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Monday, March 26, 2018

Kugman: Trump and Trade and Zombies [feedly]

Trump and Trade and Zombies

Paul Krugman

https://www.nytimes.com/2018/03/19/opinion/donald-trump-trade-.html


Almost four decades have passed since Daniel Patrick Moynihan famously declared, "Of a sudden, the G.O.P. has become a party of ideas." And his statement still holds true, with one modification: These days, Republicans are a party of zombie ideas — ideas that should have died long ago, yet still keep shambling along, eating politicians' brains.

The most important of these zombies is the "supply side" insistence that cutting taxes on the rich reliably produces economic miracles, and conversely that raising taxes on the rich is a recipe for disaster. Faith in this doctrine survived the boom that followed Bill Clinton's tax hikes, the lackluster recovery and eventual catastrophe that followed George W. Bush's tax cuts, the debacle in Kansas, and more.

And Donald Trump's selection of Larry Kudlow to head the National Economic Council confirms that the tax-cut zombie is undead and well. For Kudlow is a fervent believer in the infinite virtues of tax cuts, despite a track record of predictions based on that belief that, as New York magazine's Jonathan Chait once wrote, "has elevated flamboyant wrongness to a form of performance art."

Yet there is more to economic policy than taxes; Trump himself, while willing to sign whatever tax cuts Congress sends him, seems far more interested in international policy, in particular the supposed evils of trade deficits. And that's where things get interesting.

You see, now that "globalists" like Gary Cohn have left, all the people advising Trump on international economics are, like those advising him on everything else, in thrall to zombie ideas. But there's more than one kind of zombie. In fact, there are in effect two factions — equally wrong, but wrong in different, almost opposite ways.


You might say that when it comes to international trade, Trumpworld is heading for a kind of zombie civil war.

On one side, we have the neo-mercantilists — people like Peter Navarro, Trump's trade czar — who see world trade as a tale of winners and losers: Countries with trade surpluses win; those with trade deficits lose.

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Both logic and history say that this view is nonsense: Trade surpluses are often a sign of weakness, trade deficits sometimes a sign of strength (as a matter of arithmetic, a country that attracts more inward investment from foreigners than it invests abroad must run a trade deficit). And the neo-mercantilists have a habit of making crude errors, like misunderstanding how value-added taxes work.

Still, they have Trump's ear, because the rocks in their heads fit the holes in his: They're telling him what he wants to hear, because their errors play to his gut instincts, and when it comes to policy, he don't need no education.

Yet they're not the only faction talking dangerous nonsense on international economics. The Trump administration has also become home to what we might call neo-goldbugs: people who think that a nation's strength can be measured by the strength of its currency, and refuse to see any downside in a strong dollar, never see any reason a weaker dollar might be needed.

Like neo-mercantilism, or for that matter supply-side economics, this view has been debunked many times — I wrote about it in 1987! — yet keeps shambling along, because it appeals to the prejudices of wealthy and powerful people.


Until now, the most visible neo-goldbug in the administration has been David Malpass, the under secretary of Treasury for international affairs — normally a position of great policy influence, although under Trump, who knows? Malpass is the former chief economist of Bear Stearns, and a man with a Kudlow-like record of being wrong about everything. In particular, however, back in 2011 Malpass published an op-ed article declaring that what America needed to fix its economic ills was a stronger dollar (and higher interest rates).

It was a bizarre claim. After all, at the time the unemployment rate was still 9 percent — and a stronger dollar would have made things even worse. Why? Because it would have made U.S. products less competitive, increasing the trade deficit — and a situation of persistently high unemployment is the one situation in which trade deficits really are an unambiguously bad thing, reducing the demand for domestic goods and services.

But here's the thing: Kudlow appears to share Malpass's worldview. In fact, his first newsworthy statement after Trump announced his selection was a call for a higher dollar — something that would worsen the very trade deficit Trump sees as a sign of American weakness.

Why has Trump hired people with such conflicting notions about international economic policy? The answer, presumably, is that he doesn't understand the issues well enough to realize that the conflict exists. And what both sides in this dispute share is a general propensity for invincible ignorance, which makes them Trump's kind of people.

Anyway, on international economics the Trump administration is now on track for a battle of the zombies — a fight between two sets of bad ideas that refuse to die. Pass the popcorn.







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