Krugman’s blog, 3/4, 3/5 and 3/6/16

There was one post each day.  Friday’s post was “The Mitt-Hawley Fallacy:”

There was so much wrong with Mitt Romney’s Trump-is-a-disaster-whom-I-will-support-in-the-general speech that it may seem odd to call him out for bad international macroeconomics. But this is a pet peeve of mine, in an area where I really, truly know what I’m talking about. So here goes.

In warning about Trumponomics, Romney declared

If Donald Trump’s plans were ever implemented, the country would sink into prolonged recession. A few examples. His proposed 35 percent tariff-like penalties would instigate a trade war and that would raise prices for consumers, kill our export jobs and lead entrepreneurs and businesses of all stripes to flee America.

After all, doesn’t everyone know that protectionism causes recessions? Actually, no. There are reasons to be against protectionism, but that’s not one of them.

Think about the arithmetic (which has a well-known liberal bias). Total final spending on domestically produced goods and services is

Total domestic spending + Exports – Imports = GDP

Now suppose we have a trade war. This will cut exports, which other things equal depresses the economy. But it will also cut imports, which other things equal is expansionary. For the world as a whole, the cuts in exports and imports will by definition be equal, so as far as world demand is concerned, trade wars are a wash.

OK, I’m sure some people will start shouting “Krugman says protectionism does no harm.” But no: protectionism in general should reduce efficiency, and hence the economy’s potential output. But that’s not at all the same as saying that it causes recessions.

But didn’t the Smoot-Hawley tariff cause the Great Depression? No. There’s no evidence at all that it did. Yes, trade fell a lot between 1929 and 1933, but that was almost entirely a consequence of the Depression, not a cause. (Trade actually fell faster during the early stages of the 2008 Great Recession than it did after 1929.) And while trade barriers were higher in the 1930s than before, this was partly a response to the Depression, partly a consequence of deflation, which made specific tariffs (i.e., tariffs that are stated in dollars per unit, not as a percentage of value) loom larger.

Again, not the thing most people will remember about Romney’s speech. But, you know, protectionism was the only reason he gave for believing that Trump would cause a recession, which I think is kind of telling: the GOP’s supposedly well-informed, responsible adult, trying to save the party, can’t get basic economics right at the one place where economics is central to his argument.

Saturday’s post was “The Kasich Con:”

At this point, according to Predictwise, John Kasich has the fourth-best chance of getting the Republican nomination. It’s not a big chance — 5 percent — but you can imagine a scenario in which the stop Trump forces produce a hung convention, and Kasich emerges as the supposedly reasonable candidate. So an advance warning: he’s a con artist too.

For one thing, he engages in his own form of ludicrous self-aggrandizement, claiming to have been the “architect” of the briefly balanced federal budget of the late Clinton years — which is sheer fantasy:

That’s only true if by “chief architect,” you mean that he voted against the two bills that did the most to get the government in the black, and sponsored one that sounded like it did a lot but actually didn’t.

But what provoked this post was his line, which he repeats often, about wanting to “Uberize” the federal government. Ask yourself: what is that supposed to mean?

Bear in mind that the federal government is best thought of as a giant insurance company with an army. Nondefense spending is dominated by Social Security, Medicare, Medicaid, and a few smaller social-insurance programs (now including the subsidies in the Affordable Care Act.) How, exactly, is an Uber-like model supposed to do anything to make that work better?

And don’t say it would remove the vast armies of bureaucrats. Administrative costs for those federal programs are actually quite low compared with the private sector, mainly because they’re not trying to deny coverage and don’t engage in competitive advertising.

If Kasich means anything, he means “privatize”, not Uberize — convert Social Security into a giant 401(k) plan, replace Medicare with vouchers. But that wouldn’t poll very well, would it?

The point is that Kasich is running on a false boast about his past and a nonsense slogan about the present. No, he’s not the grownup in the room.

There are no grownups in that room.  Yesterday’s post was “Republicans and Trade Wars:”

I’m not sure whether anyone but me cares about the Romney-Trump spat over trade policy; it’s much more interesting, for normal human beings anyway, to talk about the size of Trump’s, er, hands. For that matter, even Romney’s past relationship with Trump is notable mainly because racism and birtherism didn’t bother him back in the good old days. Still, the trade dispute is a revealing fight, on both sides.

Actually, a bit of background: establishment Republicans may talk free trade, but they are if anything more protectionist than Democrats in practice (although neither party is seriously protectionist these days.) Remember, it was Bush, not a Democrat, who imposed a WTO-illegal steel tariff, then had to back down in the face of European pressure. And going back, remember that Reagan, not Carter, imposed import quotas on Japanese cars.

The reason for this difference, I think, is twofold. First, Republicans are much less respectful of international obligations; it took a while for the Bushies to realize that trade rules apply to us, too, and that the EU is as big a trade superpower as we are. Second, there’s a level of cynicism, of willingness to play politics with foreign affairs, on one side that isn’t matched on the other.

Which brings me to the latest fight. Romney declares with horror that Trump would start a trade war. His economics is all wrong, which is the main thing; but it’s also worth noting that thee and a half years ago Romney himself argued for exactly the same policies Trump advocates now, blithely dismissing the dangers:

“I’ve watched year in and year out as companies have shut down and people have lost their jobs because China has not played by the same rules, in part by holding down artificially the value of their currency,” Mr. Romney said.

Asked about the possibility of a trade war at his debate with President Obama, Mr. Romney said one was already under way. “It’s a silent one, and they’re winning,” he said. “We can’t just surrender and lose jobs.”

Now, Romney could argue that the situation has changed — as it has since 2010, when I was arguing for the threat of countervailing duties. Back then China was in fact engaged in harmful currency manipulation; these days it’s bleeding reserves in the face of YUGE capital outflows (a trillion dollars last year!) that is, it’s intervening to prop the yuan up, not hold it down. But that’s not the case Romney is making.

So how do we score this debate? Four Pinnochios on each side. Romney talks nonsense economics, and condemns as terrible the very policies he himself called for not long ago. But Trump is stuck in a time warp, making arguments that had some force when China was booming but none in the current situation.

Sorry, but no winners here, just big losers. Sad.

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One Response to “Krugman’s blog, 3/4, 3/5 and 3/6/16”

  1. 2 Absurd Says:

    The wash example is why people don’t take economics seriously. The bubble boy is living on half as much oxygen.

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