The insane way in which America "pays" for healthcare is a huge part of the problem. Companies have to subsidize their workers - which lowers worker take-home pay or reduces corporate profits (guess which happens?). Benefits are very unevenly distributed across the economy.
As someone who buys healthcare on the open market, the ACA was a god-send. It allowed me to focus on my business and not worry about huge changes in coverage. Now the disarray in the market has sucked down inordinately amounts of my time and money.
If the US could model the best in class systems in some countries (best seems to be universal coverage for basics, with the ability to purchase supplemental) we could go a long way to being more competitive globally.
10
Paul, I am surprised at your response regarding questions on how imports have replaced domestically manufactured goods. You dismissed the concern about nearly all goods seeming to come from China with an example of the iPhone having only 4% of its cost going to China. So, where does the other 96% go? Its no doubt Malaysia, Viet Nam, India, etc. When people say "China" has taken over manufacturing, they are really just referring to the vast outsourcing to other countries all over the world, of which China is just the symbolic example people use.
And then you say that China has the best "ecology of supporting firms". True, but they did not start off with that, the US used to have that ecology. We let it die off because "China" had cheap labor and no environmental protection, so more phones could be sold, and more profits made, and more stockholders pleased.
And though we all are concerned about the people in Bangladesh, they have created their population explosion, and in any event most Americans will cast their votes in their own best interest, not those of Bangladeshis. I feel that as an American, I have more responsibility to address the 50,000 annual deaths to the opioid epidemic, the decline of the working class, the mass incarceration of African Americans, the worsening distribution of wealth and other dire problems affecting my fellow citizens before I concern myself with Bangladesh. We should help them of course, but not at the expense of our own citizens.
15
Krugman: "... the Commerce Department came up with an obviously bogus national security rationale for tariffs Trump wanted to impose for other reasons."
There are several rebuttals to that rationale:
1. The Trump administration rightly notes that steel and aluminum are used in a range of military equipment. However, military equipment is built BEFORE it is actually needed, so it is irrelevant where the materials come from.
2. In a prolonged war, the US has the capacity to ramp up production. That is what was done during both world wars. Indeed, some military equipment was designed, built, and deployed DURING those wars, including atomic bombs, B-29 bombers, and radar.
3. Military equipment is built with many more materials than steel and aluminum, so it is ridiculous to single out those two.
4. Modern militaries rely on software and communications networks. Those technologies are not going to be protected with tariffs.
Reference:
President Donald J. Trump will Protect American National Security from the Effects of Unfair Trade Practices
Issued on: March 8, 2018
https://www.whitehouse.gov/briefings-statements/president-donald-j-trump...
2
The international trade conundrum we are being coached to worry about....is generated by all the regressive thinking going on at high levels in government, business,media and Academia......hello, Dr. Krugman.
Everyone in the so-called "establishment"(ie.....leadership positions) believes in the tried and true recipes for success......nearly all written in stone circa 1930......and only refined thru colloraries during the Cold War.
Even Reagan Era policies were nothing revolutionary. Milton Freedman was basicly postulating a different approach to the same ole Keynsian system of Markets and Governments, etc, etc.
Sadly, once the Bush Family grabbed the reins of power and jostled with the Clinton Cartel......the system was sabotaged by extremely inflexible and narrow-minded people at all levels.
NAFTA was gutted....in order to allow China to have "most favored nation" status. Clinton bailed out the Mexican Peso in order to save Treasury Secry Robt Rubin's foolish currency investments in exactly that same Peso!
Mexican economy tanked(as usual)......mexicans flood across the border for US jobs, so they can buy Chinese made products at Walmart!!
Prove me wrong.
Paul, I'm guessing that you personally and professionally have never faced the prospect of losing your job, paycheck, benefits or quality of life due to someone living in China or Bangladesh or Mexico. I am also assuming that the community of Princeton, New Jersey was not laid to waste with offshoring.
7
Is Mr., Krugman going to explain again how the markets will collapse and never recover after Trump's election?
2
It is unfortunate that Dr. Krugman has taken time to explain to explain all these questions, which are all fundamentally valid, but they are all about the SYMPTOMS of so called “free trade”.
First, does Adam Smith’s “invisible hand” exist at the national level???
Isn’t TRADE IMBALANCE the root cause??? It shouldn’t be a surprise to anyone that TARIFFS are crude and brunt tools, which can only invite retaliations and escalation of trade wars.
Can you explain WHY imposing a unilateral TRADE BALANCE by all the countries, say, over a 5 year period if not annually, should not promote a TRUE universal free trade???
1
Thank you Paul Krugman.
The GOP has turned this into the Chinese Century by shrinking the U.S. from an enormously powerful nation into a nation that may become small enough to be held in the president's small hands. Our influence, credibility, and willingness to engage with the world, much less lead it, are disappearing rapidly. Thank you, GOP.
1
Morgan Rauch: "Also, recommend some readings on political economics."
I'm not sure what you mean by "political economics", but any library should have some books on economics.
Sowell covers a range of topics that might be called "political", including minimum wages, rent control, and planned economies:
* "Basic economics : a common sense guide to the economy" by Thomas Sowell.
Dr. Krugman, while I have great respect for you, your answer to the contractor about buying inferior products versus superior American-made products falls significantly short of the mark. The central aspect of this question is access. If people cannot find superior-quality products to purchase, then they are forced to purchase junk because they need a new (hammer, saw, etc.) right away. This is not simply a matter of consumer choice. It's akin to the phenomenon of people in inner cities having poor diets because all they can find locally is highly-processed junk food; you know, there are outstanding academics in other disciplines who actually study this kind of thing and the consequent health effects.
Personally, I have taken to looking for consumer goods that were domestically made; in many cases, I find that American-made products from decades ago are still perfectly functional and can be found at garage sales and the like. For the low purchase cost, they represent superb consumer value. This extends even to vintage clothing and towels, which can be found in new, never-used condition now and then.
The Chinese economy has been built on producing briefly-functional junk, and Americans purchase this stuff, in part, because of the decision to give China most-favored-nation trading status -- a decision that I find maximally dubious.
14
Livie, Its simple economics, if people aren't willing to pay extra and will buy more of the cheaper then it's in the stores economic interest to sell more cheap stuff. Same as a grocery store, they will stock a higher priced organic or otherwise expensive item- if these items don't sell and spoil they will not be restocked, they will stock whatever sells. you have an advantage of buying what suits you. China produces what people want, if they didn't want it, it wouldn't be made. You have to g=change consumer attitudes first.
1
You want superior products shop at Nordstrom. why go
to the Walmart?
1
Certainly true that it's hard to find, but to let the consumer off the hook is wrong, in my opinion. There are still plenty of high quality alternatives, produced in the US or Europe, in a variety of categories. As the example mentioned tools, I'm certain of this.
These won't be in the big box stores, however, and that's where the majority of consumers shop. Possibly some may not know any better, but I highly doubt in this day of internet / Amazon that there is truly no access.
The big box stores sell these products because that's what the consumer wants. If consumers shift their behavior, Walmart, etc. would sell different products.
1
Thanks again. Being greedy I would lke to push you to a place that may be outside of your (or anyone's) comfort zone. To go, say, to the Denmark model makes sense for any number of reasons - climate to start with - but would require what for lack of a better word, a culture change; revolutions are volatile things and do a lot of damage. So how do we get from our present culture, A, to something like Denmark's, B? Your other piece today speaks to wiser voters, but it is as rare thing for voters to approve of near term pain to obtain long term societal happiness (see recent survey).
1
America can never be Denmark. Danes trust their
government and the delivery of services like
day care centers, schools, health services, public
transport are good. Trust is rewarded. In USA we
are suspicious of government, institutions and
they respond with poor public schools, lousy
government hospitals, poor public transport. One
party always proclaim government as the problem
and not the solution. Danes pay higher taxes for
those services. Hell will break loose if taxes are
raised in USA. We want superior services and low
taxes, two irreconcilable issues. Our salvation lies
in campaign finance reforms,mitigate the political
corruption and undue influence of wealthy on policies.
We can be better USA.
5
"It’s a sad state of affairs that we can’t compete with the imports even though our production quality is far superior to foreign steel. Will the tariffs fix this? No clue. — LJM, Cape Cod, Mass."
I'm not sure what he means by "quality" but I worked in the trades on the cape and islands and I found plenty of good tools from many countries. The best mostly come from Germany now.
Regardless of the place of manufacture, quality always costs more. Period. The highest quality tools, cars, houses, etc are going to be expensive and in less demand by the masses. You won't find them in places that cater to the masses like the big box stores. Dedicated tool stores will be able to get you the best.
If LJM reads this, Burns Power Tools and Sharpening in Fall River is a great place to start.
"Made in America" isn't automatically good. That kind of thinking leads to trouble. Stop it.
4
So when do Americans wake up from the con began 37 years ago? I and millions watched through the 1980's as Ronald Reagan more or less put the United States economy on permanent bad footing by his deficits. Saying "Deficits don't matter" and basically laughing about it.
This was permanent folks. And the Democrats and everybody else let the GOP get away with it. Arthur Laffer, a two bit nobody at Pepperdine University and a few others whispering in the imbecile ear of a resentful B grad actor. Viola. Here we are. And there was the beginning of all of it.....
7
Raising import taxes might have certain consequences. To keep them simple for your POTUS: imagine you are sitting in a crowded movie theater, with everbody seated. One person stands, so he can see better. That person will certainly see the screen better or to his satisfaction. However, if everyone else in the movietheater stands, aren't we back at square one? Of course in the meantime, there will be chaos, anger, confusion. In the end, who has won?
2
My Uncle in the Midwest owns and operates a manufacturing company that employs 200 people that makes products from steel. The steel that they use is a special steel that is not made in the United States. Most people are unaware that there are 100s of different kinds of steel, and that every country must import some steel, as it would be terribly unproductive for each country to have its own steel making plant for every kind of steel. In my uncle's case the two countries that have this steel making capacity are in Europe and he will get hit by the tariff. How does this make any sense as there is no company in the United States that makes the type of steel he needs? This will only increase the cost to the U.S. consumer on his finished products, provided he can still stay in business and compete with his rivals outside the U.S. who will not have to pay the tariff. Seems to me that Trump's plan is saving jobs by killing jobs.
5
No one cares what I think, but here is my gut reaction to some topics addressed here:
1) China's currency manipulation and low wages essentially subsidizes wealth in America. An hour of labor is an hour of labor. A job that pays $12 in the U.S. pays only $3 in China, so the government of China is essentially eating $9 to get that low-skill, hazardous manufacturing job.
2) Unlike plastic, steel can be recycled many times without losing integrity.
A furnace in 1940 became a car in 1970, and concrete rebar in 2018. The future of steel in the U.S. isn't manufacturing new, but re-purposing the old. That doesn't require a lot of labor.
3) The United States should be investing in its broken infrastructure, because that pays dividends in increased investment and productivity for decades.
4) Not worried about debt, 2/3 of which is held by Americans, not foreign governments. And if the world truly fell apart with war and economic collapse, we could tell China to wipe their bottoms with our bonds.
5) Never buy hand tools at Lowes or Home Depot. They're trash. Craftsman may have finally sold out to China, but companies like Snap-On, Mack, etc. still manufacture in the U.S. If on a budget, buy older American-made Craftsman tools used at an estate sale or online.
6) Our for-profit healthcare system is generating a lot of investment income for the rich, but there is a big gap between what consumers pay and what they receive. Need to rethink our priorities.
2
Discussion of the military industrial complex seems to be off the table for Krugman. He must support "defense" spending that is more than the next ten countries combined.
A gross statistic like free trade widening the gap between college graduates and non college graduates does not capture the gut issues here. The average college graduate is not the real issue . which is how is free trade affecting the millionaire and above class. Few economists really focus on the millionaire class itself and they should. Firstly, some of this class has vast political control it uses to further enrich itself to the detriment of everyone else. We most economic statistics framed as the millionaire and above versus every one else. Much more work than Pickerty / Joseph Stieglitz needs to be done . Also , of course the term free trade glosses over a vast array of trade issues, many of which can be leveraged for the millionaire and above class. Free trade or not the reality today is we need need a huge political correction , the blue wave, if we hope to wrest of control government from the hands of Koch Brothers type oligarchs. The huge economic sucking they do from the national treasury with the tax bill hurts everyone else. If seen clearly there really is a struggle between money for the ultra rich , many of whom are CEOs, and money for every one else. It is time economists quantified this better.
4
National Lampoon published a great record, back in the college days, we used to listen to it over and over again. Thats called a 33-1/3 stereophonic record, kids.
"Everything You Know is Wrong".
And now, in the early 21st Century, I think that title is very appropriate to all our opinions about Trade and Tariffs.
Thanks to the universality of the so-called Internet....we live within a universal, omnipresent, instantaneous, global, electronic economy.
But its no longer a hierarchical world with "USA #1", calling the shots inside a uniform set of playing rules.
The Global Economy is maturing from a one-cell organism....into a multi-celled creature with many specialized trading networks, each cooperating and competing with all the others as the temporal conditions require. Today's trading partner may become tommorrow's competitor..........
thus we are witnessing Brexit transform the ancient Britsh Empire into a modern-day exclusive trading network. NAFTA, far from being a threat to Union jobs in Detroit, is likely to transform Mexico, Canada, and United States into a powerful self-sufficient trading block....(we need to immediately rope in Cuba, Haiti, DR as well....for obvious geopolitical national defense reasons...nobody wants the Chinese navy docked in Havanna).
Speaking of China....it is rapidly re-asserting its ancient dominance over SE Asia and the Islamic World will become its major trading partner, as well as colonizing Africa.
2
Wow! Great questions all. Proud to consider myself a reader of the New York Times after this. There are still smart, inquisitive people out there. Thanks for a really big smile.
1
Economist look at the $ implications of trade at best raw jobs, we need to look at the lower end of the scale. I worked at a manufacturing company when I graduated from Engineering, where factory workers my age made 20% more than a jr engineer - Factory moved overseas, and I found a new job, moved on. 20 years later -i now make 5-10x my old salary. The factory workers never got similar jobs- and many are working retail at 1/2 their previous salary. They were kicked off the economic ladder.
This just shows that the job market has massively diverged. What is the difference between me and the factory worker - - 5-6 years of university leads to a 10x income difference? Not saying I need a pay cut :-) - but they need those old jobs back.
I've heard Dr Krugman say that these jobs are gone - well - what is replacing them? My take - automated manufacturing still need labour, trained labour. Let's invest in training in combination to the tariffs.
The steel tariffs will hit EU steel mills that are noncompetitive, but are propped by tricky state subsidies to maintain social cohesion. The Germans, French, Chinese are taking care of their own (look at cars - Toyota is #1 in the world, but not even top 10 in Germany?!?).
Time that the Democrats figure this out. That a maniac like Trump can figure this out is an indictment on the leadership. How does a party of the left fairly consistently loose the working class vote?
3
Today the US is indeed a less credible negotiating partner and I suspect that in the long run that will be one of the biggest repercussions of Trump's reckless Presidency. The US has enjoyed its role as a trusted intermediary since WWII largely by acting fairly and honestly with other nations. Trump has thrown that all out the window and the world will most likely never trust the US in quite the same way again. That will lead to a diminished US on the world stage and it will be a huge boost to the ascendancy of China.
1
As usual, PK makes a whole lot of solid economic sense in these responses.
There is however one terribly important factor he touches on but doesn't penetrate deeply enough, and that is the question of trust. The Trump Administration has amply proven that it cannot be trusted from one day to the next. On just about any important issue that has come forward, negotiating with the White House is like nailing jelly to a wall. Sheer ignorance and lack of a principled, informed approach may explain a good part of the problem, but regardless, that's the problem. If there is no trust there can be no confidence. Confidence is absolutely critical to investment. The rules of the game need to be robust, well known, sustained and reliable, otherwise money will not flow into that game. How do investors know where to put their money in this environment? - they don't. And the truth of the matter is that much international trade and job creation is the direct result of international investment, all contained within the corporate sectors of the economy. Lack of trust, lack of confidence and the ensuing uncertainty deters investment which deters growth and damages international relations. This is what America's adversaries want, and Donald Trump is their prime asset for obtaining it.
Prof. Krugman, thanks for answering readers' questions.
Ah yes, economics - isn’t that the “dismal science”? And yet, inequality grows without interruption. Compared to this unmentioned parameter, the tools of analysis seem to be noise. It’s like deniers of all colors (genocide, global warming) point to single data point for their arguments. Don’t get me wrong, from a layman’s perspective I enjoy “economics” and read lots (e,g, Picketty, Stigleitz). How about trying something revolutionary (oops, shouldn’t use that word) like taxing wealth, with all its complications?
2
Lovely! Someone who totally misunderstands the basic economic theory of free trade, and its purported advantages (back to Adam Smith and David Ricardo) is "explaining" it to us!
So let me see if I can explain it in really simple terms so even Dr. Krugman can understand it:
The original theory presumed that there were two parties, each of whom excelled at producing a particular good. X could produce Good A at a cost of $10, and it cost Y $15 to produce the same Good A; but Y could produce Good B at $10, while it cost X $15 to produce it, then:
X should concentrate on producing Good A and Y should produce Good B. Each should buy (trade) from each other the good at which they didn't excell.
