Everyone keeps telling me how smart Paul Krugman is. And I believe it. But just because one is intelligent, that does not mean one is free from madness.
“Madness” is, of course, a strong word. But “madness” is also about the only way that I can characterize Krugman’s constant calls for a trade war with China over currency revaluation. At the Economist’s Free Exchange blog, Krugman’s madness is taken on directly. As this post points out, Krugman (1) does not discuss the costs and benefits associated with a trade war; and (2) would attack anyone on the Right if they failed to discuss the costs and benefits associated with the advocacy of a drastic and unconventional policy. In this post, we see that Krugman argues that a “modest appreciation” in the renminbi is no big deal, and that the Chinese shouldn’t be worried about it, but also tells us that if the Chinese continue to resist calls for currency revaluation, well, then yes, Virginia, we ought to have a trade war. On top of all of that, he fails to put down negotiating boundaries, and fails to tell us when, if ever, his brand of economic diplomacy has worked in the past. Want to be depressed? Read the conclusion to the first post I linked to:
Frankly, I’m disgusted all the way around. It is embarrassing for an economist of Mr Krugman’s calibre to be arguing in such a prominent place, on such flimsy grounds, for such a risky policy. It is sad that this has generated so little criticism from economic pundits who should know better. And it’s frustrating that America’s heedless policymakers have led us to this place, by acting insufficiently to boost American demand, by acting insufficiently to remove disincentives to save among American households, and by allowing Congress’ tariff-happy legislators to lead on the issue rather than pushing for meaningful multilateral talks on global imbalances.
But look, if you think the conversation is lame now, just wait until this time next year.
Something to look forward to. “Madness” seems like quite the apt word now, doesn’t it?