Krugman writes:
...Senate leaders will...take up legislation that would threaten sanctions against China and other currency manipulators.Why such drastic steps? Krugman spells out what he sees as the problem:
Respectable opinion is aghast. But respectable opinion has been consistently wrong lately, and the currency issue is no exception.
Ask yourself: Why is it so hard to restore full employment? It’s true that the housing bubble has popped, and consumers are saving more than they did a few years ago. But once upon a time America was able to achieve full employment without a housing bubble and with savings rates even higher than we have now. What changed?There is much more in his column defending countries manipulating their currencies in order to make them weaker internationally, including a demand that the U.S. Government do the same. However, since China is "manipulating" its currency to do what Krugman demands we do, China must be the cause of the depression in the USA.
The answer is that we used to run much smaller trade deficits. A return to economic health would look much more achievable if we weren’t spending $500 billion more each year on imported goods and services than foreigners spent on our exports.
Krugman uses an interesting set of logical steps to reach this conclusion. (1) The government has tried to "stimulate" the economy, (2) the economy still is in a depression; (3) therefore, China must be at fault.
When the Indonesian economy collapsed in the late 1990s, mobs murdered ethnic Chinese merchants. I guess I am grateful that Krugman is not calling for the murder of others, but nonetheless when a Nobel Prize winning economist calls for trade barriers as a way to pull the USA out of a depression, he no longer is practicing economics.
If you ask where Krugman is calling for trade barriers, I think the following quote from his column provides ample proof of that:
In the last few days a new objection to action on the China issue has surfaced: right-wing pressure groups, notably the influential Club for Growth, oppose tariffs on Chinese goods because, you guessed it, they’re a form of taxation — and we must never, ever raise taxes under any circumstances. All I can say is that Democrats should welcome this demonstration that antitax fanaticism has reached the point where it trumps standing up for our national interests.In other words, opposition to a new tariff on Chinese goods is said to be bad because it is "right-wing" to be against "new taxes." No matter that this would be exactly the kind of measure that would make things worse; no, opposition to a new tariff is bad because Krugman thinks it is a way to score points against "right-wingers."
Before Herbert Hoover signed Smoot-Hawley in 1930, a letter signed by 1,000 academic economists urged the president not to do it. Hoover did it anyway, and the results were tragic.
Today, America's best-known economist is demanding that the Obama administration erect new trade barriers in the wrong-headed belief that restricting trade will create new prosperity. This is beyond economics; it is madness, and it also is very sad, because if Congress carries out the policy that Krugman is demanding, we are going to see the economy quickly go downhill.
27 comments:
Hmmm... I wonder if Krugman is an alias all progressives use?! My progressive friend parrots similar arguments to Kruggie all the time.
So, just how is a trade deficit that is about 3% of our GDP supposed to be the root cause of all our ills?
The morons do not realize that it is nothing other than fiscal and regulatory uncertainty that is the obstacle to business expansion.
When I point that out (including the Atlanta Fed chief and surveys from NAM, NFIB, CEO report, economists, etc.) my Krugman like progressive friends look at me as if I have two heads.
And, one of them is an economist to top it all.
How can classical economist types (including Austrians along with that group) and Keynesians be so different?
Even though they spawned off of classic roots, Keynesians are nothing but collectivists. They hate it when I call them that!
Boy oh boy.
Professor Anderson, are you even trying anymore?
Krugman has always had a consistent model of when to favor deficits and printing money, when we are in a "liquidity trap" His opposition to Chinese currency manipulation is also part of that same framework, agree with it or disagree with it, but don't consistently misrepresent Krugman in saying that he favors printing money ALL THE TIME and that he doesn't believe in opportunity cost, or using smoot hawley alone to refute him. i'm sure krugman never intends to mean that trade sanctions ALONE will help, you notice he wants deficits and more QE, read between the lines professor!
Cheers,
Nate
P.S. Bob Roddis, when you read this, I understand basic Austrian concepts! :-)
It also amazes me that right wingers are so fixated on the actions of the U.S. government, other governments intervention, (aka china) is massively de stabilizing. I love how "gold standard austrians are in favor of price fixing via the exchange rate.
