Thursday, November 24, 2016

Trumped Up Trade Policy

Brad DeLong challenges Donald Trump on his claims regarding trade policy:
In the United States 24% of nonfarm workers were manufacturing workers in 1971. It's 8.6% today. Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%--analysts disagree on trade expansion vs. trade diversion here.
Granted but let’s go further. The standard Mundell-Fleming model notes that under floating exchange rates, trade protection tends to appreciate the currency which virtually offsets any benefits to net exports from the trade protection. Of course one might wonder if there is anything one could do to alter net exports to which Brad adds a little more wisdom:
Maybe it would be 12% if the United States had followed Japan's and Germany's roads of being high-savings low-currency value countries focused on nurturing their communities of engineering excellence, rather than running the Reagan and Bush 43 deficits and combining that with a focus on financialization and a strong-dollar policy. I certainly think that would have been a better policy road for the United States. But it gets you only to 12% at most--not back to 24%.
Again – the standard Mundell-Fleming result. Germany and Japan’s policies have been the reverse of the disastrous mix of tight monetary policy and excessive fiscal stimulus we witnesses in the early 1980’s, which led to a massive appreciation of the dollar and a massive decline in net exports. While I’m all for a large public infrastructure stimulus, let’s not overdo fiscal stimulus by also providing massive tax cuts for the rich. If the President elect wants to see more net exports, he should stop asking the Federal Reserve to raise interest rates. Trade restrictions are not the answer – a more intelligent mix of fiscal and monetary policy is.


Anonymous said...

Let's stop calling it a strong dollar or weak dollar. Let's call it an expensive dollar or a cheap dollar. Strong implies good. Good for whom?

Owen Paine said...

Hopeless muddle

Yes an optimal industrial policy for the United States
Should not be about industrial employment max

Balanced industrial trade as a domestic goal
above and beyond over all trade balance
Requires long run domestic economic developmental justifications
Job scarcity and wage share dynamics are a complex product of macro policy

Up shot
Maximal numbers of Jobs can be generated with adequate macro policy
And this can be accomplished regardless of the sectoral distribution of net jobs

High paying jobs ?

A supportive macro policy is necessary if not sufficient
First step
End the reserve army of the unemployed

Abolish the policy cycle
Kill NAIRU nomics

Btw pgl

Invoking Mundell ... Has its limits

Conflating selected comp stat tendencies
with certain dynamic outcomes
Is Typical cue ball casuistry

Other factors can easily overwhelm the tendency of an improved trade balance
To lift forex and counter tariffs

Policy can squelch Mundell
Policy Including deliberate countervailing interest rate management
For example

Yes this generates its own set of additional tasks
But such is the dynamic processes

A juggler can walk with more balls then he can carry in his hands

Speaking of balls
If any one bothers to read this dash off

A pro job class macro Policy should be obvious
To anyone

Start with
A macro policy of Super tight job markets in perpetuity

Certainly accomplished
Thru adequate fiscal / credit policies

And if we get wage push inflation ?

Grow a pair comrade

Impose Lerner mark up markets



Go ahead and hide behind Crackpot realism

But never contend the possible is impossible
When state power
in "enemy class hands "
is all that blocks the resolution
of current class dilemmas

Yes we can achieve Trade balance

Forex management
and if it's necessary to get there fast
Buffet import chits

Nonsense about fiscal constraint not withstanding

ProGrowthLiberal said...

Gee Paine is back insisting one should never pay attention to the model of his mentor as Paine can toss out all sorts of muddle as he calls the Mundell model itself hopeless muddle. Ahem.