Dr. Krugman Loves a Lump

From Equities.com:

Free Trade Claims that Deserve Some Lumps 

Alan Tonelson | Thursday, 31 March 2016 09:54 (EST) 

All knowledgeable students of economics know that a big reason for rejecting most critiques of U.S. trade policy is their allegedly heavy reliance (explicitly or not) on the “lump of labor fallacy.” 

As explained by economics Nobel-ist and New York Times columnist Paul Krugman, the fallacy holds that “there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs.” And it’s especially pernicious, Krugman explained, because it “feeds protectionism. If the public no longer believes that the economy can create new jobs, it will demand that we protect old jobs from new competitors in China and elsewhere.” 

So it was interesting, to say the least, to see a leading economist this week make clear that this fallacy isn’t so fallacious, and that its existence strengthens the case for U.S. policies that depart from the free trade norm. Even more interesting: His name is Paul Krugman.

Why Has Finance Gotten So Rich in a Competitive World?

This is what Kevin Drum logically asks.  I’m running off to a meeting, so my answer will be telegraphed:

1. Rent extraction from profit-making firms.  The wage share has fallen, but the profit share hasn’t risen correspondingly.  The reason is that finance has found ways to extract the difference.  Exactly how is a longer story, but it’s at the core of what “financialization” means in practice.

2. Externalities.  In a lot of trading activity there are external costs that are not accounted for, especially the cost of public backstopping in the event of insolvency.  Finance has gotten better at playing the risk/reward game by externalizing the risks.

Have to go.

Tropical Mathematics and Classical Economics

I have just returned from a conference of the Japan Association for Evolutionary Economics at the University of Tokyo.  There I met Yoshinori Shiozawa of Osaka University who has applied a form of math I did not know of previously, tropical mathematics, to Ricardian trade theory, providing a version that depends on input-output analysis that he claims is consistent with Ricardian-Sraffian classical theory with the labor theory of value intact.  His first paper on this appeared in the journal of SIAM, the Society for Industrial and Applied Mathematics, and one last year appeared in the Japanese journal, Evolutionary and Institutional Economics Review, in a special issue edited by mathematician, Donald Saari.  His papers on this and related topics can be accessed at Research Gate.

Tropical math comes out of algebraic geometry and involves semi-rings with two operations, one a minimizing one and the other an additive one.  This generates a linear piecewise linear skeletonized hypersurface, which in the context of trade theory looks to me to bound facets of a PPT that define zones of comparative advantage for different products.   Shiozawa uses a version that depends on a variant called "sub-tropical algebra" (and geometry).  This form of math was invented by Brazilian-based (for which the name "tropical" was given) but Hungarian-born Imre Simon, who died in 2009.

The other application in economics that I am aware of has been by Paul Klemperer in designing product-mix auctions, first used by the Bank of England in 2007 for carrying out in a single auction  of multiple differentiated product what used to involve a multiple series of auctions.  Klemperer has a few papers on this, with probably the most prominent being "The product-mix auction: a new design for differentiated goods," Journal of the European Economic Association, 2010.

Barkley Rosser

Trump Destroys No First Nuke Use Focal Point

It has never been formally stated, at least not in a diplomatic ceremony or treaty, but well before the end of the Cold War a focal point norm had gradually developed among the nations that possessed nuclear weapons that nobody would be the first to use nuclear weapons, although there was a sort of implicit remnant of "Unless we are seriously invaded and our national existence is threatened."  But the very lack of statement in any official way was part of what made the focal point norm exist.  Many credit Thomas Schelling with being the crucial figure in all this, both by inventing the idea of focal points in game theory (which was what he officially received his Nobel Prize for) as well as for privately and behind the scenes pushing specifically for such a focal point norm, with apparently getting at least the relevant US figures to go along with it, with the US of course being the only nation ever to actually use nuclear weapons against another nation (and I am especially aware of this having just been at a conference in Tokyo).  And it was US figures, most notoriously the late Gen. Curtis E. LeMay, who most loudly advocated using them in various situations, such as in his old "Bomb them back to the stone age," with regard to North Vietnam.