Simple enough! (Also, inherently oversimplified and flawed, but nevertheless, that's the theory upon which all "free" trade is promoted.)
Now let's introduce the unlevel playing field:
Chinese labor gets paid $3 per hour (including benefits), and American labor get $20.
Chinese manufacturers have few environmental regulations, and Americans have many (which cost them considerable money, but are well worth it.)
Chinese companies are often given capital for free by the government; American companies, not so. They have to raise it, at a significant cost.
Chinese manufacturers do not have the equivalent of OSHA, while American workers are protected (at a cost to their company) by OSHA.
There it is. Uneven playing fields require tariffs sufficient to level the field.
Simple enough!
3
Mr. Krugman--- you say we need commitment to universal health care, investment in infrastructure, 'policies' to 'help' families, and empowering unions---emphatically yes, many would agree. What policies to help? Why is it for years your columns haven't been dealing with these positive goals? Unions? Really! ACA? Good enough, or behind other countries? Pensions? That'd help a lot.
You could devote space in every column to explaining to the public how to achieve these crucial goals. You could use other modern nations as concrete role models---where they've had h/c for all for generations, better infrastructure, and still have higher union membership than the US. The US 3 branches of govt are dominated by an extreme right wing party.
You might depart from the media pack, and dare to discuss the dreaded topic---Campaign Finance.
Instead of mostly trashing Trump the Terrible and the God Awful GOP--which we all cheer---why don't you effectively fight the GOP right wing by proposing positive role models that work? That Americans can understand?
Give us a well paved concrete road map. How about some new 'political infrastructure' from our media columnists?
2
The global economy is complex, and simple attempts to control it tend to backfire.
The tariff is being imposed on raw steel, but not parts made of steel. So let's say Ford imports Chinese steel to make car parts in Detroit. But then a tariff is imposed on Chinese steel. Ford will just move the parts manufacturing to Mexico, where they can import the steel tariff-free. The parts (or whole vehicles) will then be imported to the U.S.
The net result? No increase in U.S. steel production, but a loss of manufacturing jobs. Total backfire.
2
In McCarthy's article, the premise is not as much on whether a reasonable level of protectionism can bring back manufacturing-centered economy (it cannot), but whether having that in place thirty years ago would have prevented the near destruction and hollowing out of many small towns across the US. It is not an easy question to answer after the fact, but at least the question should not be dismissed because it is what is on the mind of many who find they have lost their place on the economic ladder.
2
The difficulty in finding a mid-quality American product cannot be laid solely on consumers' choice. In tools, the consumer essentially faces a duopoly between Home Depot and Lowes. Both companies are highly indebted, with the debt going to financial engineering: stock buybacks or dividend payout. These companies operate primarily to pay debt and generate cash. Reinvestment of profits is minimal (that would drive productivity...) Products in the duopoly need to meet a set margin at minimal acceptable quality. The mid-quality US manufacturer is shut-out, and the consumer has limited choice.
The problem isn't trade per-se. It's our laws and policies that favor financial engineering that benefits a few, over true investment in productivity and innovation. Until these change, we can blame China, Taiwan, or Mexico all we want and have no impact.
2
"China dominates assembly of many goods thanks to a combination of still-low wages and an extensive industrial “ecology” of supporting firms. But much of the value of the good actually comes from elsewhere. For example, iPhones are “made” in China, but China only accounts for less than 4 percent of their price."
Industrial ecology translates to neighborhood effects. These are usually externalities and must be cultivated by some kind of industrial policy. My best guess is that over 50% of the value of the iPhone is "intellectual property", monopoly rights held by Apples Irish subsidiary. If the IPhone were assembled in a less repressive country workers would be able to organize and bargain for a piece of this.
1
The questions that were posed and rejected were far more insightful than the responses to the questions selected.
And the effusive praise for what are really nothing more than the most basic academic theories is somewhat disturbing.
If people really want to learn about trade in the real world rather than academic theories, they should read the comments section of the column that solicited questions. There were some profoundly important issues raised by knowledgeable and thoughtful readers about the most important issue of our times.
And the answers to the questions raised will shape every aspect of our lives for the rest of the 21st century.
3
Don't go so hard on academic theories. Krugman isn't using most of them in this simplistic "trade good, everybody happy" treatment
1
I guess my questions didn't rate. Anyway, I'm left wondering if the economic theory of international trade is ultimately really primitive. I suspect further that part of it might spill over into the position -- now part of US tax law -- that our corporate tax rates were too high, and needed to be lowered in order for our producers to remain internationally competitive. If we instead recognize that a big part of the tax burden of foreign producers was the VAT that applied to domestic consumers of their products (which I'm guessing would generally be most of the consumption of their products, even for export-happy Germany), then foreign corporate tax burdens wouldn't look so light.
Anyway, a fee paid on the import of a product is a tariff, by definition. A sales tax (or VAT) applied to all consumption ... but then refunded to domestic producers ... is a tariff by economic and financial equivalence to a tariff as defined. A sales tax or VAT applied to all consumption but used to offset part of the costs of production for domestic producers is not, point by point, identical to a tariff as defined, but it's pretty darn close. And it could be designed to have the same effect.
It seems that in all conversations about unemployment, this administration is quick to blame many factors such as cheap foreign labor, unfair Chinese government subsidies, our lack of tariffs, government environmental driven regulations, and so on. Rarely do we hear about the main culprit... automation.
The loss of coal miners jobs due to harsh regulations was a key plank in Trump's campaign. Yes, it's true that over the past two decades about 60% of coal miners have lost their jobs. However, over that same period, there has been little change in the US production of about 1 billion tons annually. The difference has been automation and the fact that 2/3 of our coal comes from the surface rather than underground production.
In regard to steel production, I read, "Modern steelmaking and rolling practices have reduced the number of required man-hours per ton of production by 80 percent. The domestic steel producing and fabricating industry is no longer labor intensive; it is automated and, incidentally, much more energy efficient than it was. The steel industry will never again employ the numbers of people it did." This is a quote by Ronald L. Flucker who was a product manager for U.S. Steel and vice president of marketing for the American Institute of Steel Construction.
Unfortunately, because of elections every other year, no politician can get anyone's attention with even an eighteen-month plan, let alone a more sensible five-year plan.
2
"iPhones are “made” in China, but China only accounts for less than 4 percent of their price" is a fallacy. The real question is how many manufacturing jobs are created in China and how many are lost in the US. I have no idea but let's assume 20,000 jobs in US were transfered so that China gains 200,000 jobs. Given US vs. China population is 1:5 the job loss will create 5x dissatisfaction in US for a lesser % of happy Chineses moving up to the middle class.
And this does not take into account of accessories such as headphones, screen protection, case, etc... that is 100% dominated by China that could add up to 10% of the iPhone selling price, and probably create another 200,000 jobs in China with no gain in US.
The consumer will benefit, but do I need a new phone every 2 years?
2
Thanks Paul. I wish everyone would read this wonderful article, regardless of their political affiliation.
1
What I have observed with "cheap imports" is that the mid-quality, mid-priced goods are disappearing. As an example: There is very little furniture available of a quality that is between IKEA and Ethan Allen. It exists, but it is hard to find. Tools are another item -- I value my inherited tools (screwdrivers, hammers, garden tools) for just this reason.
2
Just a few comments.
Thanks Professor K for taking the time to provide your explanation about trade.
In the US we have environmental regulations, consumer product safety, work place standards, etc. If we import products from countries that don’t, then maybe next time regulations that are proposed to improve these safeties a message should be sent to US workers explaining that they will be even more at a cost disadvantage since we allow imports from countries that don’t.
On the iPhone cost being a few pennies of labor. That might be true, but Foxcon pays about ( in US $) $2-5 per hour and it’s not unusual to have teams woken up at 2am to shift production. It’s not just about lower cost, it’s about the higher (3X?) expense and lack of flexibility if made here. It’s slso about the mega facilities of warehouseing components, multiple assembly, and the unique feature of an iPhone leaving the factory, then with accounting sold back to China and registered in Ireland because of its tax policies. Pretty certain that such arrangements would be difficult in the US to build and set up.
2
"the U.S., which was a creditor country before we began running persistent deficits since 1980, is now a net debtor."
Just one example of Ronald Reagan's legacy.
https://www.theatlantic.com/politics/archive/2012/10/gop-presidents-have...
An important point to remember when Republicans pretend to care about debt.
7
Here's something I wish Dr. Krugman would address. In major swaths of manufacturing, employers have come to rely on temp agencies to supply a large percentage of their workforce. The manufacturer pays the temp agency $15-20/hour for the temp worker, while the worker gets paid minimum wage with no benefits, so now the manufacturer gets workers with no responsibility as an employer. It's legal, and many manufacturers have decided that this is their most profitable economic model. Obviously, Dr. Krugman's call for universal healthcare would help this situation, but it sure seems to me that the elimination of any social/economic contract between U.S. manufacturers and their workers bodes ill for our future and makes those longed-for "good-paying blue collar jobs of the past" a fiction. What is a viable and plausible alternative?
10
Impressive. While waiting for Kudlow (rhymes and parallels the 50s play by Samuel Beckett, Waiting for Godot, I doubt that many economists could have answered these terrific questions as well as you have.
These are the golden words of this Tour de Force, "What we need is a renewed commitment to universal health care, much more investment in infrastructure, policies to help families and a return to policies that empower unions, especially in the service sector. Defining trade as the problem is just a way to duck real solutions."
I totally agree with your emphasis in this essay on the economic imperative of striving for greater efficiency, particularly in public works: surface transport, healthcare delivery, communications networks, etc. Collectively, with investments in innovative technologies that can power the economy with new sources of energy other than oil, natural gas, and coal, like space solar, and new systems of logistics like Powell and Danby's superconducting Maglev transport, ample water resources technology like efficient desalination to provide more efficient food and nutrition support of our well-being and good health, and massive capturing of carbon dioxide in the atmosphere to avoid environmental catastrophe, would be wise public investment for all governments.
6
When I was growing up "Full Employment" was considered to be approx. 3% unemployed. Actually "Full Employment" is considered to be 5%. (As we all know, actual numbers are probably twice the official number because we don't count those who hae stopped looking for work.) Is this trend in the "acceptable unemployment" figure just an admission that the country just doesn't need everyone working to produce all the things we believe we need to consume? If so, we are forced to believe that the 5% figure will continue to increase and we should be planning our economy accordingly. How about trying 35-hour work weeks, as has been done in Europe?
1
Ira, if we didn't have to worry at all about health care or other bothersome things then yes, a 35 hour weeks would be great. Excpet now, if you work less then 40 hours you are part time and get nothing as far as benfits. Workers n Europe - or many European countries also get at least a month of vacation a year and aren't afriad to take it - as many US workers are. This resilts in a happy, productive, interesting and vital population .
All of this is well and good, but Paul knows that capital always wins, and therefore the role of government is to even out the inequalities with higher taxes on the rich, and job training for the displaced. Without these two things, upward mobility, and prosperity for the rest of us will not take place.
2
Nice job PK. Don't always agree with you but as a tour d'horizon this was pretty good.
1
Economists seem to always be looking at big numbers to analyze the economic situation everywhere. While this is obviously the only way statistics can be reliable at all, it leaves out situations that we see all over the country as we travel around (when I can get farm help) on back roads checking out interesting geology. What hits one squarely in the face are the "dead" farms, boarded up small towns except for a diner, abandoned hamlets, etc. etc. The only prospering rural areas are an occasional mega farm, resort area or mega lumber business. Even the mines are abandoned with rusted, outdated equipment all to be subducted in a few million years as the earth's plates migrate to the its next assemblage.
I really don't see this issue addressed with any solutions other than more movement to a big city where rural people do not wish to live, ever.
@Peggy Conroy west chazy, NY
This has been going on for 200 years. The drift from the country to cities and urban concentrations. Can't say I blame them.
1
I could see some potential where health conscious consumers may want organic food, etc. (so are willing to pay a premium) as an opportunity for smaller farms to survive against the big operations. But these would still need to be somewhat accessible by metropolitan areas.
In the end, the gravitation towards cities happens because that's where better paying employment tends to be now. People will have to weigh their priorities as to what they want. I get the dilemma, but I also don't have too much sympathy when most people already have to make compromises to support their families. It's a bit hypocritical to me when considering that especially rural areas tend to vote Republican and preach self-reliance for everyone else. And they are now demanding government intervention to bring jobs to them, or rig the economy so their lifestyle can be maintained.
2
To PK's point on the wage diversion inherent in free trade, I would like to amplify one aspect of our involvement in free trade agreements. In NAFTA, for example, Congress separately passed significant legislation that supported workers who were most affected by the agreement through retraining and education and other support. Sadly, subsequent legislation paired back that support. One can create free trade legislation that lifts all boats. We have a pattern of favouring the owners of capital over the workers, unfortunately.
6
There is a lot of good discussion here. But the basic premise is fairly simple:
1. A plant in a fairly developed country makes a widget.
2. Companies in a less developed nation with a lower cost, less productive work force, and possibly a less stringent and less costly regulatory burden, begins making the widget cheaper.
3. Those who buy the widget begin to rely on the lower prices for the widget in making their own economic decisions.
4. The plants in the first country finds technology to make the widget cheaper and/or better, which results in loss of jobs. If they do not, investment in the plants is slowed until they become uneconomical and close, and more jobs are lost.
So let's say this widget is steel. The idea that we can put big tariffs on the steel to make U.S.-based steel plants and jobs magically reappear is terribly flawed. Here's why:
A. The steel plants that closed years ago have been torn down or are so obsolete that it would take too much money to bring them back.
B. Even if they could, this would only happen if owners thought the tariffs, and the price protection they provide, were quasi-permanent, which is not the case. They will not invest capital with a long payback because of a tariff that might disappear in five years or less.
C. Other industries that use steel as a raw material now become non-competitive and more jobs are lost in those industries.
Bottom line: Even clueless dummies like Peter Navarro can get a PhD in economics.
4
This was largely disappointing analysis. Much was banal and economics 101.
We need to discuss the hard reality of our corporate “free” trade agreements particularly insofar as how they relate to China. Specifically, spending all the bandwidth talking about VAT taxes and value adds is missing the forest for the trees: what about the routine capture of American Intellectual property as a price of entering the Chinese market? How does this conform with our notions of “free trade”? Tariffs on steel are a side show circus, Krugman should instead be addressing the incentive structure that pushes heavily subsidized US multinationals selling our national tomorrow to China for a few gold peices today.
To what degree are our trade agreements with China “free trade” in reality? If they impose conditions that require US multinationals to hand over their R&D, Intellectual Property, and large ownership stakes how is that an open market?
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I would agree that intellectual property is being stolen in China. But America (?) doesn't own this intellectual property. It's typically owned by corporations, who developed them. Whether these sit in the US, or not doesn't really affect that. In all likelihood these are multinational corporations anyway. Unless the US government directly funded and oversaw the R&D, it usually has no rights to them. And punishing these companies (much like tariffs actually) will only drive them and their jobs out of the country.
I disagree. The attitude you are expressing is more PR than it is a hard look at reality.
From Tesla to GE too many of the biggest players in international trade have been heavily subsidized by the US taxpayer. Everything from the way our corporate tax structure provides numerous write-offs, to how corporations weaponize R&D developed in Public Universities, to taking military technology and reverse engineering if for commercial purpose the shadow of the State looms large in the market.
Many of these countries have their cake-and-eat-it-too: they are multinational, but "American" when it comes to how they are subsidized by the US state (not to mention that so many are comprised of American Human beings and "incorporate" elsewhere for reasons that have more to with the race to the bottom than their legitimate origins).
Admittedly, there is a give and take here, but to write the US tax payer and the myriad ways the promote, support, and develop these "multinationals" speaks more to a political ideology rather than the nuanced reality.
I agree that these corporations benefited from infrastructure, provided by a country. But that was a deal that everyone knew and signed up for. After all, they also provided reasonably well paying jobs in the meantime. That deal definitely includes government entities that entice companies with tax incentives so they set up shop in that locality. I'm not defending how corporations act, I'm merely pointing out that they are fairly untouchable. Any action to force them to act differently, will have consequences, that may not be of benefit in the long run.
Free trade was supposed to be a boon for the U.S. according to Clinton, Bush and Obama. They all promised it would lift our boats higher. This country has been running full bore on unfettered Free Trade agreements since 2000. Our averaged growth rate, between 2000 and 2016 was less than 2%. Prior to 2000, our averaged growth rate was 3.5%. The simple math is that the economy grew at a 40% lower rate under Free Trade policies than under the tariffs and quotas prior.
The arguments by economists about, or in favor of, comparative advantage or any other Econ 101 free trade theory are now, in the face of overwhelming truths, simply beliefs - not arguments based on proof. To continue opining in favor of free trade is religious in nature (without God's truth). Free trade failed the United States when put into practice.
Here are some better questions for Rev. Krugman: Where would America be now if we had not gambled on Free Trade theory? Where would we be now, had we left in place the 60,000 factories and the 5 million jobs lost to Free Trade since NAFTA in 1993? Where would we be now, had we not given over $10 trillion dollars out to foreign powers in the form of trade deficits? Where would we be now if we had maintained our 3.5% growth rate vs. the 2% we got?
