Is Paul Krugman Mad?

by Pejman Yousefzadeh on October 6, 2010


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?

  • Ferret

    The fact of the matter is US capitalism is broken, and is nurturing communist China, giving China ever-more power–while reducing the US from a viable capitalistic country to a plutocratic shell. This has got to stop. China presents a risk to our security.

    Economic theory assumes that capitalists pursuing their individual interests are led to benefit the general welfare of their society by an indivisible hand. But offshoring, or the pursuit of absolute advantage, breaks the connection between the profit motive and the general welfare. The beneficiaries of offshoring are the corporations' shareholders and top executives and the foreign country, the GDP of which rises when its labor is substituted for the corporations' home labor. Every time a corporation offshores its production, it converts domestic GDP into imports. The home economy loses GDP to the foreign country that gains it.

    My gut sense is something is going to happen sooner rather than later. I'm not a follower of gold, but its price may have a message.

Previous post:

Next post: