...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.