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March 06, 2006
Krugman Conflicted
Don Boudreaux
Paul Krugman is feeling some skepticism about globalization.
He says that he doesn't want to stop outsourcing, but he admits that outsourcing has him feeling "conflicted." (While criticizing George Bush's answer to those Americans who lose jobs to greater international trade, Krugman keeps his readers in the dark about his solution to the apparent problem. Would he limit, if not stop, outsourcing? If so, how and by how much?)
Krugman wasn't conflicted nine years ago about expanding trade. He ended this superb 1997 Slate essay by saying that oppoents of trade "are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty."
Now it's true that Krugman in this Slate essay focuses on the benefits that globalization brings to people in poor countries. But trade then, as now and as always, is a two-way street.
Perhaps Krugman believed that in 1997 greater international trade caused too few job losses in America to cause concern, but that the job losses caused today by trade are greater or more important than were job losses ten years ago -- so much greater and more important that the moral obligation that Americans had nine years ago to allow the world's poorest people to escape poverty through trade has been overtaken by the moral obligation to protect identifiable Americans from the pain of job loss.
Or, perhaps, sometime in the past nine years the needle on Krugman's moral compass has shifted.
Posted by Don Boudreaux in Trade | Permalink
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Comments
I think we all know what changed over the past 9 years.
Sadly, I'd bet that Paul Krugman would again become a useful, interesting pundit a future Democratic administration. He was under the previous one. Apparently, however, "good intellectual practice" is subservient to partisan advantage.
Posted by: Jon Henke | Mar 6, 2006 2:27:34 PM
I think I know what happened to Krugman... he started gettin a paycheck from the New York Times and went from being a respected economist to a political hack.
I swear, reading some of his essays from 10+ years ago and I am just amazed that this is the same guy who's afflicted with Bush Derangement Syndrome.
Love your blog!
Regards,
St Wendeler
Another Rovian Conspiracy
Posted by: St Wendeler | Mar 6, 2006 2:36:00 PM
If any of you have the chance, check out one of the previous editions of The Freeman, where Boudreaux explains part of the cognative dissonance some people feel when accepting the easier trade off, kind of like what mr. krugman has when thinking about trade. I can't remember what edition it was, sometime this past fall, ironically enought it was about consumers shopping at wal mart.
Posted by: Robert | Mar 6, 2006 3:05:25 PM
As I remember it, the U.S. job market was red-hot in 1997. The U.S. unemployment rate was 4.7% and the economy grew 3.8%. It must be easy to assume the moral high ground, as Krugman did, when it seems that no one can possibly be hurt. One's true conviction to economic principles may only be revealed when times are challenging. Those challenging times, of course, are when the nation most needs to hear truths from its economists, including those truths that are uncomfortable.
Posted by: John Dewey | Mar 6, 2006 5:26:48 PM
I have to agree with Henke and Wendeler. Krugman is letting his partisan politics get in the of this economic analysis. I've noticed he's much more likely to write articles free of hard data, and is entirely focused on proving the Neocons wrong. He should definitely get back to focusing on the economic fundamentals. I would definitely like to see him just write more on the important economic issues rather than partisan attack pieces.
Outsourcing and the development of India and China overall are very positive phenomenon for the global and US economies. However, the increased level of economic dislocation among non-competitive sectors of the economy are a concern. He should have backed this up somewhat with some data and pointed out how certain social policies might mitigate some of these negative consequences.
Posted by: Akeel Shah | Mar 6, 2006 7:39:24 PM
Great points. Krugman scares me.
Chris
http://amateureconblog.blogspot.com/
Posted by: Christopher | Mar 6, 2006 7:59:19 PM
*** As I remember it, the U.S. job market was red-hot in 1997. The U.S. unemployment rate was 4.7% and the economy grew 3.8%.***
Yeah, those were the days, under the enlightened Clinton. Whereas now we're languishing in the Bush depression, with unemployment at 4.7% and annual GDP growth for the year at, uh, 3.5%
Anyway, we've all seen this loads of times. Krugman 97 was a solid program -- some thought it would be award-winning -- you could count on it; but it's become increasingly buggy over the years.
Krugman 01 began to show the first signs of instability. By the time Krugman 05 came out and they started charging for it, it had ironically become completely worthless. What a shame.
Posted by: Kevin | Mar 6, 2006 8:48:36 PM
Aside from the question of whether US citizens are actually hurt by outsourcing, I can hardly believe how easily these people can get away with treating non-Americans as though they are not even people.
I just listened to a talk by the Co-Chairman of the American Manufacturing Coalition, in which, with moral indignation, the speaker claimed that US trade policy was driven by foreign policy goals, without even looking at the effect on the American economy. He then briefly hinted that the foreign policy goals he was refering to basically involved helping people in extreme poverty around the world.
Posted by: catquas | Mar 6, 2006 11:16:42 PM
Krugman is not, in any understandable sense, an economist. He is a polemicist for political "management" of economic activity. The insight which must be maintained is that the intended beneficiaries of Krugman's various pieces are not either the poor in certain places or those dislocated or threatened by dislocation at home. ALWAYS, the intended benficiaries are those whose political fortunes seem liable to be impacted by such phenomena.