Now Donald Trump has blown apart the focal point, even if few seem to be focusing on that as perhaps the worst thing he has done so far in his generally nauseating campaign, where there seems to be more attention on how his  wife has behaved and what size his body parts are. He has allowed as how he might consider using tactical nukes against ISIS, and it would appear that Ted Cruz does not disagree with him, although maybe the Dem candidates do, or at least Bernie.  But the cat is now out of the bag.  No longer is  use of nuclear weapons not in response to a nuclear attack a forbidden norm/focal point.  Anything can happen.

OK OK, I recognize that at least one commentator in Russia made noises about using nukes against the US, and now Kim of North Korea has produced a video of a nuclear attack on Washington.  But neither of these were or are really taken seriously, at least not in the near future. But Trump is another matter, and if he gets into the White House with his finger on the nuclear trigger, all bets will be off.  All that effort by Thomas Schelling will be down the drain.

Barkley Rosser

The Politics of Futility

This morning’s rebuttal by Kevin Drum against Matt Taibbi’s endorsement of Bernie Sanders strikes a familiar note.  A lot of the commentary on the Democratic contest has taken the form of policy differences between the two candidates don’t matter because nothing much can be enacted because of the Republicans/public opinion/supreme court/zeitgeist/etc.  This is a politics that takes futility for granted.

Here are some phrases excerpted from Drum:

“But anyone who thinks Bernie could make a dent in this is dreaming.”
“....neither Hillary nor Bernie would be able to do much about it.”
“....neither one will accomplish much....”
“....there's virtually no chance of making progress on this....”
“....if you're disappointed by Obama, who's accomplished more than any Democratic president in decades, just wait until Bernie wins. By the end of four years, you'll be practically suicidal.”

The error in this way of thinking is that it’s all static, no dynamic.  It’s a judgment of what is feasible under current political conditions.  It assumes away even the possibility of changing those conditions.  If you think about the Reagan presidency’s long run effect on America, for instance, how much of it was about specific policy victories versus the shift in agenda and discourse that has been with us ever since?

What rankles a lot of us about Obama is not that he compromised, but that he pre-compromised by watering down his proposals before they were challenged, compromised down from that, and then acted and spoke as if none of this had been a compromise at all—as if his deepest desire was to leave the political context as unruffled as possible.  A lot of Bernie’s appeal is that he promises to do the opposite.

Why Declining Oil Prices Can Be Contractionary

Maury Obstfeld et al., writing on the IMF’s blog site, don’t do a very aggressive job of advertising their main observation, so let me do it here.

The problem is that you’d think that the decline in global oil prices since 2014 would be a net plus for the world economy, in the same way that the price spikes of the 70s were a (big) net minus.  That’s not what we’re seeing, however.  Overall, it’s a wash or possibly a slight negative, even if we don’t read too much into the link between oil and stock prices.  You might argue reverse causation, that it’s the slack in the economy that’s pulling down oil and other commodity prices, and there’s some truth in this, but, as Obstfeld and his coauthors point out, econometric studies have put most of the explanation for the price drop on increases in supply rather than reductions in demand.  So what gives?

Their point is simple but important.  Monetary policy throughout most of the developed world has been stuck at the zero lower bound, despite recent forays into negative rates for some instruments.  Under this circumstance, declines in the price level translate into perverse increases in real interest rates, and our IMF sources provide evidence that oil prices are moving in step with inflation expectations:

The bottom line (which they fudge around a bit) is that monetary policy really, really needs help.  Fiscal expansion is essential.

