Krugman’s blog, 4/8/16

There was one post yesterday, “Why Cruz Is Worse Than Trump:”

On economics, that is. On other issues — well, who was worse, Mussolini or Torquemada? Decisions, decisions.

But on economics, Trump is a big protectionist, while Cruz is a devotee of the gold standard. And we know quite a lot about what these policies would do.

Protectionism makes economies less efficient, but it does not, in general, destroy jobs. Put a tariff on imports and people will spend less on imports — but they will normally spend more on other things instead. So a worldwide turn toward protectionism would both reduce everyone’s exports and reduce their imports, with the overall effect on spending and hence on employment more or less a wash.

Yes, I know there’s a Moody’s study claiming that Trumponomics would be a yuuge job destroyer, but I really don’t know where they got that result; the best guess seems to be that they’re assuming that former spending on imports just goes away, which is not a good assumption.

And no, protectionism didn’t cause the Great Depression. It was a consequence, not a cause — and much less severe in countries that had the good sense to leave the gold standard.

Which brings us to Cruz, who is enthusiastic about the gold standard — which did play a major role in spreading the Depression.

The problem with gold is, first of all, that it removes flexibility. Given an adverse shock to demand, it rules out any offsetting loosening of monetary policy.

Worse, relying on gold can easily have the effect of forcing a tightening of monetary policy at precisely the wrong moment. In a crisis, people get worried about banks and seek cash, increasing the demand for monetary base — but you can’t expand the monetary base to meet this demand, because it’s tied to gold. On top of that, a slump drives interest rates down, increasing the demand for real assets perceived as safe — like gold — which is why gold prices rose after the 2008 crisis. But if you’re on a gold standard, nominal gold prices can’t rise; the only way real prices can rise is a fall in the prices of everything else. Hello, deflation!

So on economics, again, Trump is ignorant and unpredictable — but Cruz knows what isn’t so, and would lead us to predictably dire results.


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One Response to “Krugman’s blog, 4/8/16”

  1. Paul from Norway Says:

    Trump I believe states the case for protectionism wrapped up with a bow citing new manufacturing jobs which I’ll say would include furniture, clothing, electronics, auto parts, durable goods and consumer staples with the understanding that a living wage in the US would produce products of equal value and for a marginally acceptable price. He throws in the loss of tax advantages in repatriating net income from foreign based subsidiaries. This sounds like bait and switch rinse once and hang us out to dry. The beauty of the gold standard is wheel barrels manufacturers will flourish. Of greater concern is the affect on renewable sources of energy with any Republican backed by Koch Industries. Thirdly the cut backs in education I would deem attributable to the interests of the larger contributors to the Republicans is dangerous. But none of these is more dangerous than the dogmatism of Sanders. Lastly with no less an authority than Wikipedia the Inquisition (is there more than one?) was practically a myth like the Holocaust.

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