Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 5/23/17

May 24, 2017

There was one post yesterday, “Trucking And Blue-Collar Woes:”

What with everything else going on, this Trip Gabriel essay on truckers hasn’t gotten as much attention as it should. But it’s awesome — and says a lot about what is and isn’t behind the decline of blue-collar wages.

Trucking used to be a well-paying occupation. Here are wages of transportation and warehousing workers in today’s dollars, which have fallen by a third since the early 1970s:

Why? This is neither a trade nor a technology story. We’re not importing Chinese trucking services; robot truck drivers are a possible future, but not here yet. The article mentions workers displaced from manufacturing, but that’s a pretty thin reed. What it doesn’t mention is the obvious thing: unions.

Unfortunately the occupational categories covered by the BLS have changed a bit, so it will take someone with more time than I have right now to do this right. But using the data at unionstats we can see that a drastic fall in trucker unionization took place during the 1980s: 38 percent of “heavy truck” drivers covered by unions in 1983, already down to 25 percent by 1991. It’s not quite comparable, but only 13 percent of “drivers/sales workers and truck drivers” were covered last year.

In short, this looks very much like a non tradable industry where workers used to have a lot of bargaining power through collective action, and lost it in the great union-busting that took place under Reagan and after.

And the great majority of the people whose chance at a middle-class life was destroyed by those political changes probably voted for Trump. Oh well.

Krugman’s blog, 5/20/17

May 22, 2017

There was one post on Saturday, “Belts, Roads, and Strategic Trade Policy:”

Look, I’m as obsessed with the Trump disaster as anyone else. But I’m trying to think about other things. And there does appear to be some big stuff happening, or potentially happening, on the global trade front, via China’s “belts and roads” transportation initiative. This is obviously an attempt to expand China’s political influence, and help find markets for Chinese exports. The magnitude of the effects is going to take some work to estimate. But is there anything else that’s interesting on an analytical level?

Well, I find myself thinking about some of my old work on economic geography, inspired in part by William Cronon’s wonderful Nature’s Metropolis, about the rise of Chicago.

What I took from Cronon was the importance of being a transportation hub. Thanks to the network of railroads spreading out from Chicago (partly dictated by the Great Lakes), virtually any two places in the “Great West” were effectively closer to Chicago than they were to each other.

Think of any economic activity characterized by strong economies of scale. There is a clear incentive to centralize this activity, and serve multiple markets from one location. But which location? In Figure 1 I show three locations with basically comparable transport links, shown by the dotted lines; in this case no one location has an obvious advantage, unless there are big differences in either costs or local market size.

But suppose that two of those transport links are greatly improved, as shown by the solid lines in Figure 2. Then location C gets a leg up: other things equal, you will want to locate stuff in C to serve markets in A and B as well.

Right now, China looks more like A or B than C: stuff goes mainly by ship, whether to Europe, America, or various developing countries. Good highways across central Asia and down to South Asia could change that, giving China a new centrality in the world’s economic geography; you might almost call it the Middle Kingdom.

How big a deal would this be? I have no idea. But you can definitely see Belts and Roads as a bit of a strategic trade policy as well as being a strategic, well, strategic policy.

Krugman’s blog, 5/17/17

May 18, 2017

There was one post yesterday, “Calling Literatures From The Vasty Deep:”

Noah Smith has a very nice essay on how to deal with people who try to ward off serious criticism of their ideas by appealing to a “vast literature” you don’t know. As he says, sometimes there are vast literatures of nonsense, or at any rate of dubious quality, that mainly serve to protect vested intellectual interests.

Yet of course there are also cases in which you really should know something about existing research before opining, and Noah has a clever device: the Two Paper Rule. Give me two papers in this vast literature that are “exemplars and paragons” of the literature. If you can’t, the whole literature is probably a waste of time.

Which of course sets some of us to work trying to think of the two papers we’d recommend in particular areas of interest. So, some of my examples.

Noah is generally very down on macroeconomics, but I believe that we’ve learned a lot in macro since the 2008 crisis. Take fiscal policy: before the crisis there was strikingly little solid evidence about its effects, largely because history gave us so few natural experiments (causation generally ran from business cycles to budgets rather than the other way around). But the crisis gave us both some experiments via austerity and a renewed search for historical cases. I’d point to Blanchard and Leigh, using austerity as an experiment, and Nakamura-Steinsson, exploiting regional shocks from defense spending. Not saying these are the only fine papers, but they’re enough to show that there’s a real there there.