P.S. We don't REALLY have a floating system Not really, we have dirty, managed floats, which are almost as bad as completely fixed system.
I finally get it! Krugman wants trade sanctions, funny money dilution and massive unpayable debt because one "tool" alone won't fix things.
Hey Nate, smart guy. How will those fancy "tools" not impair economic calculation (since you are so proficient in Austrian concepts)?
I agree to a certain extent with Anderson's fear of trade tariffs and devaluation. Of course they may make us poorer and there is a risk that they may lead to trade wars and a disruption of international trade, not to mention what this could mean to peace and stability in the world.
But this fear cannot make us blind to the serious imbalances of the world economy. If we allow free trade, we should coordinate labour, fiscal and monetary policies. As long as this coordination is not working, we are entitled to raise some barriers or carry out a competitive devaluation.
Actually I don't think anybody wants to raise high trade barriers, not even Krugman. However, some trade barriers or just the possibility of raising them should be a good negotiating weapon with China. Refusing to use this weapon is irresponsible and does not serve the interest of the people. It may serve, though, the interest of stateless capital accumulations which do not care at all about democracy or workers' rights or welfare.
Bob,
Sigh,
I didn't say I was "proficient" in Austrian concepts, all i said was that i understood them. That's been your running complaint throughout this blog right? That no one even understands, let alone has mastered Austrian concepts.
As to how the 'tools' (I presume you mean government deficits and QE) not impair economic calulation?
First let me say that I'm no Keynesian. I was playing devil's advocate for little while there with KRUGMAN's proposals.
So what do i Think?
I think that both Keynesians and Austrians think market actors are stupid. Keynesians think that markets are inherently unstable, and government is needed to fix the market's stupidity. Austrians think that markets are able to be consistently bamboozled by false price signals, again and again and again, without forming expectations about the future. Both are obsessed, and i mean obsessed, with interest rate Wicksellian garbage.
Only the monetarists, neo-monetarists and neo-Friedmanites have the middle ground. They understand that tight money, (relative to expected NGDP growth, [you can tell i'm a Scott Sumner fan.]) caused caused this recession, and a powerful rule will get us out of it
Ok Nate and whatever progressive Keynesians thre may be trolling around, will you reply to the point I made?
All the empty talk is useless. I told you: trade deficit is >3% of GDP. Consumption and capacity utilization are near normal. Thanks to the Fed there is all the liquidity you could wish. Government is deficit spending at a rate 35% higher than 2008.
WHERE THE HECK ARE THE JOBS?
Keynesianism is pathetic. Krugman and others who lament over idle resources and bitch and moan about aggregate demand being lacking need to know one thing: IT IS THE GOVERNMENT STUPID!!
" I told you: trade deficit is >3% of GDP"
It's not the trade deficit, its the size of China's dollar reserves., and the fact that changes fixes its exchange rate, which is an anti-market practice. Maybe before you rant and rave about the U.S. government you should take a look at foreign governments
We DON"T HAVE ALL THE LIQUIDITY IN THE WORLD. Interest rates are a terrible, useless indicator of monetary policy. They are partially low right now because of the FED. They are partially low because of the flight to safety effect, and they partially low because demand for new loans by an over-indebted sector.
I find it curious that you call yourself an "AMERICAN PATRIOT" yet oppose policies that will make America stronger, such as a cheaper more competitive dollar.
" Krugman and others who lament over idle resources and bitch and moan about aggregate demand being lacking need to know one thing: IT IS THE GOVERNMENT STUPID!!"
It IS the government stupid. Its the government failing to do the thing its supposed to do. Its like firemen who are fighting are raging firestorm, and after pouring more water than they ever did before, rest say, "stop, we need to worry about flooding" Meanwhile the fire is still burning.
