moving near-invisible market crashes ....

2 months ago 7

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"Trump’s tariff mayhem has crashed stock markets across the globe. ... Doing nothing would have been far better than doing what he did. ... [When the stated policy risked a sovereign downgrade from Moody’s and probably kicked off a small recession, reversing course is indeed a win for all Americans, much in the same way that surviving a self-inflicted gunshot wound is a win.]

"[But consider.] Are there any pre-2025 policies that have already done damage on the scale that Trump is now inflicting on the global economy?

"While you might object, 'If any such policies existed, we would have noticed,' you shouldn’t. Imagine Trump imposed his current tariffs gradually over the course of the year, while constantly reassuring the world that he had no intention of raising overall tariffs. The total damage of this would ultimately be about the same as what we’ve seen. The visibility of the damage, however, would be far lower. ...

"Once you accept the possibility of pre-existing massive wealth-destroying policies, plausible candidates are easy to find. Here are [two]:

"1. The near-ban on international trade in labour. Raising tariffs from around 3% to around 30% crashed the market. But the effective tariff on foreign labor ranges from about 250% to 1500%. Indeed, that understates the damage, because arbitrary non-tariff barriers are a greater burden than precisely-defined tariffs.

"2. Draconian regulation of construction. Existing regulations roughly double the price of housing, imposing a massive burden on not only consumers, but any business requiring offices, factory space, and so on. ..."We recently got to watch a horrific spectacle of policy dysfunction unfold before our eyes. Tariffs spiked; markets crashed. But after seeing this crash with your own eyes, you shouldn’t merely acknowledge that ... one mistake. You should open your mind to the possibility that ... for every major market crash heralded on the news, there could easily be a dozen invisible crashes — policies that wantonly but stealthily destroy trillions of dollars of value. Immigration, housing, and nuclear power are only my top candidates.

"A further deep lesson: ... We’re habituated to their harm ... to the point that few of us realise how much wealth we’ve lost, how much wealth we’re losing, and how much wealth we and our descendants will continue to lose for decades or centuries to come.

"[P]opulists [like Trump] do immense harm blatantly. Traditional politicians, in contrast, favour stealth. When they inflict immense harm, they do it gradually. And in the face of blatant opportunities to to make the world dramatically better, they yawn. ... But once you learn to see the invisible crashes, you won’t be able to unsee the ugly truth ... "
~ Bryan Caplan from his post 'The Invisible Crash'

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