Posted by: gene berman | Mar 7, 2006 8:52:12 AM
Kevin,
I don't blame the Bush administration for the economic conditions during most of his presidency. Nor do I give Clinton alone credit for the economic boom during his second term. But the U.S. economy was stronger from 1997 through 2000 than it has been since:
Average unemployment, 1997-2000: 4.4%
unemployement 2001: 4.7%
Average unemployment, 2002-2005: 5.6%
Average GDP growth, 1997-2000: 4.2%
GDP growth, 2001: 0.8%
Average GDP growth, 2002-2005: 3.0%
I separated 2001 because some will claim it is a Bush year, though most recognize that Clinton's last fiscal year ended late in 2001.
Please understand that I am a conservative Republican. I think Newt Gingrich deserves more credit for the late '90's boom than does Clinton. And perhaps foolish venture capitalists and inept corporate leaders were guilty of overinflating the balloon that eventually burst.
Posted by: John Dewey | Mar 7, 2006 10:26:52 AM
"And perhaps foolish venture capitalists and inept corporate leaders were guilty of overinflating the balloon that eventually burst." No way?
As much as I think Krugman is dangerious, he may have a point which would be interesting to explore (and I am sure has in a papers I haven't seen?). As we ascend the skills pyramid and become hawkers of services in a global forum without the commensurate opportunity to take our skills elsewhere (labor restriction) how can we possibly think this is a winning trade? Has the feel of a death tax redistribution of income to me? We can't seriously belive that the others out there will eventually tire of the sewing maching and aspire to the investment banking jobs. So when our services comparitive advantage wanes (just playing the population trends/reality here), I suppose we can become the utmost "marginal" producer but "perfect" consumer.
Admittedly these are incredible complicated challenges and tradeoffs, but as a steadfast republican I am troubled by the reflexive party mantra free trade or else. The approach seems a bit outmoded especially when we are touting the incredible benefits of CAFTA. Seems to me the lion's share of the marginal benefits are going to our counterparties and in the near term houseing wealth.
Posted by: konaman | Mar 7, 2006 12:06:19 PM
Much of what Krugman says these days contradicts his academic work. He comes out against Walmart too, contending that it lowers wages. His own work on trade shows how trade raises improves welfare due to a)more competition leading to lower prices and higher real wages and b) more significantly, due to more variety. Krugmans claim to fame lies in the entire concept of "love of variety" and how it bolsters welfare. Not once in his tirades against Walmart did he mention points a) and b) which were pivotal to his "new trade theory".
Posted by: gary | Mar 7, 2006 1:52:33 PM
Perhaps because the new theory isn't working out so well in the real world
Posted by: Konaman | Mar 7, 2006 2:41:13 PM
This thread, with one exception, sure seems like a circle jerk.
Did anybody rtfa? Krugman mentions the impact of globalization in the context of the bigger picture of the current administration's pandering to the interests of a narrow group - the superrich.
My own pov suggests that this is a valid point- though no specific remedies are forthcoming Mr. Krugman.
Just off the top of my head - top to bottom tax reform or legalization of certain controlled substances would be two opportunities that could radically affect the float of all boats
Posted by: Pete | Mar 7, 2006 3:25:53 PM
Pete,
Insults ought to work well in getting your point across. I'm sure your posts will get many responses.
Posted by: John Dewey | Mar 7, 2006 3:47:07 PM
Konamen,
The reason new trade theory received so much attention and respect is that it *did* explain real world phenomena. After all, thats surely what a successful theory does and Krugmans theory is widely regarded as such. (Besides, the principles underlying the theory are hardly controversial; namely more competition reduces prices and that consumers prefer a variety of goods to merely more of the same).
Posted by: gary | Mar 7, 2006 5:47:23 PM
"...as a steadfast republican I am troubled by the reflexive party mantra free trade or else. The approach seems a bit outmoded..."
Free trade is hardly the Republican "party mantra," more like handing out subsidies and protection from foreign competition.
As for "free trade or else" being "outmoded," that's probably the silliest thing I've read all day. 100% free trade is, always was, and always will be the best possible trade policy. When two individuals trade, they are both made better off. How could you possibly make the world a better place by preventing them from doing so?
Posted by: Noah Yetter | Mar 8, 2006 12:02:22 PM
Noah,
I am all for 100% free trade but unfortunately that only exists in academia. If labor, not autos, is increasingly our comparitive good and its movement is restricted, how are we better off? Outsourcing is merely an arbitrage that the market can not correct because of extrinsic factors.
Gary-
How many social science theories are proven incorrect as circumstances change and new evidence is uncovered? I lost count. I am not disputing the obvious points that consumers like lower prices and more variety. People like ferraris, yachts and mansions too. I am suggesting that the very Americans enfranchised by everyday low prices have not fully considered how disenfranchising is their race to the bottom - especially when some of our best exportables are kneecapped by more important employment/nationalistic policy persscriptives. The flip side of Walmart low prices is job creation in China? It is not clear Americans are patient enough for foreign markets in outsourced lands to mature, especially when the foreign cheap labor lobby has such a deep bench (more than a billion people in India and China alone). Help me understand the math, not theoretical abstractions. Free trade is a worthwhile goal, but let us stop pretending that it is the governing regime. It is not. Afterall, economics is a social science.
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