I think we’ve also had some dramatic confirmation of what some of us thought we knew about monetary policy at the zero lower bound. I can think, for example, of a 1998 paper that has held up really well; but I’ll leave that as an exercise for readers.

What about trade? Autor/Dorn/Hanson on the China shock may not be the last word, but surely a revelatory approach. In a strange way, I’d put Subramanian and Kessler in the same category: realizing that this globalization is different from anything that came before is a big deal.

I guess that in a way I’m pushing back against Noah’s nihilism (noahlism?) even while endorsing his method. I think there has been a lot of good economics done, even if there are also vast literatures not worth your time.

Lovely neologism there, or should I say “noahlogism?”

Krugman’s blog, 5/15/17

May 16, 2017

There was one post yesterday, “Nattering Nabobs of NAFTA:”

This discussion with David Rennie of The Economist on Trump is pretty scary. To paraphrase an old Brad DeLong line, Trump is more ignorant and impulsive than you can imagine, even taking into account that he’s more ignorant and impulsive than you can imagine. How close we came to leaving NAFTA:

People inside the White House also called the new Agriculture Secretary Sonny Perdue. Perdue had only been confirmed, like, a day or two earlier. And they called him in, [saying], “You need to come over here now! You need to! He’s about to withdraw from NAFTA.”

So Sonny Perdue literally asked his staff to draw up a map of the bits of America that had voted for Donald Trump and the bits of America that do well from exporting grain and corn through NAFTA. [The map] showed how these two areas often overlap. So he went in, said to Donald Trump, “Actually, Trump America, your voters, they do pretty well out of NAFTA.” And the president said, “Oh. Then maybe I won’t withdraw from NAFTA.”

Which put me to work wasting some time. Who actually exports a lot to Mexico? The top 10, as % of state GDP in 2014:

Trump states indeed. But I was more interested in the economic geography. What we see here mainly is the gravity equation: trade falls off with distance, with border and near-border states doing a lot of Mexico trade. The outliers are Michigan and to a lesser extent Indiana and Tennessee, which presumably reflects the especially close NAFTA integration of the auto industry.

Interesting stuff, at least for me. Also the kind of thing that should be taken into account in future trade negotiations, as the president takes expert advice into account and [hysterical laughing fit]

Krugman’s blog, 5/12/17

May 13, 2017

He’s baaack!  There was one post yesterday, “Trumpistan:”

Item: Trump demanded loyalty — not to his office, but to the person of the president — from James Comey.

Item: Trump admitted on live TV that he fired Comey to stop the ongoing investigation into Russia’s connections with his campaign.

Item: a woman was arrested for laughing at a Trump administration official.

Item: Another Trump official has commended police for arresting a reporter who shouted questions at him.

Item: Republicans in Congress show absolutely no inclination to do anything about any of this.

So, has America already become an authoritarian regime where law enforcement serves the supreme leader, not the Constitution, where questioning or even ridiculing the regime’s officials has become a crime, and in which the legislature is just a rubber-stamping operation?

We don’t know the answer yet; we’ll have to see how things unfold in the next few weeks. But future historians may well record that American democracy died in May 2017.

Krugman’s blog, 4/14/17

April 17, 2017

There was one post on Friday, “In Praise Of Nursing:”

For some reason I’m suddenly getting a lot of mail about a sloppy and insensitive thing I did in passing in a blog post a while back. I was writing about what kind of work would survive digital technology, and described nursing among other things as “menial” work. What’s odd is that I have never imagined that; I don’t remember what I was thinking, but I may even have meant to say “manual” (which is also not right, however, since there’s a lot more than manual skill involved).

Anyway, apologies to nurses: If I insulted them, even inadvertently, that was badly done. I’m well aware how much training goes into their profession, and also just how hard it is — I would be terrified to deal, even once, with what they deal with every day. I won’t make that mistake again.

Krugman’s blog, 4/12/17

April 13, 2017

There was one post yesterday, “The French, Ourselves:”

Still thinking about the upcoming French election. Will Le Pen be the next Trump? I have no idea. But I’ve been interested to note how little resemblance there is between the underlying economics in France and here, which in turn raises further doubts about how far “economic anxiety” goes toward explaining the faux-populist surge.

