Krugman’s blog, 1/30/17

There was one post yesterday, “Competitiveness Games:”

I’ve noted in the past that I get the most vitriolic attacks, not when I denounce politicians as evil or corrupt, but when I use more or less standard economics to debunk favorite fallacies. Sure enough, lots of anger over the trade analysis in today’s column, assertions that it’s all left-wing bias, etc..

So maybe it’s worth noting that Greg Mankiw’s take on the economics of DBCFT is basically identical to mine: subsidy or tax cut on employment of domestic factors of production, paid for by sales tax. Greg and I disagree on whether replacing profits taxes with sales taxes is a good idea, but agree that all of this has nothing to do with trade and international competition – because it doesn’t.

I suspect, however, that Greg is being naïve here in assuming that we’re just seeing confusion because border tax adjustment sounds as if it must involve competitive games. There’s some of that, for sure, but one reason the competitiveness thing won’t go away is that it’s an essential part of the political pitch. “Let’s eliminate taxes on profits and tax consumers instead” is a hard sell, even if you want to claim that the incidence isn’t what it looks like. Claiming that it’s about eliminating a dire competitive disadvantage plays much better, even though it’s all wrong.

To be fair, these tax-and-trade issues are kind of two-ibuprofen stuff at best. But confusions persists even longer than usual when they serve a political purpose.



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