6
I am sorry but those are really childish questions. You just can't live in a bubble separated from the world. Or, one may assume, you try to compare US to Cuba living in isolation. Why Germany has retained manufacturing may be a more fitting question. Well, they have big government, massive regulations and whole industries fully unionised. Does it help to understand it better? And they have trade surplus with the whole world! Did you know that Unions in Germany have a saying in the size CEO compensation? What leverage hasve American workers in anything?
No trade agreements before 2000? What ridiculous hogwash is that? Do some basic research before you draw absurd conclusions like that.
Sound replies and answers from the Professor. Comparing his qualifications with those of a certain CNBC pundit I begin to wonder whether the President isn't indeed a Manchurian Candidate destroying his nation from within. He might just as well have selected Rick Santelli for the post of NEC Director, or tapped Disneyland for talent.
Mind you, Prof. Krugman would never have accepted such an offer, so we are back to scraping the bottom of the barrel for 'talent' ready to be hired, fired and humiliated in public.
1
For European observers it seems most Americans only see the dark side of free trade. Until Paul Krugman joined the dots to explain interdependency; maybe he is too late to stop the tariff wagons rolling out of Dodge city? Specifically steel production in Europe a graveyard for years. EU acted like USA with steel tariffs several years ago to reduce Chinese steel imports. Note: Europeans buy quality Ford cars designed and made in Germany. Germany invests over one billion euros a month on plant machinery and research. Trump owns BENTLEYS made in Britain by Volkswagen.
Paul Krugman should have mentioned no passenger cars exported from China to US today. As for hybrid-type cars the Chinese market will be dominated by electric cars to reduce pollution by 2030. China bans diesel cars in major cities. Low skilled jobs transferred to China so Americans need to up their skills to fill the new skilled jobs. China making plastic buckets sold in WALMARTS benefits Americans. As for APPLE at last someone has stated that China makes mere pennies on each iphone as most of the parts come from Japan and Korea. US tariffs will destabilize the world economy. Rather like anti-Russian purge in Britain which relies on Russian money flowing through the system requiring lawyers accountants and other advisers; according to SKY news report. China works as a friend of America until now.
In his November 16, 2016 column titled “How to help workers laid low by trade — and why we haven’t,” NPR journalist Edward Alden wrote:
“Other advanced countries have done far more to help their citizens adjust to competition. Denmark spends more than 2 percent of its GDP helping unemployed workers back into the workforce, about 20 times as much as the United States. France and Germany spend five times as much. Every other major economy spends at least twice what the United States does. Denmark’s worker-retraining program is available throughout a career; if a factory closes, government counselors meet with each unemployed worker, drawing up individual plans for retraining and following up to make sure the goals are met. In 2006, the Wall Street Journal reported on the closing of a Danish meatpacking plant that had 500 workers. Within 10 months, all but 60 were back at work, one as a golf course landscaping apprentice, another as a math and science teacher. Such interventions are unheard of in the United States.”
2
What is a "U.D. worker"? (See answer to JG and L. Marcus)
Google answers most questions, but not this one.
National Security and Dumping
Getting hooked on foreign steel, aluminum, and other strategic materials puts national security at risk.
Tariffs are justified when countries dump these materials in the US at below cost. I would like to see the FULL cost to supply aluminum and steel. Example for overseas suppliers: The full cost would include production, transportation to shipping port, shipping port handling, ocean shipping, destination port handling, USA domestic shipping to final destination.
Dumping: "In economics, is a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product."
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"If people are buying inferior foreign products, isn’t that their choice? Maybe they care more about low prices than quality. "
Wait, wait, don't tell me! Several (maybe too many years ago) I bought a GE microwave for, as I recall between $3-400, expecting a high quality appliance (my grandmother's GE monitor top lasted 40 years, my GE washer 30 years, my dryer-with repairs-is working on 40).
The microwave (made in Korea) is still working following some minor repairs but is the only one amongst all my other appliances which was rusting away beyond repair at 20.
GE recently sold their appliance manufacturing business, I'm not inclined to buy another GE appliance.
By 2020, if not long before, the tax cut will probably have been proven to have been a job killer.
The tax cut targeted high-income individuals who have a relatively low marginal propensity to consume, and will therefore not stimulate growth and employment significantly. For this reason, it will not increase the trade deficit.
The increase in the federal budget deficit produced by the tax cut will need to be financed by Treasury bonds. To make the bonds attractive the Treasury will have to offer higher yields (interest rates) which, within the US, will depress investment (and consumption), and therefore GDP and employment (Google “crowding out effect”).
Part of the increase in the deficit will be financed by foreigners. The supply of dollars for the foreign exchange markets will decrease by the amount diverted to purchase US bonds. At any given level of demand for dollars the price of the USD (i.e., the exchange rate) will increase. The increased strength of the dollar will make imports more attractive and discourage exports. The trade deficit will grow, GDP growth will drop, and so will US job growth. One possible Chinese response to the US tariff would be to reduce its monthly purchases of US treasuries thereby increasing US interest rates. In other words, China can cause harm to the US economy without the conventional response of imposing retaliatory tariffs…
…Because the US will import less steel, the world price of steel will drop. The amount of the price drop will depend on how much steel the US reduces its imports, and on the demand (and also supply) elasticity of the world price of steel. China produces some 850 million metric tons of steel per year. The current price of steel is some $1,000 USD per metric ton. This represents $850 billion in yearly revenue to China. A 5% drop in price because of the US tariff will cost China over $40 billion per year.
However, currently the dollar is strengthening at a rate of over 1% per month against the euro and the yuan. At this rate in a year and a half, if not before, the price of foreign steel in USD should have dropped by the full amount of the tariff.
Furthermore, the stronger USD makes Chinese goods less expensive in the US and American goods more expensive in China.
We like to blame China for our self-inflicted (tax cut) problems. China’s best response to the US tariffs would be no response at all. Let free trade and comparative advantage work their magic.
For the US to eliminate its current account deficit it would have to eliminate the federal budget deficit (Google: (“the twin deficits”.) Tariffs will simply not do it.
My econ professor at Cal in the 50s began the course with the statement, "There's no free lunch." Dr. Krugman's simply looks a the numbers here and point out that in a global economy the factors of production, land, labor and capital come from several different spheres in any nation's production scheme. Cell phones made in China are dependent on imported components and cheap hammers at WalMart are bought because cost is considered over the value of utility.
In the final analysis, going through these questions and the Krug's responses, it becomes patently clear that Trump's "Make America Great Again," is just another version "Here's Free Lunch for American workers."
2
We are a society built on consumption at the consumer level. You want to inject strength into the economy? Reinstate the taxes just given away to the top earners(and I have no problem increasing them) and get that money to the working class and middle class folks. Rather than stock buybacks that money will be spent on cars, appliances and many other products. When our citizens can't afford to buy, businesses look elsewhere for sales and the cycle of hollowing out of America continues
2
“…Reinstate the taxes just given away to the top earners…”
This would reduce the federal budget deficit, which would in turn weaken the dollar, increasing exports and decreasing imports, and creating more jobs (exactly the opposite of supply-side economics, a.k.a. “trickle-down economics”). Google: “the twin deficits”
Also, Google “Trade Adjustment Assistance”.
What Mr. Krugman does not address is, that capital is much more flexible than workers are and thus is gaining more from free trade. And there is no remedy to this difference since not everyone out of a job will invent some new business segment.
1
I appreciate the insights you share and the clarity they provide on many complex issues. And, I think your viewpoints on unions being a critical means for driving up wages is overly optimistic. Unions take a portion of employees wages, base pay on seniority not productivity which tends toward result in an average work force and output versus a truly excellent one, they take an adversarial stance toward the enterprise, and insist on a hyper sensitive, contractual rules based work culture. Not a formula for success in highly competitive business environments.
1
While there certainly is some truth in your statement it is also quite evident that individual, not very important workers have no individual bargaining power without organising themselves and thus will end at the lowest possible wages with owners and management (and maybe consumers) increasing their share. But in the long run this will not be a sustainable economy.
1
But unions can also bring value to the operation, that goes beyond better pay, etc. They might have a balancing view in strategic discussions and improve working conditions and long term benefits to the company (retention, desirability to work, etc.). Let's face it, corporate mindsets these days are very short term focus, in most cases. Quarterly results are the main driver, which is not surprising when looking at the compensation structures and tenures of Exec Mgt - which are actually much less aligned with long term viability than unions and employees are.
As a real world example, Germany has very strong labor unions and manages to be fairly competitive in the manufacturing sector. Surely many reasons for that, but unions don't seem to be too much of an obstacle.
Nor will unions necessarily drive a sustainably successful business.
The only thing lost in all this is that, in fact, workers are on the outs and not only the old line millworker. If you work in a large business you will see ongoing efforts to reduce the number of workers needed to do almost anything This is of course what a company must do to stay competitive but the result, extrapolated across an economy is that the entire economy will need fewer and fewer workers. Unless we burden employer with greater taxes (done in some even handed way) to pay for lost wages (so support public housing, healthcare etc) we will end up with an ever larger group of impoverished workers who can barely keep afloat - so houses are replaced by trailers and decent cars by junkers. Those doing well (me and my son) will be fine, but those in the lower have will be even worse off.
If gives little cheer to workers to tell them that we ain’t reopening the blast furnaces. Ok, I got it. So what do we do? The left needs to carry an argument that tell workers what good will come despite free trade. Now all we get is both the left and the business center telling us free trade is the only way.
Ok… then what?
4
Isn't that capitalism?You're hard work and success means you have money to spend which will provide someone else with a job so on.The mill worker who loses his job to competition and mechanization needs to find a new way to make a living or else it just devolves into a workfare type scenario we all pay for and that stymies efficiencies gained from competition.
Worker productivity for the vast majority of workers creates surplus value that after other overhead ends up with the Capitalist. That is what it is all about. The incentive to increase workers wages is only driven by need for greater productivity to lower price per unit costs and ward off competitonn or to attract needed workers when the supply of labor is scarce.
The Capitalist is not in business to generate entrepreneurs. They rely on the lowest cost labor to maximize profit. The less options the worker has to escape that arrangement the better.
Clearly you can't seem to accept that we have a problem - and one without an obvious solution. This ain't about me, I'm fine. But what do we do? Saying capitalism is like saying Jesus.
Dr. Krugman wrote a fine paper about the realities of science fiction, specifically the economics of possible interstellar trade.
The focus was on the costs of trade, defining what could be profitable compared to the alternatives of simple compound interest on the same money, or other ventures closer to home. That lesson applies just as much to foreign trade today (which is a big part of how and why he wrote that paper, to illustrate principle in a fun way).
What are the costs of international trade? Who pays them? This brings us to the privatization of profit and socialization of costs.
Our society as a whole, and many individuals among us, suffer costs for international trade, costs that are not paid in cash by the traders themselves. They are paid by taxes, covering unemployment comp and welfare benefits and lost retirement funds liquidated by vulture capitalists ripping up domestic businesses that lost to foreign trade.
We can make foreign trade better for all of us if we burden it with offsetting costs, that fairly and accurately reflect all of the real costs to us of doing that. That would benefit the country as a whole and all individuals in it, except those who were deprived of their loot taken by socializing it to the expense of others.
Tariffs are one way to do that, if they are used that way. In this case, they are not done that way, just thrown around. Tariffs also are not the best way to impose the costs on those who incur them; other regulation can.
2
A good question from Tom Stoltz, Detroit, on the unequal distribution of the value created by trade. Says Americans may pay lower Walmart prices, but that won’t compensate for their $15/hour pay after losing $25/hour jobs.
Says free trade benefits a small group only, not millions of workers with limited geographical scope.
But Krugman’s answer dodges the question, saying there’s been a lot of work on this question over years. That In 1995 he said trade widened the college vs non college worker pay gap by 3%, and that number has surely risen since, tho maybe only a couple of points. Says economists don’t ignore this, but tariffs are rarely the answer. Most workers eventually found other jobs but many got hurt.
Thanks PK, famous liberal, Nobel in economics concerned with inequality. You’re hardly grappling with the issue that underlies our politics now. See GINI Index low rank for U.S. equality. Got a slick answer?
Contrast: Corporations are easily mobile, well organized/funded, operating as a ‘union’ for investors/CEOs, using donations to multiply political influence. They offshore US jobs for higher profits, then offshore profits to avoid taxes.
VS
US workers are only individuals, are not easily mobile, not well organized/funded, lack union protection for their interests, can’t compete in political donations, and have little influence on the tax rates they must pay.
There’s a huge gap here.
I can’t help wondering--- how would Thomas Piketty answer the question?
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I'm more than likely over simplifying, but the only real thing that keeps an economy's growth, is a customer walking through the door and purchasing a product. If you don't have much purchasing power, you don't have much of a choice which door you walk through. Decreasing employing wage parity in the US has taken away much of that "door" choice. Why do you think Walmart and Amazon are so successful?
2
Why is it no one talks about the fact that we, US company owners went to China in order to produce goods for less. And remember the articles about Walmart demanding lower costs driving American manufacturers to China.
It seems to me the current situation is of our making from beginning to end.
We Americans have such short memories.
6
Two take-aways...
We have lost the supply chain ecosystem needed to produce a vast array of critical consumer items from start to finish. And, we are a debtor nation. Neither sound like a formula for success for a nation whose roots began with a document called The Declaration of Independence.
4
Love these questions and Dr. Krugman's insightful and instructive answers. Here are 3 more questions: 1-How long can a society--built on debt-financed consumerism--grow? 2-How much more stuff do we really need--made in America or manufactured overseas--when landfills overflow and pollution gets dumped into the ocean? (I buy everything I can "second-hand" and it's been working pretty well for me for 25+ years.) 3-What can be done to boost wage growth for the middle-class? (CEOs have seen 900 percent increase in wage/compensation growth and regular employees only 10 percent since the 1970s.)
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My replicas:
"But much of the value of the good actually comes from elsewhere. For example, iPhones are “made” in China, but China only accounts for less than 4 percent of their price."
Mr. Krugman is confusing value with price. Value is not price: China produces most of iPhone's value precisely because it adds less to the prices. Put in the reverse, China contributes the most to the value of the iPhone because it "burdens" the price less (both to Apple and to the final consumer).
The rule of thumb is: the industrial superpower is home to the most value generated, because industry is the part of economy which produces the most humanly useful things in proportion to total social wealth.
"Not entirely — there’s some room for insisting on basic working conditions and environmental rules. But not too much. Consider Bangladesh[...]"
This is true only from the point of view of the survival of the capitalist system (see Ricardo's comparative advantage theory). Of course that, from the Bangladeshi people's point of view, full industrialization is the most desirable outcome in the short term.
" It’s tricky. Subsidizing consumers is O.K. under the rules [WTO][...]"
Yeah, but the cool thing about rules is that you can 1) break them and 2) change them.
3
So the value and price of APPLE IPHONES assembled in China by FOXCONN of Taiwan only have indirect relationship or impact? The essential value increased by China because the profit margin amplified by the sheer scale of Chinese based on lower manufacturing costs with lower labor rates.
APPLE prices rising in part due to higher labor rates in China increasing exponentially. Gratitude? China to be targeted regardless of price or value to keep everyone happy in USA? Maybe China will not see the funny side?
I'm still waiting for mr. Krugman's analysis on the situation of debt and wages in Abe's Japan -- you know, the country which he was basically the de facto finance minister.
I’m sure I’ve read history books where it was argued that tariffs on imports helped American industry get off the ground in the 19th century. How true is this view Mr. Krugman?
4
Krugman fails right off the bat when he cites iPhones as an example of outsourced manufacturing. That's a horrible example. The question millions of us are asking is: how come we can no longer buy dishware or serving spoons or socks or hair dryers--low-tech products--that are made in America? It's the low-skilled American workers who made such products who got hammered first by Nafta and then by China's inclusion in the WTO. Krugman's lack of caring for these workers, in these segments, is heartbreaking as well as elitist.
3
One answer is that workers got hammered not only by Nafta and China but by anti union employers who lowered wages all around. Another is that workers are needed for millions of service jobs to support other workers in high productivity industries like tech and biotech. Those high productivity industries have spread and are spreading to areas far from the coasts. Many of these service jobs are high paying, such as trades like plumbing, electrical etc. So displaced manufacturing workers need to be re-trained and some need to relocate. Beyond this we need a more robust safety net for people who are displaced late in life and can't adopt. These are only some of the answers which can be found in Krugman's columns.
3
Yes, PK's pretty elitist, disguised as a liberal. His blog is titled 'the conscience of a liberal'.
But what are our norms? A Democrat signed Nafta, cooperating with Gop. Our definitions of liberal vs conservative are distorted. So Krugman sets the limits of liberal for the NYTimes op ed page. Anyone really liberal would look too 'left wing'.
PK says "Most of those workers eventually found other jobs, but many faced wage cuts and some communities got hurt badly." Now bad, PK?
Oh, well. Since our media columnists accept this situation, so there's not much pressure for reform on how we treat working people.
Thank you.
2
In a rational world every country would manufacturer, produce or otherwise provide the raw materials, prodects, or services that it was most effective at and provide those to others that needed those items and all incomes and expenses would balance out as the world interacted in an interdependent and harmoniouse way.