By the way, no doubt we have structural, regulatory problems, but that's no reason to think more AD wont help. AD wasn't a Keynesian invention by the way
sorry i meant to say "CHINA" fixes its exchange rate
Nate:
It's not the trade deficit, its the size of China's dollar reserves.
Printed by the Federal Reserve System.
and the fact that changes fixes its exchange rate, which is an anti-market practice.
Central banking is already an anti-market practice. To say that printing money according to a foreign peg, versus printing money to target an interest rate, is "anti-market" is like saying death by torture instead of by firing squad is "anti-life."
We DON"T HAVE ALL THE LIQUIDITY IN THE WORLD.
Yes, we do. There are trillions and trillions of dollars available. People are holding more cash than they used to. The problem is not that there is not enough money.
I find it curious that you call yourself an "AMERICAN PATRIOT" yet oppose policies that will make America stronger, such as a cheaper more competitive dollar.
It's anti-American to advocate for government to control the economy.
It IS the government stupid. Its the government failing to do the thing its supposed to do.
No, that presupposes that the government can do what you claim they can do, but they can't, and the problem is not that they aren't doing what's right, it's that they are doing something at all. No individual or group of individuals called a state can plan an entire economy. Mises and Hayek taught us this.
By the way, no doubt we have structural, regulatory problems, but that's no reason to think more AD wont help.
AD "help" is what helped cause the mess in the first place. It cannot be a cure.
"It's not the trade deficit, its the size of China's dollar reserves.
"Printed by the Federal Reserve System."
What's your point int that?
"and the fact that china fixes its exchange rate, which is an anti-market practice."
Central banking is already an anti-market practice. To say that printing money according to a foreign peg, versus printing money to target an interest rate, is "anti-market" is like saying death by torture instead of by firing squad is "anti-life.
Central banking is anti- market but some forms are more vicious and interventionist than others. For example, a discretionary central bank is awful, whereas a rules bound one is not. They have to be the right rules though. My original point was that right wingers always like to talk about all forms of U.S. government intervention in the free market. Yet rarely do you hear Austrians talk about the impact foreign governments have on Americans, why?
We DON"T HAVE ALL THE LIQUIDITY IN THE WORLD.
Yes, we do. There are trillions and trillions of dollars available. People are holding more cash than they used to. The problem is not that there is not enough money.
Oh my God. WHO is holding the cash pete? Banks with reserve accounts at the Fed. They are not lending it out like they used to. This might not be a bad thing, but its undeniable. Also Fortune 500 companies, specifically the largest American corporations, are sitting on trillions in cash, which look MUCH LESS IMPRESSIVE WHEN MEASURED AGAINST THE SIZE OF THEIR DEBTS. Also ordinary households and small businesses, you know the job creators, don't have all that much liquidity.
"No, that presupposes that the government can do what you claim they can do, but they can't, and the problem is not that they aren't doing what's right, it's that they are doing something at all. No individual or group of individuals called a state can plan an entire economy. Mises and Hayek taught us this."
I NEVER SAID that someone can plan an entire economy. All i would like to see is the fed follow a nominal target, and let the market meet that target. Ideally, we would have free-banking, with no legal tender. But we don't have that,not yet. the question is how to produce the best results within a bad system. Say the government banned all private volunteer firefighting agencies. Would you say then that the correct response, when the G fire dep. encounters the fire is to stand by and do nothing? (i know what you would say, how would you trust the gov. fire department when they're the arsonists, but that presumes ABCT which you haven't proven yet. ) The point is that there is no government doing nothing, Even when the government does nothing, its still doing something
By the way, no doubt we have structural, regulatory problems, but that's no reason to think more AD wont help.
AD "help" is what helped cause the mess in the first place. It cannot be a cure.
No AD help didn't cause this mess. What caused this mess is imprudent behavior by the private sector, combined with U.S. government moral hazard, combined with the Chinese government's asinine peg, combined with a whole host of other factors. In a model with fully flexible prices, deflation raises AD. Is that a bad thing?
