In the end a trade deficit means that we have their goods and they have our dollars. Now I know very well that countries that have accumulated our dollars can use those dollars to buy things from a third country. In fact the U.S. dollar has become the world currency. But in the very end, when you think about it carefully, the only thing U.S. dollars can be used for is to buy something from the U.S.. If we are careful about what we allow other countries to buy with those dollars ( restrict businesses, land, and other critical assets) then in the end the only thing the dollars can buy is our exports.
15
@W.A. Spitzer Sorry, I read this twice and I think you are incorrect. You might want think about it a little more.
27
Agreed. Where are commenters Socrates and Southern Boy?
2
Was there ever the slightest bit of evidence that Trump understood international anything? Or that his ego would allow him to turn matters over to people who did? Never!
17
at least everyone isn't as dum as #1. counting the days until we vote.
10
Are there no classically-trained, honest economists in the GOP? Seriously, the GOP Congress is beyond hypocrisy.
11
In order to promote international law, Members of the WTO could follow panel decisions if the Appellate Body has too few members to function.
1
45 probably doesn't know a tariff is a TAX.
it is a tax on american consumers, you & me...
13
And we all thought that giant sucking sound was cryptocurrencies devouring legit lucre...
Turns out, many creatures thought extinct are still roaming through the Jurassic Jungle – aka the global economy...
And with all the extra CO2 – abundance of plant food is making them feisty...
So, today’s acronyms are “Modern Tariff Theory” (MTT) and “Modern Trump Tariff Theory” (MTT2)...
After recent intelligence briefings – where Hannity tries to explain what the heck Kelton is talking about and why Bloomberg keeps printing her stuff – Trump saw the light...
Rather than fixed tariffs, Trump going to dispatch his Mnuchmen from Treasury to the largest container ports in the US, to rifle incoming goods...
Instead of taxing the goods in $, his Mnuchmen will simply take a fraction of what’s in each big-box, load it into their own trucks, and bring it to their own Great American warehouses, collectively known as MTT2 distribution centers, from where it can be stealthily mixed in with stuff sold on Amazon and eBay...
Whose distribution centers oft separated from MTT2 by only a fence...
Now, some stuff may fall off the trucks on the way – if so, no worry...
They’ll just go hit up the ports again...
See, Chinese stamping out 4K TV’s faster than we can put crypto-ink to secret-paper and spew Benjamins...
They call it “Modern Manufacturing Theory” (MMT)....
There they go again, stealing our newest IP...
We should call it out as “fake MMT” – vs “real MMT’...
That’ll fix things...
3
Tump is dishonest, ignorant in addition to many many other disgusting characteristics of human behavior.
He said we will be tired of winning but reality shows that this administration is incapable of winning.
I hope Americans pay a little attention to what is going on and realize that Tump is a con man and a fraud.
If people vote for this monster in 2020 we will be doomed.
8
The draft of this column probably ended with one more sentence. Krugman deleted: "But for how long."
4
Tariffs are a tax on the consumer. Trump not only doesn't understand this. He will never entertain the possibility that he doesn't understand this. His "business acumen" is an illusion created and fed by Trump. His profound ignorance and his insecurity about any detailed expertise needed (he sees asking for guidance as a sign of weakness...which, of course, makes him weak) to effectively run various businesses resulted in several bankruptcies. Since bankruptcy is not a path open to government, we can expect continuing incompetence to steer us perilously close to various economic landmines. And how about that Jobs Report today?
10
The awful thing is so many experts predicted that Trump's tariffs would do far more harm than good and backfire, but no surprise, they did.
We have a president who seeks no expert or informed input before making a decision, does not anticipate the possible consequences of his decisions, lies and provides false information to buttress his uninformed decisions and poor judgment, yet declares victory when there is clear failure and disaster follows in Trump's wake.
You won't find this approach recommended in any business or social psychology textbook on executive decision making. Is this what they teach at the Wharton School where Trump claims he earned a business degree?