Unfortunately we are not living in a rational world and people would rather kick and scream, steal and fight against each other rather then live together with each other.
2
Well, I have no intention of buying anything soon that requires tariffs on imports, but if the EU retaliates and gets offended and imposes tariffs on some of our agricultural goods, then it is seems local producers will raise the price of my box of Fruit Loops. And that will upset me. Basically, I'm saying this whole tariff situation is like dominos, and that means a lot of fall out to many innocent consumers.
3
The EU has been doing some sabre rattling, especially about - of all things - peanut butter. Here in Austria you can currently buy peanut butter at a high price. I am pretty sure only Americans buy it as Europeans generally dislike the stuff. I am a little sad to lose peanut butter because Trump is an idiot.
1
It will be wonderful if professor Krugman can answer viewers questions weekly.
Viewers questions should be helpful to all from non-economics major folks.
2
This Q-A session is why I read PK, especially, but not only, on international trade issues.
3
I am a fiscal conservative and social liberal. I found nothing PK said that I would not agree with. If anything this article made me appreciate PK's analysis and very rational arguments based on his analysis and not on preconceived positions. Great article. My this month's subscription value came out in just one article, that I have saved for reference.
6
I am glad to hear Mr. Krugman highlighting the economic benefits to workers of a less costly universal healthcare system and more affordable higher education. Healthcare and higher education need to seen as economic issues for both workers and businesses. Changes to trade policies will always produce uneven results, with winners and losers, but getting healthcare and higher education right will benefit all workers and all businesses.
6
The bottom line from all of this: "What we need is a renewed commitment to universal health care, much more investment in infrastructure, policies to help families and a return to policies that empower unions, especially in the service sector. Defining trade as the problem is just a way to duck real solutions."
Amen, brother.
11
Stephen Grossman -- One person's "rights" can burden other people. "Randomly favored" rights can mean no more than you disagree with him. Examples include things like bakers providing service to all customers including gays getting married; which one do you see as having the rights?
Thank you. Most important is your note about the lack of Union (bargaining) power Mentioned).
"Outsourcing" to temp agencies is a MAJOR contributing factor to wage stagnation, well, anyone who saw the articles about tipping, next time you are doing the rubber chicken thing, ask if your server is a temp.
And their has been actual, illegal collusion in the restaurant and other low wage industries, which is "technically" illegal, but no one has pursued.
So it's not all about trade, but it is a visible factor. Working in a UNION garment distribution warehouse in 1973, I was paid time and a half on Saturdays as a PART TIME worker. And above minimum wage (don't recall the details); Well worth the weekly deduction in retrospect. These days, management calls the temp agency for more workers, as soon as they hit forty hours.
UNIONS.
7
We could unionize the temp agencies, and/or regulate them. If they are abusing people (they are) then we are allowing them to do so (we are).
1
I don't think Nick Van Kleeck was referring to iphones in part 1 of his question. It suits Paul to assume he did, though.
Hopeless, absolutely hopeless. Let the religion of free trade rule the Times!
Traditional economic theory undervalues the losses to the losers in free trade, and over-values the winnings that accrue to the winners. The theory is hopelessly biased and absolutely unscientific. It is a public tragedy that anyone pays attention to this religion. Until our country figures out a way to fairly and systematically compensate the losers in a free trade regime by actually and not theoretically taxing the winners, we will continue to roll downhill into whatever madness Trump cooks up.
1
Yes, but Mr. Krugman did "engagement", particularly vis a vis China, work as sold in your learned opinion?
"Empower unions." Hmmm, in the last 40 years there have been times when Democrats controlled both the White House and Congress. I don't recall a whole lotta union empowerin' goin' on!
What's plan B Mr. Krugman, if that isn't politically feasible?
1
When they were in control, Republicans passed laws at the state as well as national levels which disadvantages unions. At the federal level Democrats were unable to reverse those laws even when they were in control because doing so in the senate required 60 votes, which they rarely had. Also, Democrats had to ally themselves with big business to get elected; this made them reluctant to go too far in promoting unions. So it comes down to the huge power of corporations and the conservative politicians they support.
Reagan and Bush hurt unions. Clinton and Obama did not help them, nor even undo the hurts. It has been all one way, and working people got no help from Democrats, just a respite from some of the hammering.
You see . . .free trade works, and it works well. All parties involved see increased prosperity and value addedness . . .
BUT . . . BUT, only if everyone involved acts in unison and openly and fairly. IF ONE PARTY elects to "cheat" a little, they will experience a differential benefit to others' differential short coming.
That depends on whether the "all parties" you reference are nation states in the collective abstract, or the guy who loses his job and then his house and car.
Paul, I wonder.
Have you ever been inside a China factory making shoes, bags, phones, plastic, clothes or zillion other items?
Have you ever sat in a China factory when US buyer comes for developing their product and then negotiates prices.
Paul, it is amazing to me that you continue to give your opinion and you have zero real life experience. Maybe that’s why you’ve been wrong so many times. What’s funny is that your on record saying you have been wrong.
4
Thanks for taking and answering questions. We need this kind of education of voters on many complex and controversial issues. An informed electorate is essential for a healthy democracy and it is the first duty of the press to inform.
2
Once again, we find ourselves at the mercy of ourselves.
This pathetic, this terrible presidency, this horror show is part and parcel of the worst people on the world.
Donald Trump is a representative of the worst of us.
The fear and the hate.
3
Dr. Krugman, you note several times that one of your great concerns is that the US is no longer viewed as a reliable or credible negotiating partner. Do you think it is possible for all of us - other nations, the US public - to view the current Administration as an aberration, or will our nation's reputation have to be earned back over several presidencies? I personally feel it might be the latter when, as much relief as the elections of Doug Jones or Conor Lamb are, essentially half the electorate still voted to support the racist, misogynistic, childish, mendacious, and threatening rhetoric and policies of the current administration.
3
As a general rule I avoid all-caps. But for the last year I have made repeated posts shouting that the U.S. has a TRADE SURPLUS with Canada and the two economies are so intertwined that tariffs are like shooting yourself in the head. Many of the largest "Canadian" corporations like the auto industry are subsidiaries of American corporations such as GM Canada Ltd.
Canada is absurdly blessed with natural resources and the U.S. has equal access to those resources. Furthermore Canada has far higher labour and environmental standards than the U.S. but Nafta gives the U.S. pillaging rights. It's time Dump took a trip to the head offices of Hydro Quebec and Ontario Hydro. In the basements there are locked rooms with a single throw switch, an on-off for power to the American Northeast including NYC.
Do we have to turn off the lights of Trump Tower before Dump comes to his senses?
3
Doug,
We are the GOP's greatest enemy. We are a liberal democracy.
We need a 200 ft high tariff wall from BC to NB and we need trading partners that will play fair and not use their economic and military might to bully us.
Mulroney sold us out . We are a very wealthy nation but with questionable sovereignty.
The USA is deeply divided, We elected to talk and listen and managed a new constitution. Our neighbours to the South will not listen to each other and will not even consider compromise. We need to move away as far as possible and a high tariff wall is as big a separation as we can hope for.
An end to economic union with the USA will mean our economy will be devastated but this is no time to be caught in bed with the USA.
2
Careful: these are the answers of a man who extolled the virtues of sweatshop labor - a neoliberal with a conscience(?) who has no concern for exploited foreign works and little concern for US workers.
If you want answers to these important questions, stick with economist such as Joseph Stiglitz and Dean Baker.
2
It's remarkable that all "peasants" are always "starving," independent, rational beings. They're never subjected to authoritarian governmental control, local hierarchies of power, feudal land ownership arrangements or propaganda. More importantly, no other economic system, only the magic of capitalism, can improve their plight.
As Adam Smith teaches us -- under conditions of perfect liberty, free markets lead to perfect equality. Therefore, the sole standard of evaluating outcomes is the self-interested, person affecting test of the truly autonomous. So it must be, regardless of the truth. Amen.
Krugman says by mandating wages in trade agreements, we're telling people in Bangladesh to go starve. What he doesn't say is that nowhere does it say it is the US consumers job to raise living standards in Bangladesh (or any other 3rd world country), and the people there don't vote in US elections. But the US citizen that lost his job and livelihood to a 3rd world laborer does. And he votes for guys like Trump.
6
The impact of low-wage countries "stealing" production jobs from the US is no different than low-wage states, the South, siphoning off jobs from states where workers were unionized. earned a "living" wage and were able to save for their retirement. Those same "good old boy" states which were happy to take jobs from the North now know what it was like to have that done to them. The "race to the bottom" will continue as long as so many are more interested in their own welfare than in that of the greater community. Long rule the rugged individual of the wild west. Ah, bring back the good old days!
3
"Long rule the rugged individual of the wild west. Ah, bring back the good old days!"
Ah, the old West in the good ol' days..
Enormous infant mortality, short life span, brutal labor conditions, subsistence farming (with a lot of luck), massive political corruption, Darwinian business competition, survival of the meanest under the aegis of devout religion, flimsy rule of law, nasty odds of gaining a decently stable livelihood.....
We could bring 'em back at a moment's notice.
Seems like we've already started.
1
"If we insist that they follow first-world rules, we’re basically telling them to go starve."
So, there's nothing in between "first world rules" and complete disregard for labor and environmental protections?
it's not like you Paul, to knock down straw men.
1
More like "Paul Krugman Explains Away Your Concerns About Free Trade Fundamentalism".
For instance, he tells us that all that stuff in all the stores that's labeled "made in China" isn't really made there; just assembled there and shipped to us. He avoids the actually question, "Why isn't it made/assembled here?"
2
" If people are buying inferior foreign products, isn’t that their choice? Maybe they care more about low prices than quality."
Whoa there Paul! You don't know what you are talking about. First of all the overseas tools are not inferior. They're darn good. But, its the retailer that is creating a false choice, not the consumers. The factories were moved lock, stock and barrel overseas. The skilled work force here was compelled to each other workers how to do the job. And there hasn't been investment in new, automated American tool makers in almost 30 years. We gave away the store and choices too. Stop importing this stuff and build high quality, automated and modern factories here. The economy of scale would bring prices down and bring employment and new technology jobs back here. You don't know and understand everything Paul. You certainly don't understand manufacturing and industry. The issue is jobs.
3
Terrible. No direct answer to the very first question and a reply citing President Oprah Winfrey ? Asked for top three play/passes and responds with just one - universal health care. Come on !
A decent idea but a total failure in execution. I'd like to hear real answers to the questions but reviewed and moderated by someone who can objectively ensure that the questions are actually answered.
1
It's premature to predict job losses and gains; there are just too many human and market variables to play out.
This is not a simulation where results display automatically within seconds.
1
Much of the reason for the mean condition of the Amercan middle-class and poor is is maldistibution of income and wealth.
The average income of an American CEO is 355 times that of an American worker. The wealth of Jeff Bezos (Amazon) is equal to that of 2.5 million workers.
Minimum and maximum income and wealth laws should be enacted to dramatically reduce this financial disparity.
"Government should enact laws to "reduce extreme wealth towards a state of mediocrity. and raise extreme indigence toward state comfort."
-- James Madison
"I am conscious that an equal division of property is impracticable, but the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property [wealth], only taking care to let their subdivisions go hand in hand with the natural affections of the human mind."
-- Thomas Jefferson
More than just social justice is at stake.
"The most common and durable source of factions has been the various and unequal distribution of property [wealth],"
--james Madison
We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."
--Supreme Court justice Louis Brande
Domestic tranquility and democracy are dependent on some rough measure of financial justice.
4
"The CEOs are 355 times more productive than an American "worker.""
That depends on your accounting, on how you assign value between the leader and those he leads. A general without an army will no win any battles.
Americans who rail for a return to a huge manufacturing base here in the USA seem to overlook that the number one most important thing we're exporting - and I am not saying that this is a moral thing- is our pollution.
The US has stricter environmental regulations that we get around simply by paying some other poorer part of the world to pollute their own locale.
We get then to benefit not only from cheaper labor but also not mucking up our own backyards with toxic by products in our air and water.
2
RE: people buying inferior products (foreign or not):
Most people probably don't choose to buy an inferior product. If someone is not "affluent enough to make that choice", then it isn't really a choice.
I would propose that products should meet a minimum standard of quality to ensure that consumers are not exploited by unscrupulous manufacturers. If some products offer extra features or luxury versions at higher prices, fine; just be sure the low-cost basic models are actually serviceable.
Today they often are not, and consumers who purchase them often do so only because they lack basic information and/or purchasing power. This seems to me to be exploitation rather than individual choice.
1
We had institutions that did that for us. They do so less now because the producers are out of their reach, unknowable in many cases.
It's interesting that PK positively cites Bernie and Bernie's example of Denmark as a model to be emulated, considering PK was a rabid supporter of Clinton's regressive conservatism.
2
Some answers are really helpful but some are way to brief and didn't sufficiently answer the question.
Dr. K commits the error he recently termed "innumeracy" when he writes of small mills converting scrap replacing large blast furnaces.
Small mills don't make enough, and there is not enough scrap, to replace the big plants that turn iron ore into steel.
Those small mills can make simple steel products like rebar, but cannot make more complex alloy or high tensile steels. That is because their input of scrap is variable and pretty much unknowable; they just cannot control the melt. The also don't have the size to economically perform the heat treatments and vacuum injection of alloys and other special features needed to make such steels.
Blast furnaces are old technology from WW2. There are better big plants now, but they are still big, using iron ore, not local small plants working with whatever scrap they find locally.
2
I would like to see Dr. Krugman do more like this column.
When teaching, or when persuading, one must address the questions troubling the listeners. Direct question and answer from someone who knows many of the answers is an important contribution to our public politics.
20
This is a wide-ranging analysis, far too broad to be comprehensive in response – but it’s a valuable analysis.
One thing I’d note is that “national security” as reason or pretext for presidential action on trade, the actual justification used in this instance, is in the eye of the beholder, and we empower the president to make such determinations, not Congress lacking specific legislation. For quite some time, others have argued that tariff action on steel and particularly aluminum was wanting on the national security justification.
Some argue that excess global production and refinement capacity ramped up largely to meet OUR needs (we’re the world’s largest importers of these commodities) have increased pressure to “dump” them on the U.S. markets to enable profitable operation of the capacity that exists overseas, and this has dramatic effects on the survivability of domestic manufacturers and refiners. The fewer domestic sources of such materials that exist for military uses IS a legitimate national security concern. For example, only one remaining U.S. producer of high-quality aluminum alloy exists to serve our military aerospace needs after 68% of industry employment disappeared between 2013 and 2016.
https://www.marketwatch.com/story/tariffs-on-steel-aluminum-are-long-ove...
1
Some might be surprised, but on an ideological basis I agree with Paul on a lot of this. To me, the thrust of his responses can be summarized by a single excerpt:
"What we need is a renewed commitment to universal health care, much more investment in infrastructure, policies to help families and a return to policies that empower unions, especially in the service sector. Defining trade as the problem is just a way to duck real solutions."
Take away the piece about unions and I agree with everything else.
Richard, anyone with eyes to see and a mind with which to think knows that Trump decided on his tariffs with NO study, NO review, and based on a series of lies, like most of his policies.
It looks like he time the announcement to influence the 18th District special election, that western PA district in the Rust Belt. The only good news related to his total ignorance and disastrous instincts (he doesn't use facts; he even lies to the PM of Canada about a non-existent trade deficit), is that the R he stumped and twisted national policy for LOST!
And many more to come in November. We might have a way to neutralize the worst of his damage for the last two years of (if god wills it) his only term as president.
1
Why are you against unions? What is your solution to significantly reducing income inequality?
1
Dr. International Pangloss answers only the questions that allow him to support the current globalization regime. I asked, where is the overall GDP growth that was promised from globalization? Why should US workers support something that has only benefited upper-income people?
Is globalization as currently carried out by the US really the best of all possible ways? Basically most US economists and the MSM committed to this on the general principle that "free trade" is best, and refuse to admit error. Trade policy is left up to corporations, which maximize their profits, not overall benefit to the country. Few US economists have constructive plans or suggestions to ameliorate the real problems, so things are left up to Trump. If Trump goes - which would likely be for reasons unrelated to international trade - the problems will remain to be exploited by another probably more competent demagogue.
3
Wonderful piece. Am happy that a short spurt in steel protection is mentioned as not attracting long term capital, nor necessarily modernization & environmentally friendly plants. The piece lacks an appreciation of the political economy of steel. The tariffs are promoted with infrastructure in mind and naval military modernization (ie fleet replacement: retirement & modernity). So the issue is what minimal capacity (residual or not) does the USA want. Back to allocations likely. Meanwhile China as a crafty sheep in "sure, OK" clothing, may need less of the steel domestically than their planned cheap export to USA projected car market automobile manufacturing plants will. So, set a capacity bi-partisanly, and let's get on with it.
Also don't forget the pile of scrap steel (Mexico's bounty) if the border wall wilts.
No doubt PK has the gift of writing in an articulate and convincing, if condescending, manner. Unfortunately he does not engender any more trust than other "politicians" who attempt to address the economic situation. The fact remains that the US imports about $50B/mo more than it exports and has done so for decades. How long can this be sustained? Another important fact remains that income disparities have skyrocketed, not only in the US, but around the world. How long can this continue?
