WE LEARNED three lessons last week. The first is that geopolitical news does not always drive markets. Just as the increase in troop strength in Iraq seems to be damping down the killing, just as the Syrians and Iranians decide it would be a good idea to meet with the Iraqi government to see if some sort of modus vivendi can be worked out, just as Iran’s Holocaust-denying, bomb-rattling president comes under pressure from moderates in Iran–the stock market tanks. If both good and bad geopolitical news drive down share prices, perhaps we should pray that traders skip directly to the business pages.
The second lesson is that politics trumps passion. I met last week with Treasury Secretary Hank Paulson at a session he convened to get some ideas on trade policy. Paulson, who has the bounce in his step denied to longer-serving members of the Bush administration, described his “passion” for free trade. Most of the job losses we have witnessed in recent years, he says, are due not to foreigners taking over U.S. markets, but to changing technology that has, for example, replaced humans with robots on factory floors. The only way to continue to raise living standards is to keep the economy open and growing, a lesson that seems so obvious to Paulson that he is stunned that anyone can doubt it. But stunned he has been since coming to Washington. It is not only Democrats who are leaning towards protectionism, but many members of his own party. The uniform advice of the think-tank denizens he gathered to advise him–none threatened with loss of his job to lower-paid Chinese–was for the secretary to push forward with freer trade and avoid new, expensive programs to assist those displaced by it.