One thing you have to bear in mind is that the French economy gets terrible press — some combination of conservative bias (with such a generous welfare state they *should* be a disaster, dammit) and cultural envy/annoyance. A few years back Roger Cohen quoted himself about how there is a

pervasive sense that not only jobs — but also power, wealth, ideas and national identity itself — are migrating, permanently and at disarming speed, to leave a vapid grandeur on the banks of the Seine

then noted wryly that he wrote that in 1997; and somehow France is still there.

In fact, the 1990s were something of a low point; in a number of key ways France has done better since then, especially compared with the United States. Official unemployment is high, but that’s somewhat misleading. If you look at adults in their prime working years, they’re actually more likely to be employed in France than they are here:


OECD and BLS

French productivity has gone from slightly above to slightly below the US level, perhaps because more people are employed; but anyway, given the wiggle room in such numbers, we’re basically looking at a country that is at the technological frontier:


OECD

And France has, so far at least, been spared the Case-Deaton epidemic of “deaths of despair”:

If very low inflation is any indicator, the French economy does appear to be operating somewhat below potential. But it’s not in macroeconomic crisis.

And as I wrote yesterday, France is not Greece: the euro was a bad idea, but France is not a nation currently suffering severely from lack of an independent currency, so there is no urgency about exit — and hence no obvious reason to incur the huge costs euro exit would impose.

So what’s it all about? Presumably it’s about identity politics, French style. But my point is that the economic anxiety trope works even worse for France than it does here.

Oh, and let me repeat: Le Pen does not offer any answer to the problems of the EU.

Krugman’s blog, 4/11/17

April 12, 2017

There was one post yesterday, “Europe Has Problems, But Le Pen Is Not The Answer:”

France will have its presidential election in a few weeks, and there are understandable concerns that it may be another Trump shock. In particular, the travails of the euro have tarnished the reputation of the European project – the long march toward peace and prosperity through economic integration – and played into the hands of anti-Europe politicians. And French contacts tell me that the Le Pen campaign is trying to portray critiques of European policies from prominent economists as implicit endorsements of the FN platform.

They aren’t.

I’ve been a harsh critic both of the euro and of the austerity policies followed in the euro area since 2010. France could and should be doing much better than it is. But the kinds of policies the FN is talking about – unilateral exit from not just the euro but the EU – would hurt, not help, the French economy.

Start with the euro. The single currency was and is a flawed project, and countries that never joined – Sweden, the UK, Iceland – have benefited from the flexibility that comes from independent currencies. There is, however, a huge difference between choosing not to join in the first place and leaving once in. The transition costs of euro exit and restoration of a national currency would be huge: massive capital flight would cause a banking crisis, capital controls and bank holidays would have to be imposed, problems of how to value contracts would create a legal morass, business would be disrupted during a long interim period of confusion and uncertainty.

These costs might nonetheless be worth bearing under extreme circumstances, such as those facing Greece: a severely depressed economy that needs a radical reduction in costs relative to its trading partners might find even a costly euro exit followed by devaluation preferable to years of grinding deflation.

France, however, does not fit that description. French employment performance should be better, but it’s not terrible – prime-age adults are more likely to be employed than they are in the United States. And since the creation of the euro, French labor costs have roughly tracked the average for the euro area as a whole, so there’s little reason to believe that a restored franc would or should experience a large devaluation:


OECD

In short, for France exiting the euro would bring all the costs that Greece would have faced, without any of the benefits.

What about the EU in general? There is every reason to believe that membership in the EU, making France part of a far larger market than it could provide on its own, makes French industry more productive and offers French citizens a wider range of cheaper products than they would otherwise be able to buy. Sorry, but France just isn’t big enough to prosper with inward-looking, nationalist economic policies. And given the benefits of being part of a larger economic entity, being part of Schengen – which reduces the frictions and makes integration work better – should be seen as a privilege, not a burden.

I’m not by any means saying that the EU is fine, or that French policy is great. The European consensus in favor of austerity was immensely wrong-headed and destructive – and France has been far too willing to impose unnecessary austerity on itself. I sometimes say that the most serious economic ailment France suffers from is hypochondria, a willingness to believe propaganda that has portrayed it as the sick man of Europe for more than three decades, even as it continues to exhibit high productivity and decent employment performance.

The point, however, is that nothing the FN has to offer would move France in the right direction. Just because Le Pen and economists like me are both critical of European policy doesn’t mean we have anything in common.