3
The next question then is why our politicians refuse to confront the fact that we cannot return to the 50s and 60s when it comes to steel, manufacturing, or many other industries. We have money to do what we need to do to enable people to acquire the necessary skills for the 21st century but it seems like no one wants to invest or take a chance.
For a rich country we act like every penny we spend on our citizens, whether it's for education, health, housing, safety, etc., is a waste. We throw out people over the age of 50 when it comes to jobs. Businesses refuse to train employees preferring instead to fire them in order to hire someone they don't have to train. In many ways business's attitudes and actions are making no sense at all. It's in their interest to have educated healthy and skilled employees who they invest in for the long haul. Experience is important despite the belief that older people are worthless in the workplace. So is health.
The less our country and our businesses invest in us the less we have to offer the rest of the world. It's in our best interests to improve life for all Americans and, in this reader's opinion, it's also the next thing that should be done. Invest in us, in the infrastructure, in housing, in our health, in our lives. The return will be immense.
8
Thanks, Dr Krugman,
I am starting to better understand the role of trade agreements and the futility of tariffs. Too often, in our case, it is our "patriotic" corporations that opt to leave for easier living abroad with fat bonuses for top management. Why don't we talk about that? Incentives are set so corporations have a good living at the cost to evryone else. Also, many costs paid by corporations, like health care and pensions, are covered in other developed countries from taxes directly. Lastly, we consumption-based economy that does affect trade balance.
2
Two points: 1. I just read in Haaretz a summary of the latest most rigorous studies that China and automation contributed only marginally to the wage stagnation. Most of it can be attributed to increased concentration of the production side where companies either had a monopolistic power or secret cartel agreements in negotiating salaries with their workers. All the authors were from major prestigious US universities and only one was a progressive labor economist while the two other were main stream Neo liberals. 2. If you really want to subsidize US companies and cut down their labor cost by one third there is a very simple act that does not break international law and benefits all American workers. Just replace the current health care system by single payer Medicare for all.
7
CC says: "The ideas of “Making America Great Again” seem to be based in recreating the economy of the ’50s, ’60s and ’70s. "
Exactly, but to add to the folly of that, the cost of replacing those plants, assuming they use the same location, is billions. The cost of *preparing the land* for those plants is more billions. The latter charge will not be borne by the private corporation but by taxpayers as is the case with all redevelopment of former industrial sites. (I worked on this a lot in Pittsburgh.) What state, county or city is going to put up that kind of money for a relative hand full of jobs. It would be the opposite: huge tax breaks for the private investor which means no new revenue for the government in return for their massive subsidy.
Furthermore, it's not just the economies of the 50s, 60s, and 70s. Steelton is/was 1920s *technology* so there is no reopening of steel mills anywhere. The professor's point about mini-mills is correct. And you can put a mini-mill in your backyard and hardly know it's there. The biggest impact would be automobile traffic and parking.
Krugman, this column really upsets me. We are NOT telling them to 'go starve' if they have to live up to our labor and environmental standards. We are telling them to LIVE. And your answer to question 1 is really disingenuous - I am frankly disgusted. China accounts for 4% of a cost because of NO environmental OR labor laws..
What type of life do you want for third world peoples??.. I am disgusted and disenchanted. You realize, of course, that THE POLLUTION AND POVERTY IS SHARED BY THE ENTIRE WORLD!!!
Really, Krugman. This is a real mitzvah, a bad deed!, this column. What kind of polluted and unequal world do YOU WANT your grandchildren to LIVE IN??? I am frankly shocked. It must look nice from Princeton.
2
I think you mischaracterize his point. He favors better wages and working conditions.
But in a country like Bangladesh, those can only be accomplished by finding a means to increase productivity, or else prices of the goods produced would be too high to compete in the world market. That would result in massive unemployment.
You could say that the real problem is capitalism itself, which it certainly is, and which PK does not directly address. But there is no immediately foreseeable unification of the world's working classes to overthrow capitalism.
What is immediate is the need of workers in Third World countries to put food on the table rather than starve.
3
I disagree, and yes, the problem is capitalism. These workers had land, they had seed, without us. Capitalism has destroyed their country, without giving them the benefits of democracy, that is labor unions and environmental protections. How can Krugman separate the two. Foxcon in China does not help the Chinese, it hurts them. just as the 'right to work ' concept has destroyed the southern states. I just don't see any separation. The pollution and the poverty are ultimately suffered by us all - we all benefit if we can lift all boat, and I don't mean by a 13cents an hour wage and factory housing. Our thought processes have gone WAY beyond that. It is capitalism and greed of the .01% that
is holding back the world., that is destroying the world. Even Steven Hawking said that climate change is the biggest challenge humanity faces.
1
I agree with your rant. At the end of the day, the problem is capitalism.
"Free trade" isn't trade at all. It's globalized supply chains internal to specific industries and corporations exploiting the cheapest labor and materials while simultaneously treating the Earth as a bottomless garbage can capable of absorbing an endless stream of pollutants.
It won't end until the last sweat shop laboring peasant is "lifted from poverty." Unless, of course, our planet suffocates to death first.
2
Actually PK's comment that an increase in the rate of saving would decrease the trade deficit is one of the "tells" that separates New Keynesian from traditional (in the sense of in the GT) Keynesian or Post-Keynesian thinking.
If the rate of savings increased incomes would decrease. One effect would be a rise in unemployment and distressed sales by domestic U.S. producers whose markets are reduced. Some of those distressed sales would be from Chinese producers, meaning at lower prices; and the unemployed and people with lower incomes might be more inclined to buy cheap Chinese imports with such money as they had. Additionally, the Chinese currency would likely fall in response to a decline in total demand for Chinese goods from abroad.
It is true that the absolute size of the trade deficit would be tending to decline as overall consumption declined, for the same reason that sales would be declining in the domestic market. It's a masochistic way to reduce the deficit and it might not work very well as the Chinese economy reacted with distressed sales and currency depreciation. So, I simply note that although increased savings may not have the effect he says; his arguments about health care and unions are more central to policy and it's good to hear him putting them out there. But in the end,he's the guy at Princeton with the Nobel, and I'm just a guy in the comments section. So I'm going to call it quits. :)
2
so, to save the world we all have to spend our savings or go into debt to spend and then it'll all be fine? or maybe quit while we're ahead?
1
Well I don't know if anyone follows these threads in detail but in answer to your question, consider that if you follow the financial press, when consumers deleverage (save, pay off debt) it is always considered good for their finances, but the next day you read that the economy is not picking up steam and consumer failure to take on debt is considered bad for the job market. The issue is that what we do to stabilize our situation at the micro level is destabilizing for the system as a whole.
1
Someone has not taken out "The Wealth of Nations" in far too long. Adam Smith knew how deficits weaken an economy. The foreign entities holding American debt are now buying up our real estate and businesses. If we keep buying overseas products internal ownership of our country will be in the history books.
Only three things create real wealth: natural resources, manufacturing, and human resources. As we use up our clean water and minerals the wealth must be replaced by manufacturing. Human resources - such as trained and educated population - only happen after manufacturing creates wealth.
Either we manufacture or our society will be owned by foreign billionaires.
We bring manufacturing back with technology with, therefore, competitive pricing. I am working on a project called "Manufacturing Villages" which help small manufacturers get and stay in manufacturing and will prove a good and endless training ground for larger manufacturing. We can make anything China makes - except apparel which has a long history of going to poor countries, even America a hundred years ago - using modern manufacturing and a political will to be a mercantile nation again.
Paul Krugman, you have to stop being a defeatist. I had a much higher opinion of you until this article.
3
Your thesis is wrong.
Manufacturing may produce wealth, but it doesn't matter where the manufacturing is done.
One country can manufacture, another country can provide services.
Economies are interwoven into a kind of ecology, and to be mutully beneficial must strike a balance.
There's no law that dictates that each country has to be self-sufficient.
3
Richard the Engineer: reply to your comment. In Adam Smith's day, the service economy was very small and mostly domestic. As we advanced to a services economy more of our income was derived from services rather than manufacturing. Our deficit is much smaller if you factor in income earned from services we provide abroad. I've watched trade numbers for years. The critics of free trade seem to overlook two areas. Modernization and technological advances in relation to job losses. I'll use the steel industry as an example. After WW2, our steel industry, high and mighty, decided not to modernize and use the latest technology. While Europe, which had been destroyed, rebuilt their steel plants using the latest, electric arc furnaces, the US maintained their old open hearth furnaces. These were labor intensive and eventually, the steel industry found itself behind the 8-ball from a competitive situation. When they did adapt, it was too late to catch up. Another important point that affects all advanced countries is that new technologies employ substantially fewer workers. So, rather than keeping our heads in the sand, our Gov't should offer the laid-off steelworkers some real financial help for as long as necessary. What our gov. should be doing is investing in R&D and new technologies. Example: The US space shuttle docked using laser equipment for lining up the shuttle to their docking station. This US technology was later adapted for Lasik eye surgery.
Not so fast. Order of magnitude speaking, manufacturing -- taking a raw material to a finished good -- yields superior efficiencies to the economy. The service provider also has difficulty supplying service at scale. Someone else can have the gig economy; I'll take manufacturing. "Wealth of Nations"; not wealth of trade routes. Modern economic theory is nuts.
The author says, with regard to the possibility of somehow adjusting trade with countries like Bangladesh. ".... If we insist that they follow first-world rules, we’re basically telling them to go starve."
The implication of the author's statement is that we in developed nations have an obligation to buy goods produced with a third world cost base so those countries won't go hungry. This suggests that there is no other way for these people to make a living.
What if the United States didn't exist? Would they just go hungry? This line of reasoning is entirely incorrect. There are many peer economies for Bangladesh to trade with.
The idea that the US could or should pull the whole world up to it's standard of living is just an idea that some people have. It is a wrong idea. Mercantile behavior such as what the author is promoting is totally different from developing up internal demand. It is totally different from the principle of trade between peers, in which one side does not prosper at the expense of the other, but all sides prosper due to the inherent benefits of specialization and economies of scale.
The US cannot possibly pull Bangladesh up, because doing it the way he suggests weakens the US. If the US takes care of it's own interests so as to remain strong, it is better equipped to facilitate development.
Sometimes numbers on an economist's spreadsheet tell a misleading story.
5
Trade is complementry.
Prosperity depends upon striking a balance, an equilibrium between production and consumption.
The competitiveness you would encourage would not help and probably would hurt working people, and ignores the real problem: unequal distribution of the wealth created.
1
As someone who identifies with the left wing of the Democratic Party, I have always had trouble opposing trade agreements like TPP without people believing I advocate for protectionism. Krugman hits it right on the dot. These trade agreements, along with other factors, have hurt many steel workers in the Rust Belt, but Trump’s path (which Conor Lamb and some unions unfortunately approve) does not solve the problem. We need free trade, but not like this. It’s good to see economists acknowledge this without being neoliberal doctrinaires.
This puts Krugman back in good standing for me after his Bernie Sanders diatribe during the primaries.
4
Hey! Bernie called Hillary a Wall Street Shill because she got paid for a couple of talks to some financial types and she, god bless her girl scout heart, lectured them on promoting women and creating good conditions for a global work force. You had to be there. Bernie wasn't. He was promoting Bernie. Prof. K had no diatribe. He was the soul of politesse. I had many rants about that old white male Bernie never a democrat who took money the girl raised for him and shoved her in the mud.
1
Interesting insight!
Nobody asked why presidents (as candidates) always talk about getting tough with China on trade, but never do anything about it.
As Thomas Friedman pointed out in a recent op-ed, China imposes barriers and tariffs that are not reciprocated. These have no doubt cost us not just jobs, and loss of income from their disregard of intellectual property rights, but also have had a deleterious effect on our innovation.
Why do we let this happen? I would imagine that so many American companies now rely on a business model that encompasses China's low wages and weak environmental controls, that the US companies put political pressure on US politicians to be soft on China, but that is just a guess.
Dr. Krugman, can you weigh in on this?
Thanks.
7
Very interesting exchange with readers. I generally agree with PK, but he misses the point about TPP. It was a political and strategic initiative carried out by trade negotiators. Yes, it took wrong steps on intellectual property, but that was a minor defect compared with the goal of maintaining our leadership in Asia, strengthening alliances, and buttressing our model as opposed to the Chinese model. It also, in effect, renegotiated and strengthened NAFTA, obviating the case for the current attempt to do the same thing in a crude and ham-handed way.
2
Dr. Krugman, in this article you cast favorable words on Denmark, commenting that Bernie Sanders used it as an example during the 2016 campaign. You note its domestic policies, and cite its universal healthcare as a good. That said, why did you state in 2016 that Bernie's universal healthcare proposals for the U.S. were "rainbows and unicorns" in your constant dismissal of his campaign? What's good for Denmark cannot be had here in the U.S., is that it? If so, why not?
33
It was rainbows because Sanders would never have been able to get universal healthcare legislation passed. Krugman isn't against a universal system---in fact, he has advocated for one; he was, instead, recognizing that the political landscape at this time would not support such a shift, even when many Americans would support such a change. The GOP is dead set against doing so; with their numbers, it just isn't realistic.
I can field this one in a word: Politics. Denmark has an insignificant military, and much higher taxes than we have here. Universal health care has big support here. . . until you get to the price tag. For Exhibit A, look no further than Sen. Sanders's own state, Vermont. They passed statewide universal health coverage to much fanfare. Then, when they got a good look at the cost and necessary taxation, they hit the panic button and bailed. So, for Sanders' message to have carried the day in the general election, the nation as a whole would have to be either a) more liberal or b) richer on average than Vermont. Somehow, honest-as-they-come Bernie Sanders forgot to mention this on the stump. In any case, calling that proposal a "Unicorn" seems fair to me.
John, according to Krugman, most everything Bernie said was rainbows and unicorns, so it's hard to know exactly why he dismissed universal healthcare then and endorses it now. Are you saying that now is the right time to move forward on it? Looks like the Dems are ever so cautiously coming around to this view and may endorse it in a very incremental fashion.
1
If this generally unfettered free trade is so good for us, why do we enforce patent and trademark protection on imported goods? They just raise prices on the stuff we buy. It's because we understand that there are important benefits to intellectual property protection that make it worth our while to have consumers pay for them. There are equally important societal benefits for the right of workers to organize, to have safe working conditions, to not pollute the environment, to avoid child labor, etc. When we allow the import of goods from countries that do not honor these fundamental values, but block the import of goods that violate our intellectual property laws, we just demonstrate that we consider the rights of ownership vastly more important than the rights of workers.
7
Americans are asked ---don't you want low prices? Sure. But how did previous generations afford the higher prices of American-made products? Unionized workers made them, with rising wages and benefits, and the middle class was expanding, not contracting like now. Why is that so impossible now in the US?
And explain how it was more centrist policy to tax and regulate US companies more, to raise sufficient govt revenue for public services. And to prevent corporate predators from having free rein.
In past generations, taxes subsidized state university tuition so millions of Americans entered the middle class. And unions offered apprenticeships to youth for secure jobs.
Could Mr. Krugman discuss these comparisons in discussions of 'free trade'?
8
Industrial production outside of the US could not compare with demostic economies of scale and therefore could not compete on prices.
However, the development of new technologies changed that. Remember the influx of cheap Japanese goods in the 1950s, including the then new transistor radios?
Foreign competition, offshoring, and the weakening of the unions all contributed to increased inequality in the distribution of wealth.
When wealth is moved up and out of the economy and into a small class of profiteers, the equilibrium of domestic production and consumption is disturbed and everyone else suffers.
2
I am left feeling dissatisfied with Dr. Krugman's seeming aversion to recognizing the enormity of the equity problem being created by our "efficiency fixation". As was asked and answered, unsatisfactorily I believe, we are no doubt better off in the aggregate, but an increasing sector of Americans are being pummeled, with no real hope or agenda or vision held out to them. "Go to college" is simply NOT an answer; if anything it is salt in the wound. The economy cannot absorb a significantly larger number of college grads, if there were a significantly higher number of college grads the laws of supply and demand would discount the value of the credential, and for most jobs, a college degree is far from the most efficient path to qualification.
From another context, offering Denmark as an example is equally nebulous. To imagine that we can qualitatively and quantitatively scale Danish solutions to solve American problems is fanciful. There should be no doubt that both healthcare and higher education (and regionally, housing) in the United States are currently in market failure. Because we are dealing with a situation that no nation has ever faced before ... simply that idea that we can move goods halfway around the world at essentially zero cost is completely revolutionary ... we need some new thinking here. I place the emphasis on NEW.
We have "enough", we don't need more efficiency. We do not share what we have fairly or justly enough. We need to focus on equity.
15
The Tit-for-Tat response from the EU, so far, was largely symbolic by naming some iconic US Brands (Harley-Davidson, Levis and Bourbon) I wonder what happens if/when the EU slaps a 25% Tariff on all US Agricultural products? That is not symbolic, that is a real trade war with substantial consequences.