Nate:
now why would anyone prefer a weak dollar? We import more than we export, so you want more expensive foreign goods? Manufacturing? If you think a weaker dollar will bring jobs back to the U.S., you are dreaming. Between taxes, regulations, and hugely cheaper non union labor, those jobs are gone for good.
Plus, oil is traded in dollars. A weaker dollar = artificially higher oil and other commodity bubbles.
As I said, all the conditions are there for job growth except the most important one: confidence in government policies.
All businessmen say the same as well as us logical types who see it innately. Why can't you?
It is ridiculous to be telling the job creators that they are wrong about why no jobs are being created.
AP.
The reason why i'm in favor of a weak dollar is because its what the free market "wants" to happen." The yuan is articficially undervalued vis a vis the dollar, which is exactly the same thing as saying that THE DOLLAR IS ARTIFICIALLY OVERVALUED VIS A VIS the yuan. whats unnatural in this case is other countries central banks sixty of them deliberately fixing their currency to ours and making the dollar too strong and I don't think, as many conservatives seem to think, that a strong currency means a strong economy. A currency's strength or weakness has nothing to do with the strength of the overall economy in general, only the import export sectors, and the effects on debt. In the 80's we needed a strong dollar to counteract inflation. That was the appropriate medicine at the time. This time however as in the great depression, we need a weak currency which has drawbacks yes but more expensive imports is um, the way to get americans to stop buying so much abroad and for manufacturing to get back home.
As for businessmen and regulation and aggregate demand, i think businessmencareabout both Businessmen care about sales more than anything else and i think lack of demand is affecting their sales. I think Krugman underestimates the impact of negative regulation and you guys underestimate the impact of the lack of demand BOTH ARE PROBLEMS!
Lack of "demand" is a "problem" really?
http://mises.org/daily/5641/Its-Not-about-Consumption
"According to these data, real personal consumption expenditure recovered from its recession decline by the fourth quarter of 2010. Continuing to grow, it now stands (as of the most recent data, for the second quarter of 2011) even farther above its prerecession peak."
does that sound like a "demand" problem?
Its not the demand, stupid. It's a coordination problem.
Nate,
"The reason why i'm in favor of a weak dollar is because its what the free market "wants" to happen.""
You rant and rave about other countries central banking policies and strongly advocate the US government to act to counteract these actions. So with all this manipulation happening, please explain when and where the "free market" occurs and how you draw conclusions from it?
"we need a weak currency which has drawbacks yes but more expensive imports is um, the way to get americans to stop buying so much abroad and for manufacturing to get back home"
They dont want to do so and dont really care what your opinions are to the contrary. By what right do you presume to make those decisions for them?
"Businessmen care about sales more than anything else and i think lack of demand is affecting their sales."
Demand is infinite. It is limited only by human desire, but desire alone cannot summon anything into Production and time are scarce resouces. You have demonstrated absolutely no understanding of austrian principles after going out of your way to make assurances that your familiarity was greater than those we have debated before.
You have been less than impressive.
desire alone cannot summon anything into being. Production and time...
Dont know why it posted like that.
Nate:
What's your point int that?
The point is that the Federal Reserve System is the cause for the large US dollar reserves owned by the Chinese.
Central banking is anti-market but some forms are more vicious and interventionist than others. For example, a discretionary central bank is awful, whereas a rules bound one is not. They have to be the right rules though.
Anti-free-market practices are vicious and interventionist to begin with. And there are no "right rules" with central banking. It's impossible to plan and manage the economy like that. Read Mises and Hayek's refutation of socialism. The core of the refutation applies to any scale central economic planning, even a system with communist central banks but a free market in non-banking activity.
My original point was that right wingers always like to talk about all forms of U.S. government intervention in the free market. Yet rarely do you hear Austrians talk about the impact foreign governments have on Americans, why?
Because we have bigger, more dangerous fish to fry at home, and most Austrians are non-interventionists abroad.
Unilaterally practising a free market at home is the best defense against foreign governments affecting economies, not getting the domestic government to intervene in the domestic economy.
Oh my God. WHO is holding the cash pete?
