Krugman’s blog, 10/6/15

There were three posts yesterday.  The first was “Influenza Means Influence:”

So is this why I’ve just had such an awful week? I finally saw a specialist, and said yes to drugs; my ears are still partially clogged, but I can hear again, sort of.

Anyway, like all such lists, it’s kind of curious. I’m one rung above the pope, and several rungs above Christine Lagarde. And where’s Larry Summers? But I’ll take it.

Yesterday’s second post was “Learning Nothing in Europe:”

But not in Germany.
But not in Germany

If you want to feel despair about Europe’s prospects, first look at this recent presentation from Peter Praet, the chief economist of the ECB, then read this op-ed from the chief economist of the German finance ministry. Praet offers a portrait of a continent crippled by inadequate demand, with a strong deflationary downdraft; Ludger Schuknecht declares that we need to stop stimulus and reduce debt. In effect, he says that everyone should be like Germany, and run a huge trade surplus.

If there’s one thing we surely should have learned from the experience of the past seven years, it’s that adding up really matters. My spending is your income, your spending is my income, so if everyone slashes spending and tries to pay down debt at the same time, incomes fall and debt problems probably get worse. Europe’s debt to GDP ratio isn’t rising at this point because it’s spending more than it did during the good years; the overall structural deficit of the euro area is now very small, much lower than it was in 2005-2007, but low growth and inflation mean that GDP is going nowhere.

But German officials see this all as a tale of their virtue versus everyone else’s lack thereof. This means that nobody will change course aside from the ECB, which is in the process of finding out just how limited monetary policy really is when interest rates are already very low and fiscal policy is pulling in the wrong direction.

The last post yesterday was “TPP Take Two:”

I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership; although I don’t share the intense dislike of many progressives, I’ve seen it as an agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things, not good, even from an efficiency standpoint. But the WH is telling me that the agreement just reached is significantly different from what we were hearing before, and the angry reaction of industry and Republicans seems to confirm that.

What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Rs in general are mad because the labor protection stuff is stronger than expected. All of these are good things from my point of view. I’ll need to do much more homework once the details are clearer.

But it’s interesting that what we’re seeing so far is a harsh backlash from the right against these improvements. I find myself thinking of Grossman and Helpman’s work on the political economy of free trade agreements, in which they conclude, based on a highly stylized but nonetheless interesting model of special interest politics, that

An FTA is most likely to politically viable exactly when it would be socially harmful.

The TPP looks better than it did, which infuriates much of Congress.



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