3
I just want to say that this piece and this type of direct engagement with readers is wonderful. Although I'm further left with respect to economics than Dr. Krugman, I always find his work interesting, fairly reasoned, and his arguments made in good faith. That is a wonderful breath of fresh air compared to the opinion platforms the NYT otherwise awards to most of its right-wing ideologues.
7
Esteemed successor to John Kenneth Galbraith:
Which will succeed---the low farce of Trump or the deep tragedy?
I thought Cheney was the bottom of the barrel. How deep is the barrel anywayÉ
5
I'm still lost about intentional national deficits; that's on me. Probably just echoes of personal finance decisions and trying to globalize that. FWIW: germans absolutely do not personally think that debt, personal debt, is as cool as americans seem to. So perhaps there's some cultural thing there. Like saving up to buy a house in cash is a thing in germany. As an american, I see house debt as a holdover from WW2 GI-era suburbanization. Is it necessary or good? It's not clear. I have rented my whole life so don't know any better.
On the trade front, I lived in Buffalo for around 6 years and used to bike around the ruined secondary-steel shops (toolmakers, etc.). Probably that won't come back and I understand that even if it did, it'd somehow be a weird relic.
What I don't get is how "service industry" or whatever we're supposed to be good at these days for the working class makes any export sense. I don't see a Gap clothing salesperson exporting their skills. I see them taking a very low-paid job local service job as an adult (as opposed to the fast-food jobs for teenagers of my youth, which were explicitly for kids).
What's a good economy and educational path to getting out of this hole? The rich can get richer much easier than the poor. A 5% gain for the rich is a few years of work and achieves vast freedom. A 15% gain for the poor might keep you out of poverty, but isn't getting you up the ladder enough to transfer to your kids.
3
"germans absolutely do not personally think that debt, personal debt, is as cool as americans seem to"
Germans tend to avoid the largest single debt, mortgage debt, by renting instead of owning. In the end, household assets are lower, because they do not end up owning equity in a home. So they avoid debt, but give up personal wealth.
2
Having lived and worked abroad for more than 12 years, doing business in 26 countries on 6 continents, the greatest lesson I have learned is the USA is woefully short regarding best/good ideas on most subjects.
We tout our economy as so great, yet we are a debtor nation. Why is our society, where common bonding should occur for many policies, yet we are so polarized?
Sadly, I find most Americans don’t have even a simple clue how differently the rest of the world is from us - in particular Africa, major swaths of SE Asia including China.
Our global standing is melting before my eyes.
17
My experience is totally different from yours. I worked overseas for most of 40 years in 26 countries plus Antarctica, and interacted with working class as well as mangerial and professional class people from many nations. In my experience, the idea that Americans "have the best ideas" was largely a creation of highly nationalistic individuals whose personal identity was wrapped up in their national (ethnic, racial, cultural, religious, etc) identity. On a number of occasions, I found this expressed as what I took to be a sort of resentment of (this imagined) imagine of Americans thinking they were better than others simply by virtue of being American.
No doubt there are plenty of "ugly Americans", but I've seen my share of badly behaved foreigners of all nationalities. Perhaps Americans are held to a higher standard ... fair enough. Or perhaps Americans are the only nationality on Earth that is expected to openly and vigorously criticize their own nation when abroad?
I agree with Krugman on most issues but I am disturbed here by his glib dismissal of the importance of manufacturing. I think this reflects and academic bias for his own " dismal science" over the disciplines of engineering and physical sciences. This dispute is not just about percentages in the workforce. America needs to have a strong industrial base irrespective of what percentage of workers are employed in particular industries. I do not follow his reasoning on Germany, which has a strong industrial base and high wages. Manufacturing jobs do not have to flow to the low wage areas. And Germany is inside the EU which is quite protectionist in my understanding. This seems to blow up his argument.
7
Ed - this link may explain why Germany's industrial base is not like ours, nor easily exportable. Yes, their economy is 21% manufacturing, ours @ 13%. But their govt/private system of funding research in basic industrial processes to enhance small/medium companies is unique. https://www.asme.org/engineering-topics/articles/manufacturing-processin...
3
Looking around my house I find that the vast majority of my stuff is made in China or South Asia. The interesting exceptions are E.U. nations; Italy (cook ware), France (ceramics and cookware) and Germany (foot ware and small, non-digital, electronics).
Somehow these nations have maintained a manufacturing sector. Why not us?
Anyone who takes Krugman's advise is foolish.....he has been totally wrong since the election so much so that he is no longer is an economist but just another partisan political talking head.
4
I disagree. This guy is smart, a calm thinker, and has the big picture pretty well figured out.
Actually, you're completely wrong and, as is usual with the closed-loop thinking of the right, you can't cite any facts to support your claim. The wave of anti-intellectualism and shoddy ideology from the right is incredible.
Hey tompe.....just a couple specific examples plz with backup.... who knows maybe we'll learn something!
You can accept the inevitability of globalism without arguing its desirability.
5
What’s inevitable about globalism?
Who is going to explain the topics to him?
2
Here’s a question for Paul:
Zuckerberg Gates, and Buffett, along with the Waltons with their not so little homes on the prairies, sit on hundreds of billions of dollars of personal wealth while 3 million American children live under conditions that the U.N. Would categorize as “extreme poverty”. Add to this the ravages and escalating human costs of environmental pollution caused by companies either making or assembling their products in countries that are too poor to be concerned with the environment. To the extent that these factors are an outcome of globalization, can participation and encouragement of the global economy be moral?
6
Cold eye, why do you insist they are an outcome of globalization, rather than steep tax cuts to the wealthy under Reagan, the second Bush, and now Trump? Trickle down does not work, but there are huge numbers of working class voters in red states that voted for Trump, who then borrowed so much money to give to the rich and big corporations, that Medicare will soon fail. This is not globalization!?!
These factors are not an outcome of globalization. Next question.
@Alan
A rather glib answer to a complex question.
It has been thoroughly documented that Walmart, which is owned by the Walton family, was the most significant driver of the offshoring of jobs to China, which was the most significant economic event in history, as part of the process known as "globalization".
The strategy was quite successful for the family. Not so much for more than a million of their employees, who are working full time jobs, and whose training includes how to apply for "food stamps", since they don't earn a "living wage".
So, indeed, the Walton family has contributed rather significantly to inequality, which has reached society-destabilizing levels in developed and developing countries alike.
The Chinese government also readily acknowledges that the human cost of pollution that resulted from being "the world's factory" has been staggering, as anyone who has been to Beijing and other parts of China knows, which is why just the other day it made addressing the problem one of its top three priorities for the future.
Also, to my knowledge, Bangladesh has not exactly become a vacation destination for the rich and famous seeking fresh air and crystal clear waters to swim in, despite all of the virtues of globalization it apparently has experienced.
Next question.
Please do this more often Paul I think this is a great way to add to the knowledge base of Americans. Problem is the people who most need to read this don't read but watch TV.
9
Dr. Krugman you toss off people choosing to buy "inferior foreign products" as if there is always a choice. Understand I am no supporter of 45's Trade War but in many items the flood of cheap Chinese merchandise are the only choice available.
Try to buy a toaster that is not made made in China. I dare you. You can pay 250.00 for a toaster from Kitchen Aid or Wolf or Dualit and when it arrives you'll find it made in China. And it doesn't last. And you know the people in China assembling it are not getting the difference in price from the manufacture of 35.00 toaster at Walmart.
It doesn't make one feel much compassion for Corporations.
10
You can go out of your way if you try hard enough. I saw a nice documentary on TV while in Norway (to point to your example) of a British toaster that is handmade in England. It's overbuilt, insanely beautiful, and, yes, requires a 220/240V outlet. And that company is able to make money. Oh, and it doesn't cost more than the toasters you've referenced.
Most every American who had a choice in the last 15 years bought the cheap Chinese toaster, and then when it broke they bought another one of those and ignored the higher quality American made product, so much that the American made product disappeared from the shelves. Penny wise, pound foolish, I say. But you ignore this history in your misleading comment.
Dr. K: "Basically, we have persistent trade deficits because we have low savings and remain an attractive place for foreigners to invest."
China and South Korea have sovereign monetary systems. They can create reserves out of thin air, invest them in U.S. treasuries and appear to be balancing U.S. trade accounts. In the meantime their firms have access to capital at near zero cost, grow to any size and exercise monopoly advantage over competitors. This is precisely what's going on today. China public debt is 2.5x GDP. Balance of accounts theory needs much modernizing.
3
The problem that most of the comments miss including columnist like Krugman and Friedman, Roger Cohen, America is a very, very , very big country 320 million, maybe closing in at 350 million.with many opposing views. Red/Blue states, Democrats / Republican is clever marketing by certain groups in the media industry , government , America is much more complicated then that ,
In a good way.
Germany 82 million
Canada 35 million
Australia 25 million
Denmark 5 million
Norway 5 million
These are tiny countries compared to America
2
So what is the population limit, after which a country can't have any political cohesion? What's the number?
Maybe a large population is just an excuse. More crucial is whether their political culture has standards for representing the citizen majority in basic social supports common to most democracies. And whether their elections are turned over to the richest donors for party funding.
In past decades the US had a more cohesive polical culture, including Republican moderates, even with our huge population and area size.
Citizens got support in public services, jobs stayed here, not offshored, we had rising wages and benefits that expanded our middle class.
Columnists ignore that comparison.
6
there are definite size boundaries. ask yourself how to manage china or india better. the reason for the strong social constraints there (as in russia, but simply for landmass) may have something to do with simply being able to get a handle on things. not an excuse, just an explanation for the easiest path that they've chosen.
America is full of people whose families were discontent in the place they came from. That independent streak persist in the new country. We march to our own drummers here, even to our own detriment. Why would we think that the police cannot protect us that we have to buy so many guns? If we each paid the cost of guns ammo and shooting ranges, for taxes to pay police, then the police would have $billions more resources and staffing, and we would be far more safe, but we want to do it on our own, always. It leads to resiliency and innovation, but also to discord, inefficiency and lately instability.
Will some please explain how Universal Health Care can improve Trade? First if Obamacare is not economically working, how does UHC help trade. Paul is right, most of the lost jobs will NEVER comeback. We are in a Digital economy. But....China is stealing from us in every way. What can we do about this? Nothing?
2
Ok, this is just my personal guess, but I'm thinking Universal Health Care (UHC) would indirectly help with trade becuase it would impact productivity, which I assume would then impact trade to the extent that increased worker productivity has got to be a good thing relative to cost of production of goods and services.
One very small example. Today I went to get my hair done. Ask any woman (and maybe some men), and she will tell you we are VERY picky about who does our hair. The big deal for me today is that my hairdresser has been out of the salon, sick, for 8 months! This is significant not just because I started jerry-rigging my own haircuts (loss of income to the salon), but because I found out that this wonderful woman is "working poor" and on Medicaid. She had knee surgery, then foot surgery (same leg) with complications, needed follow-up surgery and tons of physical therapy.
Well, in a town overflowing with doctors, hospitals, therapists, etc, this fine woman was made to wait weeks, months for each stage of her treatment. Half the doctors in town refuse to take Medicaid patients. Ditto surgeons and therapists. Some who do take Medicaid have a monthly quota, so you have to wait. You're not always treated by the best person for the job. If this fine woman had my Blue Cross policy, my guess is her ordeal would have taken 4 months instead of 8 months, and she would have been back to work sooner, earning $, salon profits, etc.
Good UHC keeps workers at work.
59
I don't think Universal Health Care will "improve Trade" - - Universal Health Care can cut some of the "sting" that has occurred due to Free Trade. The United States has no wealth problem - the wealth of the US continues to grow - just a distribution problem - the distance between rich and poor is much larger than it was in the 1950's or 1960's.
4
Universal health care would relieve corporations of the expense and burden of providing health care for their employees. This would make those corporations more competitive with corporations worldwide that do not have that same burden. It would also allow corporations to focus on their core competencies, eliminate redundant administrative functions, and enable workers to more freely pursue other job opportunities or start their own businesses based on market demands, rather than being tied to a job simply to retain health care coverage.
Universal health care would also relieve individuals of the expense and burden of paying insurance premiums and most out-of-pocket health care costs. Yes, taxes would likely go up, but I believe those increases would be more than offset by the out-of-pocket and premium savings.
Finally, universal health care could be far more efficient and focused on health outcomes than our current, ad hoc, profit-driven, fee-for-service models.
5
Prof. Krugman, as he does often, points ther way to how Internet Q & A tutorials could be used much more effectively on matters of public policy and community life. Of course, it takes omnivorous enthusiatic scholarship and a sparkling writing style and skill to get people to be saying to themselves:What is s/he (the expert) asking or telling me that I need toa nswer/understand?). I now understand what I need to understand for my or my family's or my community's own good. own good! Etc,
6
I would like to note that some progressives oppose agreements like the TPP not because of its actual "free trade" provisions but because of other provisions, such as the ones that allow corporations to sue countries for loss of profit due to that country's environmental laws. Disgraceful.
8
Krugman was against TPP because "it was mainly about intellectual property". Has he looked at the valuation of the FANG's? It's all about IP. China is stealing our IP and forcing Tech Transfer. Why? Because that's the source of future wealth. Protecting IP should be one of our top trade priorities. His opposition to TPP fed the Trump narrative that inequality is all about trade.
2
The slogans that keep rising like evil phantoms in my memory every time I am exposed to the ugly rhetoric and lies from Trump and his minions are, "War is Peace" and "Ignorance is Strength". Just 34 years later than Orwell's prediction. Add one from Uncle Albert, "Only two things are infinite, the universe and human stupidity, and I'm not certain about the former." We can be certain about the latter in the case of those the voters have chosen to lead this Country. America being reduced and made as small and stupid as humanly achievable. A bigly, monumental accomplishment. Biggest ever.
3
Professor Krugman always resorts to health care and unions, exposing his liberal politics....
I wonder what he thinks about stopping the illegals from mooching our health care, and forcing people who work off the books, or who do not work at all, to contribute to the tax base..... maybe we'd have some more money in the government?
2
Illegal immigrants are not mooching our healthcare; and those that work off the books are still contributing to our tax base in a number of ways---they pay all sorts of taxes on the goods and services they consume, as an example.
This notion that Illegal immigrants are destroying our economy is a myth.
Perhaps because countries with strong unions and universal healthcare are all so much healthier physically and economically than the USA.
Don't you think that illegals would love to join unions, too, instead of being taken advantage of? This is the US oligarchs' way of pointing out to the working class that, "Hey, that foreign mooch is stealing your 1% piece of the pie" when the oligarchs own all of the other pieces.
Unfortunately, it is hard to take Paul Krugman seriously anymore. He himself has admitted he can no longer tell where his economic expertise ends and where his political partisanship begins. Well, his readers can't tell either.
3
That tooling question hits close to home. Like the writer, I would strongly prefer domestically produced tools for quality reasons, but it is very difficult to find any. I think this may be more to do with concentration in the tool retail industry than legitimate market forces.
5
I can easily find domestic tools - and do buy them from time to time - but it's hard to pay $250 for a drill that will last 25 years when I can get one for $37 that will do the job and last 10 years - when considering in 10 years, the new drill will have even more "tricks." I have a 1963 Spiegel Catalog. A corded drill is $25. It is beautiful - polished metal case. It is not double insulated, it has 1 speed, it does not reverse, it does not have a keyless chuck and also lacks a little LED that lights up pointing to what I am drilling. Those are the "tricks" I am talking about. When I buy the $37 drill I think about those USA jobs I am not helping - and I feel bad about it. The drill I bought in 2002 was cordless and 6 volts. The one I bought in 2014 is 14 volts - and far more powerful. I don't wear drills out - I don't use them that much. I think about it a lot, and feel bad for the loss of American jobs. There ARE times I pay more for domestically produced products, and if I knew that I could "save" the country with my choice - I'd be willing to do that more.
How can liar Trump get away with false big-mouth assertions, given the facts are widely available? Is this laziness to gather the facts, or willful ignorance about them, so he can bully his way to convince his misinformed base? Otherwise, he isn't fooling anybody but himself...while doing great harm to the credibility of the United States. This is no way to do business, it is stupid, even when coming from a hardy-foolish make-believe 'very smart genius'...as the only fool is Trump himself.
2
Trump's Misinformed Base is a "Tribe" and he is their leader. He tells them what they want to hear. That "retraining" thing is a comfortable edge case - some people can do it - but the majority cannot. Like the Olympics - we all love the story about someone who beat the odds and got a Gold Medal - but we never hear about the thousands of others who did not get the Gold.
In "Denying to the Death" science is showing that "sticking to your point - even when wrong" gives the brain a reward - whereas "Oh, I was wrong about that" does not offer a reward.
1
Dr. K, how helpful is it America's economy for the president to wilfully lie about an easily discoverable basic fact when he is too ignorant and lazy to prepare for negotiations with the US's closet ally and largest trading partner Canada whose leader is smart enough to know better?
4
Paul Krugman-- the conscience of a liberal--has today written his 1st positive sentence ever about Bernie Sanders and his type of advocacy. I well recall his insulting put downs of Sanders' every statement in 2016.
Now Krugman writes “You may remember Bernie Sanders using Denmark as an example. It’s a good one: much better wages, a much stronger social safety net, a mostly unionized work force.”
(Then Hillary said "We're not Denmark!")