Krugman’s blog, 4/6/17

April 7, 2017

There was one post yesterday, “Iceland 1991:”

A historical curiosity: the other day Gauti Eggertsson asked if I had a copy of the report I wrote on Icelandic currency policy back in 1991, since there doesn’t seem to be one online anywhere. Sure enough, I had a copy of the draft — a physical copy — on file. So here’s an upload of the scan.

The report itself is basically optimum currency area theory, with fish. I made what I think is an interesting comparison between Iceland and Canada’s Maritime Provinces, but missed the fiscal integration angle. Still, this doesn’t read too badly a quarter-century and a financial crisis later.

Krugman’s blog, 3/31/17

April 1, 2017

There was one post yesterday, “Of Tweets And Trade:”

Is anything ever going to happen on trade, Trump’s signature issue other than immigration? As Matt Yglesias notes, so far almost nothing has. Bloomberg tells us that companies are back to the usual business of moving jobs to Mexico, after a brief hiatus — unclear whether there was any real pause, or just a pause in announcements, but in any case CEOs seem to have decided that NAFTA isn’t under much threat.

True, Trump is tweeting threats about the China trade, and maybe something big will happen after Mar-a-Lago. But that gets us to the question, is Trump actually in a position to pursue the trade issue in any serious way?

My answer is probably not — except as a move taken out of political desperation.

The starting point for any such discussion has to be the observation that during the campaign, when Trump talked trade, he had no idea what he was talking about — no more than he did on health care, or taxes, or coal, or …. Specifically, Trump seemed to have two false ideas in mind:

1. Existing trade agreements are obviously and bigly unfair to the United States, putting us at a disadvantage.

2. Restricting trade would be good for America and bad for foreigners, so the threat of protectionism gives us lots of leverage.

Now, reality: if you look for the obvious giveaways in NAFTA, which the US can demand be redressed, you won’t find them. NAFTA brought down most trade barriers between us and Mexico; there wasn’t any marked asymmetry. In fact, since Mexican tariffs were higher to start with, in effect Mexico made more concessions than we did (although we were giving access to a bigger market.) China is a bit more complicated — arguably the Chinese effectively evade some WTO rules. But even there it’s not obvious what you would demand from a new agreement.

Oh, and China currency manipulation was an issue 5 years ago — but isn’t now.

What about the effects of protectionism? Leave aside Econ 101 gains from trade, and let’s just talk about business interests. The fact is that modern international trade creates interdependence in a way that old-fashioned trade didn’t; stuff you export is often produced with a lot of imported components, stuff you import often indirectly includes a lot of your own exports. Here’s the domestic share of value added in transport equipment:

When we buy autos from Mexico, only about half the value added is Mexican, with most of the rest coming from the US — so if you restrict those imports, a lot of U.S. production workers will be hurt. If we restrict imports of components from Mexico, we’re going to raise the costs of U.S. producers who export to other markets; again, a lot of U.S. jobs will be hit. So even if you completely ignore the effects on consumers, protectionist policies would produce many losers in the U.S. industrial sector.

And Trump can’t ignore consumer interests, either; if nothing else, Walmart employs 1.5 million people in America, i.e., 30 times the total number of US coal miners.

So any attempt on Trump’s part to get real about trade will run into fierce opposition, not from the kind of people his supporters love to hate, but from major business interests. Is he really ready for that?

So far, at least, the Trump trade agenda, such as it is, has involved tweeting at companies, telling them to keep jobs here, then claiming credit for any seemingly job-creating actions they take. And that got him a couple of favorable news cycles. In practice, however, it means little or nothing. And even tweet-and-photo-op policy seems to be fading out: companies that might have wanted to help Trump puff himself up a couple of months ago are likely to be a lot less accommodating to Mr. Can’t-Pass-A-Health-Billl, with his 36 percent approval rating.

All of this suggests that on trade, as on everything else substantive, Trumpism is going to be all huffing and puffing with very little to show for it. But there is one observation that gives me pause — namely, Trump’s growing need to find some way to change the subject away from his administration’s death spiral. Domestic policy is stalled; the Russia story is getting closer by the day; even Republicans are starting to lose their fear of standing up to the man they not-so-secretly despise. What’s he going to do?

Well, the classic answer of collapsing juntas is the Malvinas solution: rally the nation by creating a foreign confrontation of some kind. Usually this involves a shooting war; but maybe a trade war would serve the same purpose.

In other words, never mind economic nationalism and all that. If Trump does do something drastic on trade, it won’t be driven by his economic theories, it will be driven by his plunging approval rating.