Krugman’s blog, 7/23/15

There were three posts yesterday.  The first was “The Village, the Base, and St. John:”

So, over the weekend we were told that our pass the popcorn moment — I mean, our long national nightmare — was over: Donald Trump would implode now that he had dared to question John McCain’s heroism.

But lo and behold, he’s still hanging on to front-runner status for the Republican nomination. How is that possible?

The short answer, surely, is that the inside-the-Beltway crowd — not for the first time — confused its own perceptions with those of actual voters.

Inside the Village, McCain is a sacred figure; he is still, after all these years of being a conventional ideologue, perceived as being McCain the Maverick; he is still seen as a wise man on national security despite his warmongering; he’s virtually a constant presence on the Sunday talk shows. So the villagers expected everyone to recoil in horror when Trump ridiculed his war record — you’re only supposed to do that to Democrats.

But the Republican base really doesn’t care very much. Whatever they may say, its members don’t really care about military heroism — it’s not just the treatment of John Kerry, think about how little they seemed to care when we finally did get Osama. And they really, really don’t care about some old guy who lost an election.

Trump surely hurt himself a bit with his McCain attack, but he still embodies the base’s id in a way the Village doesn’t seem to understand.

Yesterday’s second post was “SPQR And All That:”

It’s been a rough few weeks, so I’ve been taking refuge in the past: I brought Adrian Goldsworthy’s The Fall of Carthage along on recent travels. And I found it revelatory; it shook some views I’ve long held about history.

You see, I have or had a pretty firm, cynical but I thought well-grounded model of pre-industrial civilization. All pre-industrial societies, I thought, were Malthusian, with the bulk of the population living at the edge of subsistence. The fruits of civilization went only to a small elite, 5 or 10 percent of the population at most, which essentially lived on resources extorted from the peasantry. For everyone else, it didn’t matter who ruled or how; politics, national or cultural concerns, whatever, were internal squabbles among the extractive classes.

This model still seems to me to be pretty good for the Roman Empire. But at least as Goldsworthy describes it, the Roman Republic at the time of the Punic Wars was something very different. It beat Carthage not so much through military prowess as through social solidarity: not only had Rome managed to assimilate many peoples and turn them into citizens or very loyal allies, it seems to have inspired strong commitment from a large fraction of the population. This gave it a huge advantage over Carthage in terms of military manpower, and also the durability that allowed it to absorb terrible defeats and keep on fighting.

Are there any other examples in history like this? And how did they do it? What was special about the Roman political and/or social system that produced this kind of solidarity?

Of course, it didn’t last — the very conquests made possible by thevirtus of the Republic eventually produced vast latifundia worked by slaves and undermined all the old values; Rome became a more or less standard preindustrial empire. But it wasn’t always. Why?

Yesterday’s last post was “The Essential Obstfeld:”

Olivier Blanchard, who has to have been one of the most influential chief economists ever at the IMF, is retiring; Maury Obstfeld will be his replacement. Intellectually, there’s a lot of continuity: one New Keynesian MIT PhD I know very well replaced with another New Keynesian MIT PhD with whom I co-authored a text now in 10th edition. Still, I hope people are interested in Maury’s contributions to economics. And it seems to me that there are two papers in particular that are very relevant.

First is his work on self-fulfilling currency crises. The early currency-crisis literature, which I founded back in 1979, was about countries trying to peg their currency while following policies that would ultimately make that peg unsustainable; the question then became when speculators would force the inevitable. Maury, however, inspired by the ERM crisis of 1992-3, argued that crises could come out of a clear blue sky — that countries could face a speculative attack that would force them off a peg that would otherwise have been indefinitely sustainable.

By the way, I was at first very skeptical of this argument. But the events of the Asian crisis a few years later convinced me that I was wrong and Maury was right. And here’s the thing: the Obstfeld approach seems highly relevant to the troubles of eurozone countries, and also helps explain why Mario Draghi’s “whatever it takes” worked so well.

Second was his work with Ken Rogoff on open-economy macro, basically bringing New Keynesian modeling to floating exchange rates. One really important aspect of this work, as it turned out, was that in building a bridge to the classic literature here, O-R considered the effects of fiscal as well as monetary policy. As a result, those of us who were well versed in open-economy macroeconomics were fully prepared when issues of fiscal stimulus arose, and didn’t fall into the traps of incomprehension we saw from so many domestic-economy macro types.

There is, of course, much more in the Obstfeld canon. But those two seminal papers seem to me to illustrate why he’s so perfect for this job, and why one can expect Maury to give very good advice, whether policymakers take it or not.


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