Pet Peeve: An America that Sees Only Itself

This is a small but typical example: the New York Times today ran a story about frictions in the switch to embedded-chip credit cards.  The process has been bumpy, and retailers think the banks and payment processors have been exploiting them, while the processors blame the retails for dragging their feet.  I don’t know anything at all about this, but one thing I do know is that the same transition occurred years ago in Europe.  You’d think a reporter delving into this topic would contact sources in Chipland, so our experience could be compared to theirs.  Maybe we could learn something that would help us sort out the tangle of charges and countercharges (so to speak).

But no.  Not a single word about the world beyond our borders.

I see this all the time.  People fulminate about the role of money in politics and the sins of Citizens United but pay no attention to the various forms business influence takes in other developed countries with a variety of campaign finance laws.  We can have a big debate about the economics of Bernie Sanders’ proposal to make public higher education tuition-free without so much as a glance at the many countries where that has been a reality for decades—one of which is right over the border to the north.

The problem isn’t American exceptionalism, it’s American self-absorption.

The Lesson of Carrier: America Needs a Real Socialist Agenda

I just finished listening to the video clip that has been making the rounds, in which a spokesman announces to the assembled workers at the Carrier plant in Indianapolis that their jobs will be moved to Mexico.  It’s embedded in a long article in today’s New York Times that uselessly follows the framing of this and similar events in American political discourse: it’s about whether you are for “free trade” or not, how you feel about Mexican workers versus US workers, etc.  The whole discussion takes as given the way corporations in the US (and Mexico) are run and the purposes they serve.  It invites us down a rabbit hole that leads to nowhere useful—tariffs and other barriers, or whether we need more programs to redirect some of the “gains from trade” to unemployed workers in the form of checks and education subsidies.  Not that trade doesn’t matter, of course, but it’s really missing the point to think that the deindustrialization of America is the simple result of engaging in international trade.

You’ll get to the heart of the matter if you linger on a passage that comes near the end:

Over all, United Technologies [Carrier’s parent] earned nearly $7.6 billion last year, and $2.9 billion of that came from the climate, controls and security division that includes Carrier.  Those profits aren’t under pressure; in fact, margins in the unit have steadily expanded in recent years. 

But that’s not good enough, said Howard Rubel, a senior analyst at Jeffries, who notes that United Technologies has vowed to cut at least a half-billion dollars in costs annually for the next few years.  “The stock hasn’t done well,” Mr. Rubel pointed out.

So here’s the problem: Carrier is profitable and there are no apparent threats to its continued profitability.  But it could be more profitable if it replaced workers in Indiana with workers in Mexico who can be paid about a tenth as much.  Investors, of course, demand these higher profits.  If the purpose of the company is to satisfy its investors, that’s what it needs to do.

But what should be the purpose of a company?  Businesses have many beneficial purposes: they can produce things people want and are willing to pay for, they can provide employment for workers and an economic base for their communities, they can promote education through training programs and linkages with schools and universities, and they can pitch in to promote social objectives like sustainability and racial and gender equality.  Through their R&D they can contribute to society’s fund of useful knowledge, and through their management and governance they can help cultivate democratic values of participation, cooperation and respect.  Of course, to do all these good things they need to be profitable, not just now and then, but on an ongoing basis, anticipating future threats to profitability and responding with innovation and toughness when necessary.

But putting the interests of investors above all others, and putting profit maximization above any other benefit they can provide, can turn them into instruments of economic, social and political decline.  It’s not just about shipping jobs to Mexico; moving jobs around the US to force workers to make concessions or simply because the costs of dislocation don’t matter to them, can be just as harmful.  Or maybe the way to make an extra buck is to cut corners on the environment, or to avoid paying taxes or to invest in politicians who can rig the system for you.  The ability of clever executives to devise new ways to boost profits at the expense of society will always exceed the capacity of regulators to keep them in line.

To put it in a nutshell, the actions of Carrier and the rest of corporate America reflect a system in which investors come first, and the primary goal of business is to maximize profits.  We need a system in which investors are just one of many constituencies, and the financial goal is to maximize the probability of remaining profitable over an extended time horizon.  Profit has to become a means, not an end.