Oh my God. EVERYONE, Nate. Some more than others.
Banks with reserve accounts at the Fed. They are not lending it out like they used to.
[Facepalm] The point is that the LIQUIDITY IS THERE. Banks are not lending out like they used to because what they used to do was far in excess.
This might not be a bad thing, but its undeniable. Also Fortune 500 companies, specifically the largest American corporations, are sitting on trillions in cash, which look MUCH LESS IMPRESSIVE WHEN MEASURED AGAINST THE SIZE OF THEIR DEBTS.
Allow liquidation of bad debt, and continue to liquidate bad debt, until cash balances stand in a higher ratio to debt.
Also ordinary households and small businesses, you know the job creators, don't have all that much liquidity.
There is plenty of liquidity. The appearance of not enough liquidity is an illusion brought about by not understanding the structural problems. An economy that is twisted and distorted to all shit is not going to be able to be fixed by increasing the money supply. The problem is not that there isn't enough money!
I NEVER SAID that someone can plan an entire economy.
You want the central bank to plan the entire economy's money production. The same criticism applies.
Nate:
All i would like to see is the fed follow a nominal target, and let the market meet that target.
In other words you want central economic planning in money production.
Ideally, we would have free-banking, with no legal tender. But we don't have that,not yet.
We will never have it as long as people cease fighting for it and instead capitulate and be opportunists.
the question is how to produce the best results within a bad system.
No, that's not the question. That's a silly and destructive attitude. To produce the best results, one must aim at the best end and work toward it, not aim at a bad end and work toward that while paying lip service to what is good.
Say the government banned all private volunteer firefighting agencies. Would you say then that the correct response, when the G fire dep. encounters the fire is to stand by and do nothing? (i know what you would say, how would you trust the gov. fire department when they're the arsonists, but that presumes ABCT which you haven't proven yet. )
Huh? What blathering nonsense is this? "That presumes ABCT"? What?
If the government banned all private fire fighting, then the correct response would be to fight against that ban, not join in the calls for taxing people to pay for monopoly fire fighting.
You don't have to accept what bad people do in order to be in favor of helping people. It's almost like you believe you have to be a part of the government's team, or else you become an alleged advocate of the evil they initiate.
The point is that there is no government doing nothing, Even when the government does nothing, its still doing something
Even when the government does nothing, it is doing something? False. If the government does nothing, then that includes them doing nothing to stop the people from solving their problems on their own terms.
No AD help didn't cause this mess. What caused this mess is imprudent behavior by the private sector, combined with U.S. government moral hazard, combined with the Chinese government's asinine peg, combined with a whole host of other factors. In a model with fully flexible prices, deflation raises AD. Is that a bad thing?
False. AD did help cause the mess because it was the increasing AD in response to the Nasdaq bubble bursting that blew up the housing bubble, which has since burst.
"Imprudent behavior by the private sector"? What enabled/caused that?
The Chinese government did not cause the recession in the US. That is a silly scapegoat founded upon an ignorance of economic principles.
In a model with fully flexible prices, deflation does not raise AD at all, and this is the case no matter is you define deflation as falling quantity of money or falling prices.
Nate:
The reason why i'm in favor of a weak dollar is because its what the free market "wants" to happen."
No, the free market wants to liberate money production from legalized monopoly counterfeiters and placed into the hands of a process that cannot be centrally planned. It's why violence is used to back the US dollar. It's because the peaceful market process wants to use something other than paper.
You cannot claim that hoarding money means people want the purchasing power of money to fall. It's the exact opposite. By hoarding cash, that decreases demand and thus prices. Decreasing prices will raise the purchasing power of money. That is what would happen if the Fed stopped inflating the way they have.
It's not a demand problem, it's a coordination problem. There is more than enough money to facilitate all transactions, provided prices adjust according to free market processes, which are of course being violently suppressed, to the further destruction of the US economy. The state and central bank simply refuse to let up. They're raging sociopaths.
There is a fundamental fallacy that runs in about everything Krugman writes, and that is what Lawrence Reed once called the "Fallacy of Production for its Own Sake."
