Connor and I both majored in economics. We spent four years steeped in macro theory, poring over models of trade, labor, and monetary policy. Since then, we’ve found… let’s say, limited use for most of it in our day jobs. Neither of us can forecast a recession any better than a monkey with a dartboard (and thankfully, we don’t need to — economic prediction plays no real role in our investment process).
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But I still have a soft spot for the discipline. I think it gets an undeserved bad rap. You’ve probably heard some version of the joke about economists predicting nine of the last five recessions… Or Harry Truman’s famous request for a one-armed economist, to spare him the “on the one hand, on the other” routine. Guilty as charged for me and Connor, I suppose… but the truth is, most professional economists deserve more credit than they get.
Modeling human behavior is a messy business; the complexities of the interdependent systems we call “economics” more closely resemble quantum mechanics than plugging numbers into a spreadsheet (we might’ve had a better shot at reliable macro-predictions if we’d majored in physics…).
Still, the models do have value, especially in diagnosing long-run structural issues. And with all the recent noise around tariffs, trade, and immigration, I found myself going back to the shelf and pulling down one of my old undergrad textbooks: International Economics by Paul Krugman and Maurice Obstfeld.
Turns out, some of the ideas I may or may not have glossed over in lecture halls a few decades ago explain today’s political and economic landscape with eerie precision.
Here are a few excerpts that jumped out:
- “International trade tends to make low-skilled workers in the United States worse off — not just temporarily, but on a sustained basis. The negative effect of trade on low-skilled workers poses a persistent political problem.” (p. 64)
- “In principle, taxes and government payments can offset the effect of trade on income distribution, but one may argue this is unlikely to happen in practice.” (p. 67)
- “As in the case of gains from international trade, then, international labor mobility, while allowing everyone to be made better off in principle, leaves some groups worse off in practice.” (p. 152)
That was written years ago… but it lays out the roots of our current political polarization in plain economic terms. Trade and migration increase total output — that’s the good news. The bad news is they also create winners and losers. The optimal fix, in theory, is redistribution — compensate the groups left behind, and everyone can come out ahead.
But theory isn’t policy. And over the last few decades, that redistribution never quite materialized. The result? A growing divergence in lived economic outcomes, which has morphed into a broader divergence in worldview (not just economically, but socially and culturally too).
You don’t need to squint very hard to see how that leads to political fracture.
The hard part now isn’t understanding the issue — economists already did that. The hard part is solving it… and that’s a job for the rest of the social sciences.
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