The socialist agenda, as I understand it, is about the many reforms that move us closer to such a world.  It includes worker participation in corporate governance, but also representation of other community interests.  It can include measures to broaden ownership, including a role for public and social ownership vehicles along with private ones.  Financial reform also has a large contribution to make, especially if it expands the role of public and cooperative banking.  Consideration should also be given to measures that would alter the incentives to issue preferred rather than common stock or otherwise attenuate the connection between ownership and control—in other words, perform a Reverse Jensen.  And this is just the beginning: once you start thinking about it, you can see the agenda is enormous, especially because it’s been in mothballs for generations.

I wish there were a socialist running for president right now.

The Passing Of Meir Dagan

Meir Dagan has just died at age 71.  He directed Israeli  Mossad from 2004 to 2011, reportedly overseeing more covert operations than any other Mossad chief.  When Ariel  Sharon appointed him he described him as "having a knife between his teeth," and later Binyamin Netanyahu described him as "having a rocket-propelled grenade between his teeth."  Former PM Ehud Barak said of him, "Israelis owe Meir Dagan a great debt of gratitude even though we cannot tell them all the reasons why." He was especially noted for covert activities directed specifically at blocking the Iranian nuclear program, including at least software bugs as well as assassinations.  In short, he was the uber hawk in practice by Israel against the Iranian nuclear program.

I am bringing him up now because he was probably the most important of the reported "senior former" military and intelligence leaders in Israel who criticized the position of Netanyahu against the Iranian nuclear deal negotiated by President Obama.  Last March, about the time that Netanyahu spoke before the US Congress and denounced the deal while running for reelection as Israeli PM, Dagan was reported as saying "Israel is a country surrounded by enemies, but the enemies do not scare me.  I am scared of our leadership."

All this is from his obituary that appeared in the Washington Post today.

Barkley Rosser

A Thought on Bernie Sanders’ Rhetorical Strategy

The Sanders campaign has combined what ought to be mainstream liberalism and rhetorical radicalism.  Consider—you don’t have to go all the way to Denmark; Canada already has single payer healthcare and free higher education.  This is not a program from out in the ozone somewhere; it’s perfectly normal welfare state capitalism.  He dresses it up, however, in language about revolution and upheaval, even using the daring s-word.  This has shown a lot of appeal to young voters but may also intimidate others who might support him, and it would probably be a handicap in a general election against a truly radical, destabilizing Republican.  You would want to call attention to the risk posed by a Trump or a Cruz by presenting yourself as a safer choice.

Why not do it the other way around?  Push the policies further to the left by proposing changes to corporate governance and more far-reaching reform of labor law (for instance), while speaking in soothing language about “updating” the economy, improving performance, evidence-based approaches, etc.?  I think the more ideologically attuned portion of his base would value stronger substance, while the less fire-breathing posture (sorry about the mixed metaphor) would assuage the worries of those less inclined to take a giant leap.

I realize it’s way too late for this, and it goes against Bernie’s personality type, but perhaps it can be given more thought next time around.

Bern't Offerings

If Bernie Sanders had won all three primaries yesterday in Missouri, Illinois and Ohio by 51% to 49% margins, he would have picked up a stupendous NINE (9) more delegates than he did. Headlines would have read:

CLINTON FLORIDA LANDSLIDE SWELLS DELEGATE EDGE

Because even if Sanders had won three out of five primaries, Clinton would have picked up 55% of the delegates. The mainstream media's disdain for a non-center-right Democratic campaign comes as no surprise, however. What fascinates the Sandwichman is an insistant narrative from certain "left" critics that the Sanders campaign is the worst thing since Vidkun Quisling.

I feel their pain. The U.S. Democratic Party is a card-carrying member of the military-industrial-financial complex's bipartisan repressive duopoly. You can't teach an old hyena new tricks -- and it's dangerous to try. And all that.