With Krugman, jobs are a transmission device for income, which then provides the means for "aggregate demand." In other words, the end of an economy is the job; it is production for its own sake.
So, the "solution" is obvious: have government "create" jobs so that people can have an income. (He doesn't explain that such a view ultimately will lead to the conclusion that government simply should mail everyone a check, since that would have a lower opportunity cost than what it would take to "create" a job. Just give everyone an income, they will spend it, and the economy will magically rise up.)
There are a million more things I could say here, but I must say that I marvel at how Krugman dismisses the Law of Scarcity and the Law of Opportunity Cost in such a cavalier way. There isn't a thing he says that Henry Hazlitt did not debunk in his 1959 classic, The Failure of the New Economics.
Bad move pete.
You called them sociopaths.
I label you an extremist and render the detailed responses and well thought out counterarguments not worthy of my dubious cognitive functions.
Check and mate sir.
ekeyra:
The definition of a sociopath is one who seeks to initiate violence against innocent people, and feel no remorse over it.
That accurately characterizes those in government and the central bank.
What, did you think that hundreds of thousands of innocent people killed overseas, and the tends of millions of unemployed at home and the millions in jail for non-violent crimes, is the product of chance or dumb luck? No, it's the product of raging flaming sociopaths in the state.
Sorry that you want to believe that you are living in a world where sociopaths are all in straightjackets and locked up where they can't hurt anyone, but we're not living in that world. Just like we look at past ages and consider feudal and tribal despots as sociopaths, so too will future generations look back at democratic states and come to the same conclusion.
I'm sure many people like me were also labelled as extremists for calling out the state in enslaving people during the dark ages.
If your brain reacts to my arguments with knee jerk dismissal, then I can only say that you just haven't realized the truth yet.
Pete, I believe ekeyra was being facetious.
Anonymous:
I don't know ekeyra well enough to surmise that. If he is, my bad. If he isn't, well then I guess I saved the next guy the trouble.
Sorry Pete,
I assure you I take economics seriously, just not blog posting seriously. I thought you would be amused at recognizing the usual pattern of debate. They are at such a loss for a coherent response because not only do they not understand the austrian framework, it never occurs to them that there is any other framework to contemplate.
I would have to say I agree wholeheartedly with just about everything you've discussed with much more detail and patience than I am capable of with persons of very little critical thinking skills.
After examination however I do have to take issue with just one thing.
"What, did you think that hundreds of thousands of innocent people killed overseas, and the tends of millions of unemployed at home and the millions in jail for non-violent crimes, is the product of chance or dumb luck? No, it's the product of raging flaming sociopaths in the state."
I would never try to float the idea that we are not ruled by sociopaths and psychopaths of a truly staggering variety, I would say that the outcome of government actions are always death and destruction no matter who is manning the controls. I understand the need to illustrate how truly removed from reality the political class of this country is, but even if they were replaced with the kindest hearted angels among men, the outcome would, quite sadly still be the millions of dead, unemployed and oppressed people. It is the mechanisms of the iniation of force that produce these outcomes, not the intentions of our presumed masters. If that were the case, credence would have to be paid to the argument that it would not be so if the "right" people were in charge. And we both know how ludicrously naive that perception is.
ekeyra:
The Imperious Lord Keynes has PROVEN just how easy it is for the allegedly dumb-ass masses to get those right people in charge by purposefully avoiding any comprehension of the "problems of knowledge". SWAT Teams know best, didn't you know? A priori.
http://tinyurl.com/3rlauko
"When you introduce an intervention to influence the state of a nonergodic stochastic system, that process and outcome is not in the same ontological category or status as the future of that system, without intervention. "
That sentence created a 30 car pile up in the information highway in my brain.
But yes, the usual nonsense prevails.
I especially liked the suggestion that pete start his own social darwinism blog. As if channeling humanitarian efforts into a human meat grinder is not only a good and proper thing to do, but all actions not directed in such a manner are doomed to failure.
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