Krugman could devote columns to how advanced countries handle taxes, regulations, and social supports --so their citizens don’t let an authoritarian party and leader like GOP and Trump take over. Here our rw party dominates our 3 branches and most states. Contrast our policies on health care, wages, unions, education and retirement.
Americans have to fight for economic crumbs left over by the corporate upper class who work in collusion with our congress. Trump is a symptom of our economic virus infecting our democracy.
See NYT re The World Happiness Report 2018. Finland is the happiest country, then Norway, Denmark, Iceland, Switzerland, Netherlands, Canada, New Zealand, Sweden and Australia.
Quotes Dr. Harvey Sachs of Columbia “the happiest countries have very different political philosophies from the US.....social democracies with solid social support systems, good public services, and even paying a significant amount in taxes for that.”
More important than trade deals? US media avoids it. Please deal with it, Mr. Krugman.
40
Those happiness reports gloss over a lot of unhappy failings and neuroses in countries like Finland. For an entertaining view of this, I recommend "The Almost Nearly Perfect People: Behind the Myth of the Scandinavian Utopia " by Michael Booth. I agree with the basic premise that the US could do a lot more to climb higher up the scale of happiness, whatever the metrics. But to take the perennially high happiness scores of Scandinavian countries at face value, is a mistake. Alcoholism, misogyny, xenophobia, indolence, and even bad educational systems feature in these countries, like they do everywhere else in the world.
First, if you actual read Krugman's column regularly, you'll see he has written frequently on many of those economic topics you are talking about: wages, taxes, regulation, etc. However, given that Trump has very recently instituted tariffs and there is a lot of controversy about their effect on the US economy, Krugman decided to have a Q&A session about them. Krugman is an economist, not a political scientist, not a sociologist, not a psychologist, and not a happiness guru. Why would you rather he not write about something he spent his life studying?
1
I think you mean Dr. Jeffrey Sachs of Columbia University, did you not?
1
No country with Trump as its elected President can be credible, admired, or thought much of. Trump springs from the loins of the Anerican mnightmare.
2
Being from the Midwest, I find my knee-jerk reaction is to blame trade for what has happened to manufacturing in the US. The problem is that it is a false narrative that feels good. The reality is counterintuitive, complex and doesn't lend itself well to sloganeering.
6
I appreciate your point, made several times, that this current tariff proposition and Trump's undermining of current trade agreements have far greater consequences on the integrity of the United States as an international partner than it does on the US economy. Trump may not destroy America, but he has already destroyed our reputation. I am hoping that the world is forgiving with the next administration.
7
I just read about Trump's boasting at a private fund raiser about how he bald-faced lied to Justin Trudeau, Canada's Prime Minister, when discussing trade and tariffs with him. Trump insisted we had a deficit when we actually have a surplus. So, now Trump is giving the finger to our closest friends. If we let him continue, we will have no allies or treaties left. And that is when Trump can hand Putin a dismantled and isolated U.S. for him to pluck up and destroy. As Mr. Krugman said in a previous column, only the worst and dumbest [sycophants] are left to run the government. Anyone capable and willing to stop this grotesque and vile president (except General Mattis) has left the administration.
28
Either Paul Krugman or Thomas Friedman does not understand the TPP.
I blogged the other day about Tom Friedman:
Thomas Friedman is great in this op-ed, Some things are True Even if Trump Believes Them. He writes that China is a big problem, but the Trump steel tariff hurts our allies and not China. Then:
“So what would a smart American president do? First, he’d sign the Trans-Pacific Partnership trade accord. TPP eliminated as many as 18,000 tariffs on U.S. exports with the most dynamic economies in the Pacific and created a 12-nation trading bloc headed by the U.S. and focused on protecting what we do best — high-value-added manufacturing and intellectual property. Alas, Trump tore it up without reading it — one of the stupidest foreign policy acts ever. We Brexited Asia! China was not in TPP. It was a coalition built, in part, to pressure Beijing into fairer market access, by our rules. Trump just gave it up for free.
Once a smart president restored participation in TPP, he’d start secret trade talks with the Chinese — no need for anyone to lose face — and tell Beijing: “Since you like your trade rules so much, we’re going to copy them for your companies operating in America: 25 percent tariffs on your cars, and your tech companies that open here have to joint venture and share intellectual property with a U.S. partner — and store all their data on U.S. servers.” “
Apparently, Dr. Krugman, there is a tariff compaonent to the TPP. Also diplomatic.
6
Other countries like Germany and Denmark etc may offshore some jobs, and also de-industrialize, but they still manufacture much more than the US and have strong unions to protect workers.
In Germany, the Times has reported how during economic downturns, firms reduce worker hours temporarily, but the govt subsidizes their wages. This avoids the layoffs and dislocations Americans have to go through. Also they budget money for retraining and education for dislocated workers.
The Times has past articles on how the German govt partners with corporations to give apprenticeship job training to high school students who aren’t college bound while they’re still in high school. They have skills, and can start earning money right after graduation, giving them economic and psychological stability that many US youth lack.
These positive role models in how workers are respected could be discussed in our media, so that Americans see what's possible.
106
Hey Meredith,
Would you have those articles saved or bookmarked by any chance?
Thanks
Thank you so much for the valuable answer to my question above Prof.
Although it might also depends, but I found in your answer to my enquiry about how tariff protection policy is contractionary in your answer to James C., Brooklyn's question: -
"My question: How will American steel workers fare as a result of this tariff? I heard the head of a steel workers union on NPR welcome this tariff and he sounded as if their prayers have been answered! — James C., Brooklyn
PK: We will gain a few jobs in steel. But we’ll lose jobs in lots of other, “downstream” industries like autos. Most studies of the 2002 steel tariffs say that they cost jobs on net. So yes, steel workers get a little, but at what cost to other workers?"
In net terms it is therefore contractionary and disastrous to small economies if they adopted the same.
I also found other answers to my other questions in answering the other asked questions.
Thank you very very much Super-Prof.
3
"Lot of things worry me; our foreign debt, not so much."
Let's look at this dynamically, not statically. We have had 6 depression in our history. Each of them was preceded by a period in which money was flowing OUT of the private sector. The cumulative effect of that was people turned to banks to get (borrow) money. The banking system became over leveraged and eventually failed. This happened in 1819, 1837, 1857, 1873, 1893 and 1929.
Now money flowing out of the country had little contribution in these cases. The reason for the outflow of money from the private sector was a period of federal surpluses which paid down the federal debt 10% of more. The government taxed more OUT than it spent IN.
But in the 1990's the amount of money flowing out of the country became significant--globalization and all that. Except for a brief period in 2003 the amount of money flowing OUT of the private sector was again greater than the government was spending IN from 1996 to 2008. By 2007 the large banks had 27 or 28 times the amount of outstanding loans as they had reserves. We would have had a 7th depression if the FED had not poured TRILLIONS into the banking system, but the result was not pretty.
You can vividly see this chain of events in a sector balance chart such as the first one at
http://www.slideshare.net/MitchGreen/mmt-basics-you-cannot-consider-the-...
or
http://www.slideshare.net/MitchGreen/its-what-you-know-for-sure-that-jus...
2
Thank you, Dr. Krugman. I think all of us in this country need to sign up for a class in economics. Hey, this is a great idea for a TV show!!!! - maybe PBS? (hint hint, please please). I'm going to give away my age, but I remember TV shows when I was a kid teaching people how to drive correctly - I think it was called something like the "National Driving Test." I don't know how popular they were, but I watched them. As citizens, we need to know more about how things work so we can (a) do a better job at the ballot box, (b) be ready to stare down and debunk the propaganda that passes for "truth" in our day., and (c) make much better choices about education, jobs, buying decisions, etc. How many people really understand what is important, and what isn't? What's politics, and what are the real consequences. Thank you again. Bravo!
10
"Low wages are the only way they can sell on world markets"
There's that "downward pressure on wages" everyone's been looking for. Globalization is, in fact, a race to the bottom, and it won't be over until Congo achieves middle income status.
And not insisting on those pesky "basic working condition rules" allowed us to turn back the clock and export the Triangle Shirtwaist Factory Fire of 1911 from NYC to Rana Plaza in Bangladesh in 2013.
"The trouble is that given Chinese reality..."
Tantalizing.
This discussion about "explaining" trade largely ignored the stunning ascent of China over the past 25 years, which is the most significant event in economic history, and its geopolitical implications are surfacing literally in real time. Disappointing.
"a modern economy doesn’t use that much steel...we can produce steel using many fewer workers"
China laid of 500,000 steelworkers in 2016. That's close to the peak number of steelworkers in the US. In the 1950's.
There are more than a million left. Presumably, they've made an awful lot of steel, or else it wouldn't be very "economically efficient".
Hyper-globalization of the past 25 years has been the biggest failed socioeconomic experiment since Communism. Full stop.
Its failure is reflected in virtually every election across the developed world, and dealing with its dire consequences will be the biggest challenge to global peace and stability in the 21st century, particularly as the Age of Automation commences.
2
Thanks to PK for taking the time to do really interesting pot-pourri of topics. The problem with inferior goods at places like HD and Lowes is a little more complex than represented.
People who wish to pay more for quality and reliability get, instead, functions they don't want for more money, but not reliability. An example would be washing machines with ever more computerized options and ridiculous cycle optrions. Speed Queen is hanging in there with a niche that costs a bit more and produces washers that will last decades. Many don't even know Speed Queen exists.
Junk offerings are a form of monopoly control that depends on a kind of collusion between manufacturer and retailer. Walmart actually orders producers to make goods at a price point that declines over time. Oligopolistic retail selectively makes space available to oligopolistic manufacturing, the emphasis is on low margin high turnover. Quality manufacturers lose scale economies and also can't afford the marketing: because the main marketing tool is physical presence on the shelves.
Cheap junk manufacturers deceive by copying the look of the quality rivals. The only way to get "durability" is to pay for an extended service contract that does not guarantee durability but rather replacement with a new piece of junk. And then you're paying an extra 20 to 30% for a long term service contract rather than 20 or 30% more for quality. A pile of junk served up on a plate is still junk.
51
Excellent analysis, well presented. Personally I think Paul Krugman made a choice to dodge the question with a weak argument. His macro level arguments are well argued, well supported and thus convincing. But he seems to fail to convince from time to time, probably because he chooses to do so. Is it because he's not convinced by his own argument?
2
Thanks for the tip -- I hope I will remember to check out Speed Queen when I need to replace my stalwart Sears Kenmore washer. And I hope they still fit your description.
1
Whenever people talk about trade they often talk only about jobs when we should be talking about quality of living (eg real wages) and the two are not the same thing. The narrow focus on jobs makes it sound as if the ideal world economy would be if the US was the only country in the world that produced everything and everyone overseas consumed what we made. That would be a HUGE trade deficit. Who would want to be an American in that scenario? Living in the rest of the world would be far better. When other countries make goods with "cheap labor" American workers can buy more stuff (i.e. have higher real wages) with what they earn. No surprises there - if someone offers to do something for you for cheap it is a good thing. Buying a "cheap" air conditioner from China means your wages can afford you to also buy food for your kids. It makes us better off. Of course if some people work in industries that can't compete with foreign competition, we as a society, should help them be productive elsewhere and ease the burden as they transition. But fighting free trade just to maintain jobs is like trying to protect horse and buggy driver positions. The world has moved on and the replacement is making us better off.
6
I wish more was said about protecting the global environment, and, also, security aspects of global economic interdependency.
5
As always, instead of actually following the production shifted offshore from closing 62,485 manufacturing establishments since 1997, Krugman refers back to a 1995 working paper. In the paper he develops theoretical constructs, estimated at some macro-level, and devises a model that predicts only a 3% difference in wages from imports.
Leaving us to ask: How much of the production was outsourced to other countries? Krugman doesn’t say, and therefore, we don’t know.
Which leaves us the choice of believing Milton Friedman-like analytics or our lying eyes.
We know from U.S. Labor Bureau statistics that 2.9 Million manufacturing jobs were lost from 2000 to 2003, only 3 years after Clinton gave Communist China PNTR status. By 2010, job losses totaled 5.6M. If that reduction is due 100% to automation, there was a lot of plant retooling in a very short period of time. We know median household income was stagnant for nearly two decades since Clinton gave 1.3 billion Communist Chinese access to the American markets.
We know that in 2014, total trade with China was $650B with Americans coming out on the short end by about $316B. For context, Canada and the US trade was about $759B with a trade deficit of only $7B.
What’s a mystery to me is that anybody pays any attention to his scribbling.
4
Good factual points, Bill. Krugman is avoids data and writes generalities. A 3% difference in wages?
He might tackle this re NAFTA also:
Jeff Faux article--- Nafta’s Impact on Workers, from Economic Policy Institute:
“ NAFTA undercut the bargaining power of American workers, which had expanded the middle class since the end of World War II. The result has been 20 years of stagnant wages and the upward redistribution of income, wealth and political power.”
“Clinton surrounded himself with economic advisers from Wall Street, and in his first year pushed the approval of NAFTA through the Congress.
Despite the rhetoric, the central goal of NAFTA was not “expanding trade…..the central purpose was to free American corporations from U.S. laws protecting workers and the environment.”
I just heard a segment on NPR today where they talked about Free Trade Zones. I had never heard of these before but apparently they are small pockets of land areas where imported parts or goods can be "stored" and therefore, not subject to tariffs. Mr. Krugman, can you tell us more about this and are they still in effect?
they are tariffed or taxed once they re-enter the stream of commerce
Depending on what other countries do with retaliatory tariffs a lot of red state voters may be in for some unpleasant surprises. Where I am in the Midwest, agricultural exports are one of the few bright spots in the farm economy. Billions of dollars worth of soybeans, corn, pork, and animal feed are going to China, SE Asia, and Latin America.
Assuming there is retaliation that targets agricultural exports: For every steel job saved in Pennsylvania or Ohio how much money will farmers in Minnesota, Iowa, Nebraska, and Kansas lose?
7
We need to stop paying farmers not to grow crops. we need to stop picking winners and loser
The question regarding the ubiquitous Chinese-made tools at Home Depot gets a circular answer. Dr. K says people should be free to buy inferior foreign products. True, but this means Home Depot has no incentive to stock American-made tools, which explains why there aren't any American-made tools for sale.
4
People who really use tools pay to get good ones. Do it yourselfers generally don't. Home Despot sells both - the majority of "good ones" are imports as well.
Thank Reagan for this and all the other ills he left festering
5
Their incentive is to stock the things people want to buy, no matter where it is made. Like any store.
1
Something is amiss.
Our business owners who moved their manufacturing off shore didn't do it to bring lower prices to the consumer rather to add more downy feathers to their nest.
Free enterprise is a catchphrase used to cloud the reality that nothing is free. The deck is stacked and continuing to play this game with these cards only guarantees the same winners will be cashing in their increasingly blue chips.
The monetary gains of our system are directed to those at the top, with no ands, ifs or buts.
Slice or dice things anyway one wants, two plus two still make four; three and ninety-nine hundredths of which are immediately deposited in offshore accounts.
It isn't just Mr Trump or the bobble-heads in Congress. We the uneducated, but pious American, put all of them in their seats of power.
28
Right after Reagan weakened unions to the extent they could no longer protect workers, he gave tax incentives for off shoring jobs.
the first salvos in his successful war against working americans
7
What do we gain by using Chinese (steel) rebar in our highways and wallboard in new construction housing?
What do we "sell" to China? (They won't even buy our recyclables any more, to encourage their domestic recycling industry supposedly) One of those non-tariff barriers?
3
"What do we gain by using Chinese (steel) rebar in our highways and wallboard in new construction housing?"
Jobs in highway construction and home building. In every region of the US, and not just in Pittsburgh.
2
I don't think we gain much in economic activity from Home construction; Around here it is mostly Illegal Immigrants, paid in cash off the books; Possibly their Children are part of the 61% receiving free/reduced price lunches (and Breakfast!) (All Federal Dollars). It isn't the workers, give every one of them a real social security number and put the contractors in Prison.
Most of the housing built around here since 1990 does not meet code, it's not just the workers who are being short sheeted.
We need those good Union jobs, which no longer exist in many areas in the construction trade, shifting the medical, etc. to the rest of us.
Denmark is actually a good example for what both Sanders and Krugman leave out of the discussion: international labor. In 2015 the government went to the far right populist party because of concerns over immigration. This is their form of protectionism: rather than integrating foreigners into their workforce, which would take a Marshall Plan level of investment and a leadership willing to take risks, they want to exclude them.
There is no sense of the necessity for labor to create an international consciousness to oppose multi-nationals. It's always "domestic policies" to appease workers, which are often inadequate, and the fear of the "other", whether it be Arabs in Denmark or Poles in Britain. This lack of vision leads to the rise of nationalistic right wing parties.
"For example, iPhones are “made” in China, but China only accounts for less than 4 percent of their price."
Are iphones "made" in China, or are iphones "assembled" in China from parts made in other countries, and then shipped to China? There is a difference, especially when adding to the trade deficit. This difference could be $5 for "assembling" or could be $250 for "making" the iphone. Maybe China is "assembling" iphones, but charging the price for "making" iphones when shipping them to the United States?