But there is a tone to left anti-Sanders ranting that is reminiscent of the post-2000 Ralph Nader hate fest. "If only Nader hadn't run..." the narrative began and then proceeded to ignore the actual popular vote count, the electoral irregularities in Florida and the Supreme Court's tendentious squashing of a judicial recount AND to assume that every Nader voter would have been a Gore voter if it hadn't been for Nader. (Not to mention that if only Gore had won the presidency, the millennium would have arrived in the year 2001).

The every-Nader-voter assumption is preposterous. Probably a majority of Nader voters would not have voted if Nader hadn't been on the ballot. Some proportion of Nader voters would have voted for Bush. Some voters, who might otherwise not have voted, may have been drawn to the polls by the prospect of voting for Nader and changed their mind in the voting booth. In short, speculative reallocating of third party votes is pointless.

There is a sense in which the anti-Sanders left is making the same mistake as the anti-Nader crowd. They imply that if it wasn't for Sanders there would somehow be a genuine socialist alternative; that if all those naive BernieBros and the young women who pursue them would only give up their illusions about the Democratic Party, there would be a real revolution.

AYFKM?

The funniest part of the anti-Sanders left ranters is how eagerly they adopt DLC anti-Bernie talking points from the mainstream media. May I suggest a slogan? "I stand with the New York Times, the Washington Post and CNN Against U.S. Imperialism and White Millennial Bro-dom!"

Varieties Of Neoliberalism

Brad DeLong has triggered some loud huffing and puffing with a new post in which he argues with Paul Krugman about the benefits of free trade (he thinks the gains from trade are greater than PK does), and labels what he is doing "flying my neoliberal freak flag high!"

I have linked to Mark Thoma's link to  Brad's initial post so that people can go into the comments where Mark's most faithful commentator, anne, links to the Wikipedia definition of "neoliberalism," from which she finds Brad to be in cahoots with Margaret Thatcher and Ronald Reagan, not to mention General Pinochet, Friedrich Hayek, and Milton Friedman.  Lots of other commentators have piled on to  denounce Brad for his "return to his elitist roots" and so on, which may be true, but I think also involves some misunderstanding stemming from outright ignorance of how and why Brad identifies himself with this term.  After all, he has never been a fan of Ronald Reagan, and I am quite certain that Reagan himself never used the term to describe himself.  What is up here?

The main reason anne is misguided is that the Wikipedia entry simply ignores a particular strand of use of the term that began in Washington in1983 and that viewed itself as a movement for at least two decades, even as this use of the term and this movement has faded substantially, even if arguably it is still kicking around, arguably in the current US presidential race, even as those most associated with it (see Hillary Clinton) seem now to be running from some of its most famous tenets, such as support for free trade (or at least of bills claiming to be such, notably the troubled TPPP, which has been noted by many as mostly involving strengthening monopoly rights of Big Pharma and such than expanding trade opportunities for such places as Vietnam). 

This Washington use of the term was coined in a May, 1983 article in the Washington Monthly by Charles Peters called "A Neoliberal's Manifesto."  Reading this one finds him clearly unaware that the term had an earlier existence as he describes himself as the "sole culprit at the christening," and his immediate followers, most of  them coming out of the Democratic Party, seem to have been equally ignorant.  Among those he identified as fellow travelers were journalists Nicholas Lemann, Joseph Nocera, Jonathan Alter, political economists Robert Reich and Lester  Thurow, and eventual presidential candidates Bill Bradley, Paul Tsongas, and Gary Hart.   It was a reaction to the fairly recently formed neoconservative movement of that day (which supported Reagan), and he said, "If  neoconservagtives were liberals who took a critical look at liberalism and decided to become conservatives, we are liberals who took the same look and decided to retain our goals but to abandon some of our prejudices."  They would be noted for being unsympathetic with unions and pro-hi tech, with their supporting free trade against the increasing protectionism of the unions a flashpoint and relevant to the current flap involving Brad DeLong.

A group associated with this brand of neoliberals would be the "radically centrist" DLC, which Bill Clinton would become associated strongly with and many of these neoliberals would support him, with Brad himself serving in Clinton's administration in the Treasury Department.  These people did not support Reagan, and Reagan did not support them (nor did most neoconservatives).  Nevertheless, because the term would also become associated with the "Washington Consensus" at the IMF, this provided a link between the two strands of the use of the term out there, with the other one that which is recognized and explained in the Wikipedia entry about the term.

So, what about the older history of the term that Peters was so unaware of?  It turns out that there was a conflict earlier on between two  branches of the neoliberal movement,  and that Peters's view may well be seen as in synch with one of  those.

So the term was initially coined in the 1930s by Walter Lippman, who saw it as a "Third Way" between classical  liberalism and socialist central economic planning, arguably not too far from Peters's view.  This sort of burbled underground during WW II, only to reemerge most forcefully in Germany after the war with the Ordo-Liberals based in such places as Freiburg and Cologne, most importantly with such figures as Walter Eucken, Wilhelm Roepke, and Alfred Muller-Armack.  In 1946, Muller-Armack coined the term "sozialmarktwirtschaft," or "social market economy," which would be picked up by Ludwig Erhard and would be adopted as the defining ideology of West Germany, a mostly free market economy without state ownership or planning, but a strong social safety net, arguably a milder version of the social democracy of the Nordic economies.  Eucken and Roepke both took up this idea, with Eucken linking it with his Ordo-Liberalism.

The link with the Anglo-American classical  liberals came with the founding of the Mont Pelerin Society in 1947, where the A-A view was led by Hayek and Friedman.  At the time they adopted and accepted the descriptor, "neoliberal," and many have since commented on the role of the MPS in the history of neoliberlism.  During the 1950s, these two branches would diverge (perhaps triggered by a 1953 speech to it by Erhard), with the classical liberal branch gaining control.  So it was that the dominant branch of neoliberalism essentially became an updated classical liberalism without all that social safety net baggage.  And, in fact, in most of the English speaking world, the term "neoliberal" basically disappeared from usage during the 1960s and 1970s, preparing the ground for Peters to revive it in 1983 without realizing that it had already been around for some time, with his version probably not too far from the social market economy version of Muller-Armack and Eucken.

The term survived in the Spanish language literature, especially that dealing with Latin America, and it was associated with Hayek and Friedman and their views of the world.  That both of them gave some support to the economic policies of the Pinochet regime cemented this link in this Spanish language literature.  The Wikipedia entry notes that it was from this literature that the more modern use of it migrated back into the English language academic literature especially from the 1990s on.  This literature generally either ignored or was unaware of this Washington-based Peters version of it, even as he was unaware of this other history of the term's usage.

What is curious is indeed the partial convergence of uses of the term with respect to the Washington Consensus, which indeed has mostly focused on increasing marketization and privatization, in short, fully in synch with the classical liberal version of it associated with Hayek and Friedman.  The WC mostly ignored the issue of social  safety nets, and indeed often supported cutting them back in such places as Latin America and then later in the transition economies of Eastern Europe in the 1990s, although the backlash against such cutbacks in some of the more  successful such nations such as Poland eventually led to some rethinking about that aspect of it at the IMF and other such places.

So we have these two strands of what the term means.  Wiki says that Thatcher and Reagan were neoliberals, although neither ever associated themselves with the term.  Those following the Peters line such as Brad DeLong would say they were not neoliberals, at least of their type.  The problem or issue for Brad is whether or not his current freak flag flying is really a continuation of this Lippman-Eucken-Peters version of the idea, or whether in the current situation such flying is not just pushing himself into the Hayek-Friedman-Pinochet version of it.  I do not have the answer to that.

Barkley Rosser

AI Triumphs As Google's Go Program Beats Human World Champion

It was over 20 years ago that IBM's Deep Blue chess playing program defeated world chess champion, Kasparov. Now, Google's Go playing program has defeated Lee Se-dol of Korea in the first of several rounds of playing.  But the reports have it that this first round involved a pretty decisive outcome, so probably this is it and AI has triumphed over humans yet again.