1
Questions about iPhones are for those who are interested in overpriced electronics. Save money. Buy from someone else.
1
A question I would have liked to ask Professor Krugman is about aluminum.
The USA imports much aluminum, largely from parts of Canada that has very low cost hydro-electrical power. This power is RENEWABLE, and very cheap compared to electricity produced in the USA. These same places also export huge amounts of (cheap) electricity to the USA. Canada also earns a lot of money doing so, as Canadian electricity, used by Americans, is much more expensive because of both costs to transmit, and profits for exporters are part of the total transaction.
Aluminum is produced from ores not mined in either Canada or the USA. It is an international commodity. Thus, if the USA were to produce a lot more aluminum, they would essentially be using expensive American electricity (perhaps bought from Canada) rather than cheap Canadian electricity. Electricity is the major cost of producing aluminum.
Could you, professor, explain the economics of the choice of buying cheap aluminum from Canada, against more expensive aluminum produced in the USA with far more expensive electricity?
6
Very enlightening. One further point--how about renewing the Bretton Woods agreement to expand the reserve currency to a basket including the US dollar, Euro, Yen and Chinese currency?
1
The focus on tariffs misses the experience we have had with autos. The Japanese/German brands were "encouraged" to make (assemble) product here. Very successful in creating US jobs and for BMW a base from which to export. Now Volvo is building a facility.
In appliances, Samsung is building a faculty and LG is following as well. So it is clear that US workers can produce competitive cost and quality products.
Rather than focus on tariffs, require that brands produce (assemble) in the order of 75% of their sales in the US. Market access comes with a cost!
If brands decide not to produce here, then squeeze these brands out by tariffs and or quotas. Their prior demand moving to US producers.
The good Dr Krugman did not comment on normalizing auto tariffs - EU at 10% while US is 2.5%
15
Yes, but we tax light trucks at 25%[1], which is a significant part of our market. So, while the EU and Japan would might be willing to move to a 10% import on both Cars and light trucks, the big 3 certainly aren't.
[1]: https://en.wikipedia.org/wiki/Chicken_tax
Does this mean that American companies will also be required to manufacture 75% of their products here?
I would add. Those companies that move jobs and/or HQ's to avoid paying American taxes and workers, should be prevented doing ANY business in the USA for at least 5 years.
No access to our infrastructure, courts, or govt services. If they survive 5 years, without "using" us on the cheap, then they can do a little business here
3
Good article thank you.
Outside the US we all tend to forget the impact of not having universal healthcare has on everyday life.
It's dreadful enough losing your job, but no one here fears losing healthcare at the same time. No matter what happens, if we fall ill (or pregnant) we all know that we'll be treated. No one needs to sell their house to afford the drugs they need for treatment. No one goes bankrupt trying to afford healthcare for their kids or parents.
228
Don't bother telling americans how real countries work. Those of us who understand the value of keeping the citizenry healthy don't need to be reminded, the goobers don't understand it.
The insurance strategy we use in the US was devised to all employers to have greater control of us
6
Absolutely. Until you have experienced unemployment - no income to pay for medical care and a lot of other things - with the dread of getting sick or worse things completely out of your control, they don't understand how much difference it makes to not worry about being healthy. And being healthy makes it easier to find work, and being more employable. But first, the culture of which one is a part has to value the health and well-being of all its citizens ....
1
Apple or iPhones may be a bad example, maybe an easy one. Apart from lots and lots of non-electronic items, there are lots of other phones and chips that are being made in China/Taiwarn etc - which are flooding the world market. which misses most eyes.
2
First, thank you so much for engaging in a dialog. I have one answer I'd like to question though:
"If people are buying inferior foreign products, isn’t that their choice? Maybe they care more about low prices than quality. It’s kind of like buying fresh but expensive local produce: I prefer it, but I’m affluent enough to make that choice. Many people aren’t."
Spoken like a true economist, Dr. Krugman, I think you're engaging in a bit too much 101-ism here. While you can do a reasonable (if subjective) job of assessing the quality of produce on the spot, a tool expected to last a decade is a very different matter. The implicit nationalistic bias in both the question and answer misses the bigger issue, one I believe to have macroeconomic scale.
You describe "inferior foreign products" as if that's one thing. If the Chinese can build an iPhone with a case made from 7068 aluminum, they can certainly make a good chisel. The problem is not inferior foreign products, it's inferior products made by known brands (looking at you Stanley Black&Decker). Since brand is all consumers often have to go on in determining quality, greedy, short sighted managers can monetize their brand equity by cheapening the product. Every MBA who's studied the SInger sewing machine case understands this. So what if the brand's reputation for quality suffers, that won't happen for years, long after the bonuses have been paid and the stock options vested.
182
@Gordon: Thanks for broadening the question in a smart way.
Home Depot/Lowes offer what most people want. The hammer problem is that most folks don't want an expensive professional-quality tool that you could hand down. You'll have to go somewhere else - and are Stanley or Craftsman even made here anymore?
1
The use of "choice" also blames the consumer. In an age of falling real wages, no one "chooses" to waste his hard-earned income on a worthless tool. We would all prefer an affordable and reliable option. And what is affordable depends on how wages are set by American employers. No affordable, reliable option = no choice.
9
I stopped reading after 'iPhones are "made" in China'.
You have got to be kidding us, Professor Krugman. When I buy a new skil saw, it is most certainly "made" in China. The price has not fallen, but the quality is far, far lower. Perhaps only 4% of the cost of the saw goes to the factory workers in China who work 14 hour days, 7 days a week, 365 days a year, but that does not change the fact that they are "making" the tool, along with nearly every other manufactured item.
Mr. Krugman and most other "normal" economists dismiss this essential, undeniable fact, along with the consequences thereof (assembly jobs that used to pay 40k a year now pay 4k, and the difference goes straight to the wealthy) - and then can't figure out why anyone would refuse to vote for Hillary Clinton.
I would encourage Mr. Krugman to 'drop-out' of his theoretical paradise and go try to make a living with his hands in the midwest for a year.
4
Eric, please do read more. You missed a lot.
6
The point is that the value of the iPhone is not the sum of labor plus material. The value is the iPhone's capabilities which is a function of American intellectual achievement. Saws and other power tools sold in Home Depot are mostly imports. Whether quality is better or less is in the eye of the beholder. There is not much value added to a power saw so building it in low wage countries makes sense provided that cost advantage is not offset by the transportation cost to get it to the US. Lastly, the American standard of living has evolved beyond those of China or Bangladesh. We can't forget that China is a Communist command economy. Those Chinese that work as you describe are required to do so.
1
Your argument is misdirected. It is the large retailers like Walmart who orders the inferior products that you decry. Walmart has long encouraged manufacturers to take the cost out of products in order to generate recurring sales. That $125 lawn mower looks like a bargain until it breaks and breaks and breaks.
Krugman is just delivering the information. You are asking for propaganda.
6
So, is PK an "all in" acolyte of A. Smith and D. Ricardo? If so (and I would hope so) why?
If not (and I don't think he's like the French candle makers of yore) why?
1
If Adam Smith was good enough for Thomas Jefferson his economic observations should be good enough for any professor.
Kudos to all the readers that sent in questions! The wide range of questions people came up with was educational to me, as well as Dr. Krugman's responses. Let's do this again sometime!
64
This was in-depth and educational, please consider making this an ongoing feature
Dr. Krugman, you are generally so astute that I forward more of your articles than anyone else's. However, you seem to have a blind spot on TPP. Go talk to Thomas Friedman for awhile! TPP was never about the trade benefits. It has always been about our footprint and influence in Asia especially vis a vis China. Further, while the economic benefits were not expected to be massive relative to global GDP, they were expected to be economically positive for all parties including the U.S.
I fear that your liberal filters are coloring your perception on this one. You have taken a very narrow economic view of TPP versus a more comprehensive geopolitical view. Please don't fall in that trap as it empowers populists on the left who have isolationist tendencies. You never will hear Trump or the populist-liberals talk about the benefits of relatively free trade to hundreds of millions around the world who have been lifted out of poverty in the past two decades. Your solutions for dealing with our few millions who are displaced (e.g., better social safety nets) are much better than abandoning leadership toward a more equal and integrated world where median incomes in all countries rise relentlessly.
6
@TheBoot: I think Krugman answered that in part: TPP was about increasing corporate rights. As for the politics, though you ask a pertinent and important question, Krugman is an economist, not an international political analyst, even though much of his domestic political analysis is on the mark. I assume he didn't think he was in a position to address the international political significance of TPP.
2
There would have been no need for globalization in the first place if median incomes were similar everywhere. Krugman stated that he was against TPP because it was giving multi-national corporations a right to sue sovereign nations for refusing the demands of multi-nationals that weren't in the better interests of the sovereign(s) citizens.
1
Q: If Trump hired you to end the trade deficit by, say, 2024: How would you recommend doing it (regardless of whether you think it is a good idea)?
Good answers to a lot of excellent questions; thank you!
5
Great article as usual by Paul Krugman.
I have questions though. To wit, why didn’t steel companies use previous “giveaways” to actually modernize anything? How is paying steel workers the equivalent of $102K in today’s dollars sustainable? Why can’t the US make quality steel parts? (as per a recent NYT article about the guy who'd like to buy US-made parts, but a) not enough product, and b) the product that IS available is inferior.)
These may be rhetorical questions.
Where did you get the 102K figure? right now:
"A Structural Iron or Steel Worker receives wages of somewhere between 32000 to 48000 depending on the level of experience. Structural Iron and Steel Workers will usually earn a pay level of Forty Eight Thousand Seven Hundred dollars on an annual basis."
US companies took any sort of break and drove it directly to making companies appear more successful on a quarterly basis so corporate officers could earn a better bonus'. American business became a cookie jar to be accessed for short term gains at the expense of any sort of longevity.
This is the same strategy that, in 1972, cost the US auto makers their home market
1
When Trump talks about "bringing back" steel, aluminum, mining, what have you; he is selling a nostalgic fantasy. Krugman alludes to this in his reply about steel. Just like every other industry, these ones have been transformed by automation and technology.
Even if all of that production returned to the US they would not increase their number of employees to match the headcounts of yesteryear. They can produce the same output with 1/4 or less of the people they used 30 years ago. People focus a lot on robotics but the bigger difference comes from general advances in technology: software, precision machining, information management. There isn't literally a robot doing your job but the productivity tools you have allow one person to do what used to require two or three.
20
This single Paul Krugman column contains more public policy knowledge and considerations than America will witness in the entire 'God-forbid' four-year Trump Administration collection of public policy poppycock.
Yesterday, Daycare Donnie hired a TV economist disciple of Arthur 'trickle-down' Laffer, Larry Kudrow, instead of a serious economist who understands reality like Professor Krugman.
In the fall of 2007 when housing and the stock market were collapsing, Kudrow wrote in National Review that “Despite all the doom and gloom from the economic pessimistas, the resilient U.S economy continues moving ahead quarter after quarter, year after year, defying dire forecasts and delivering positive growth.”
Looking ahead to 2008—when the entire U.S. economy came crashing down and millions of Americans lost their jobs, and banks, automakers and mortgage lenders had it be bailed out to the tune of hundreds of billions of taxpayer dollars—Kudrow said “we are about to enter the seventh consecutive year of the Bush boom.”
Here’s Kudrow in 1993:
“There is no question that President Clinton’s across-the-board tax increases on labor, capital and energy will throw a wet blanket over the recovery and depress the economy’s long-run potential,” Kudlow wrote.
What happened next? The U.S. economy began an eight-year expansion, creating 21 million jobs—and the federal budget was balanced.
Republican cultured stupidity is no way to manage a country with 320 million citizens.
364
You mean Arthur "Men's Clothing Model" Laffer? (See his youthful appearance.)
2
Hey Socrates, cut the guy a break. Everybody know that Kudlow had a $10,000-a-month cocaine habit in the 90s so I think we should be impressed that he could sit still long enough to write anything at all.
3
But you're touching on part of the problem. The Republican party in general, and Trump in specific are so antagonistic to people with actual experience or expertise, that no one qualified _wants_ to work for Trump. And even if they did, their tenure would be so short that it would be meaningless.
2
What would bring more steel jobs and increased wages is demand driven strategy of rebuilding and upgrading our infrastructure and transportation for tunnels, rail, bridges, and roads, and schools , then buying American steel instead of Chinese. Paul's End This Depression Now reminded us of the Public Works Program 80 years ago. Although unemployment is now low thankfully, interest rates are still low and the return on the borrowed investment is much more likely to generate growth than tariffs.
41
Peter,
Rebuilding late 20th century infrastructure for the 21st century is sending good money after bad. Ninety percent of America's economy exists in fewer than 100 urban enclaves where the voters are as diverse and as blue as possible. America's wealth is intellectual property which travels at light speed.
You are having a civil war and I am afraid you are anxious to slaughter the goose laying the golden eggs to collect all the eggs as soon as possible.
I am afraid claiming victory in the cold war was premature and GOP America will soon look more like Putin's Russia than a Western democracy.
To the question I am often asked as to whether I can imagine a worse President than Trump, I say I don't have to imagine I remember Reagan.
4
MnM, so you would let the roads crumble and the bridges collapse, sending people to their deaths?
But I do like your comment about Reagan. I guess history will tell us which wins the prize.
Seabiscuit,
I know and love flyover country and the people who live there but I would not invest in roads and bridges when there are safer cheaper, safer and more efficient ways to get elsewhere.
I believe in a guaranteed annual income for all and believe guaranteed pre-work education and post work education. We live more than 30 years on average than we did a century ago and I believe in second third and even fourth careers and I believe that those who would like to spend 50 years in school should have the right to do so. I believe that progress has allowed us to all live comfortably on the work of those that feel compelled to work.
The number one job for American males is driving truck and I doubt the job has any meaning after 2025.
I don't care if there is or isn't a God a belief shared by most of America's founders. It is up to Americans to determine their future and preparing for the future is health, welfare and education, education, and more education. Minds are a terrible thing to waste.
1
Any discussion of how small consumer items became to be made in China that doesn't mention the role Walmart and the lack of enforcement of antitrust regulations is incomplete.
88
I believe (based on experience from years ago, before I gave up patronizing that disgusting company) that if you go to WalMart and look for quality goods, in some lines you'll find them and in some you will find none. I believe WalMart prefers cheap to good, if the choice has to be made, and they tend to force the suppliers to make that choice too.
19
Going to Walmart and blaming the store for the low quality goods they sell is missing the point. If people were prepared to pay more for quality, you can believe they would sell it. Maximizing profits, right or wrong, simply implies they try to sell what most people demand.
2
I understand your argument that trading with low-wage countries doesn't actually hurt us, because they have lower productivity (and it helps us for the various reasons that trade helps). But what about countries where labor is not free to organize, where those who try to organize unions are arrested or shot, and so forth? The right to organize came in the US from a long and bitter fight. If other countries without that right can freely trade with us, don't they have a competitive advantage in trade due to that suppression of labor, and doesn't that undermine the rights that have been won here? I would love it if you would address this, as, if this is not true, I would like to better understand why. Thank you.
26
"The right to organize came in the US from a long and bitter fight. If other countries without that right can freely trade with us, don't they have a competitive advantage in trade due to that suppression of labor, and doesn't that undermine the rights that have been won here?"
The much reviled TPP, for its various flaws, actually had clauses on common labor standards for membership countries. That's one of marvelous insane things about the anti-trade hysteria of 2016. The people railing against the problems associated with free trade decided to smash everything and make things worse instead of looking for ways to fix them. It was a classic case of fixing a watch with a sledge hammer.
“…The right to organize came in the US from a long and bitter fight. If other countries without that right can freely trade with us, don't they have a competitive advantage in trade…”
The answer is no. International trade is based on “comparative advantage”, not on labor cost.
Comparative advantage is based on two countries and two products. For example, China has a comparative advantage in steel production with respect to the US, therefore we buy their steel, whereas we (may or may not) have a comparative advantage in sorghum production relative to China, so they buy our sorghum.
Comparative advantage makes it less expensive for us to buy Chinese steel than to produce our own. It, as well as government price supports, makes it less expensive for the Chinese to buy our sorghum rather than producing their own or purchasing it from any other country. If trade were based simply on labor cost, the Chinese would not buy our sorghum.
However, when they trade with us Chinese salaries inevitably rise. For more information you can google the “Stolper-Samuelson theorem”.
This discussion ignores that most of the countries that Krugman looks to as shining examples, such as Denmark, have a VAT, which in some ways acts to increase the cost of imports and encourages exports. We should have one too. Krugman also ignores the cost to our environment of cheap goods which do not last, and end up in landfill.
19
VAT increases the cost of imported goods. It also increases the cost of locally made goods. All goods are treated the same way. VAT has no effect on the price competitiveness of imported goods relative to locally made goods and, as a result, has no effect on trade.
86
and we have sales taxes. which is our version of the same thing/
if you read this entire thing you will notice that environment was discussed in terms of manufacture
13
Alan, Canada has a VAT. So if a Chinese manufacturer sells sneakers into Canada, they pay the VAT. They do not pay the VAT if they sell into the US. Please tell me how that does not result in more sneakers coming into the US. Unless the manufacturer can push ALL taxes onto the consumer (not likely), he will prefer to ship to the US