It is a sign of how much more complicated Go really is than chess that it has taken this long for this outcome.  By most accounts the program involved deep neural network learning systems far beyond what has been done before.  In a way it is curious in that the rules of Go are much simpler than those of chess, with only black and white stones that are  placed in locations on a 19 by 19 board in an effort to securely surround territory, in contrast with chess where pieces have these different powers and functions, although on a smaller board.  There are far more  possible strategies in Go, making it much harder to use the brute force methods used in other game playing programs. 

I do not claim any great expertise in the game, although relative to most I am probably better at it than I am at chess, where I have now been beaten by two of my grandsons (they have not been able to beat me in Go yet).  I never could beat my old man at it, although I once gave him a serious run for his money at it.  In any case, when I played against a relatively crude program some years ago, it slaughtered me.  So, I have my limits.

Nevertheless, I thought I might give a picture of  how subtle the strategies are in the game by recounting a story my late father told me from his days as a grad student in math at Princeton in the early 1930s, a time when the place was crawling with some truly brilliant people.  A Go master from Japan came and played against a group of the math grad students (Go has long been popular among people like John Nash and other brilliant math types).  As first the grad students were ahead, but as the game progressed the Go master gradually caught up, finally winning by precisely 8 stones (not a lot).  Later someone found out that if a player is really far superior to  another he will win by that amount, which represents the 8-fold way of Buddhism, supposedly not to humiliate the opponent, although clearly really doing so seriously.  In any case, that a computer  program can now beat someone who is probably capable of pulling that off is quite an achievement.

No, I am not going to go off on some Luddite rambling about the fall of humanity or whatever.  Yeah, maybe we are facing some long term issue of  ever more capable robots replacing humans in the work force, but I do  not know if this is the final straw in that or not.  I am not prepared to  follow Robin Hanson or others into believing in The Singularity when computers simply take over everything and totally replace us, but who knows?  I do not.  Maybe I need to install an deep learning neural network system in my brain...

Barkley Rosser

Economics, huh, yeah... What is it good for?

There are two types of economists...

One invents flimsy rationales for policies the elites want to impose. The other explains to the public that those policies are "not good economics."

There is always a hypothetical better economics that isn't being implemented.

On the Distributional Consequences of Protectionism

It is good to see Paul Krugman turning from the macroeconomic aggregate effects of protectionism to the distributional consequences:

But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict. I hope, by the way, that I haven’t done any of that; I think I’ve always been clear that the gains from globalization aren’t all that (here’s a back-of-the-envelope on the gains from hyperglobalization — only part of which can be attributed to policy — that is less than 5 percent of world GDP over a generation); and I think I’ve never assumed away the income distribution effects.

I want to pick up on what Mark Kleiman noted:

So when the modern Republican Party (R.I.P), in the name of “small government” and opposition to “class warfare,” set its face against policies to redistribute the gains from economic growth, it destroyed the theoretical basis for thinking that a rising tide would lift all the boats, rather than lifting the yachts and swamping the trawlers. Free trade without redistribution (especially the corrupt version of “free trade” with corporate rent-seeking written into it) is basically class warfare waged downwards.

Imagine an economy with two sectors. One benefits from free trade and the other loses. Let’s assume that the first received a 15% increase in income while the second saw a 5% decrease in income. Let’s also assume each sector has a 50% weight in overall income. Aggregate well being may have increased by 5% but when the elites say everyone gains from free trade – they display their total ignorance of international economics. Mark is noting that it is theoretically possible to impose a tax equal to 8% of the income of the winners and rebate it to the losers. The winners on net gain 7% and the rest of us on net gain 3%. Has this ever happened? Likely not. Will it happen under Republican rule? No – more likely Republicans will cut taxes on the winners and further punish the losers.