Tariff Man becomes Deficit Man and ultimately Disaster Man
Has anything gone right with Trump's presidency?
62
Trump's love for debt and running deficit budgets is child-like in it's naivete. It's also mafia like in its dishonesty.
Trump's did position towards tariffs is born out of his racism first, then his corruption. He uses it to exact bribes for his family businesses from his counterparts.
Then, there's who all this bungling benefits... Vladimir Putin is sitting pretty now. I guess kompromat pays!
---
Things Trump Did While You Weren’t Looking [2019] https://wp.me/p2KJ3H-3h2
---
Moderator: the comments seem to disappear after submitting today. This is now my third attempt on three separate articles
7
Trump's trade war was never really about trade, it was about the perception of power and influence. To those who follow Trump they are less concerned about the effects of his actions, but that it appear he has done something to shake the status quo. Sadly, for those who think Trump is making a difference, he will, but the difference won't be in their favor. The conned are the last ones in on it.
11
Two things that I would like you explain:
Federal deficits cause trade deficits. It's a simple algebraic equation.
What is the effect on domestic employment when the relative advantage is labor?
Simple straight forward basic economic truisms that would explain a lot of our problems.
Trump, maybe an imperfect businessman, still has a lot of business experience. Look at his buildings, they did not cone out of thin air. What practical business experience does Mr. Krugman have?
1
They came out of daddy’s pocket and the pockets of unpaid contractors. All those bankruptcies, some businessman.
34
I generally agree with Krugman, but one point he overlooks is rising interest on the national debt. Despite record low interest rates, the portion of total government spending that goes to debt interest continues to rise. What happens when interest rates return to historic averages and when interest costs spiral upward due to rising national debt? Interest on the debt soon will be the single biggest expense in the national budget, crowding out spending in other vital areas like education and infrastructure. Interest is an expense we can’t defer and can’t avoid. It’s the cancer that is slowly eating away at our country’s prosperity.
6
All Trump and the Repubs care about is how their messaging goes over with their fanatical ultra right wing base. They talk tough about hitting China with tariffs. They don't mention the resulting tax on Americans. They talk tough about freeing up money for corporations and the rich with lower taxes. They don't mention that no one outside the corporations and the rich will see any benefits whatsoever, and certainly nothing about the massive deficits they will run up that will result in fewer services for normal Americans. As long as his base cares only about "the way he talk," even if he lies all time, trump can screw up everything in sight and his base will be happy and smug.
3
We have all seen this play before. Republican's pretend to care about budget deficits when a Democratic President is in office in a hysterical attempt to cut Social Security, Medicare/Medicaid, and the social safety net. While exploiting the conservative trope that Democrats explode deficits by spending far too much money on undeserving "takers", Republican's ratchet up the fear of nebulous economic disasters that never quite come to fruition. Of course, tax cuts to the wealthy and corporations will never be mentioned, by anyone. They even manage to get some "moderate, corporate Democrats" to go along for the ride, of course, posturing as the brave and serious adults in the room. My guess is that this budget deficit canard doesn't resurface until after the 2020 election regardless who wins.
What I find amazing is that corporate media gets away with covering the issue the same way every time; you know the dance, the Republican Senator said this, the Democrat's in the House claim that, the President aims at the center (all without the known facts and historical data necessary for context and intelligent policy discussion). The studied superficiality of corporate media leads American voters to conclude the simple equation, low taxes on corporations and the wealthy is good for everyone, results in reinvestment, more jobs, better paying jobs. That is the message pounded home each and every time these issues are dicussed, regardless of the known facts to the contrary.
6
The Trump tariffs did impact the trade deficit but not in the way that is being reported. The Trump tariffs reduced American exports by triggering effective retaliation on the part of the Chinese who immediately cutoff the importation of 12 million tons of Soybeans and a host of other products.
Yes, imports are up because our economy is doing very well but out exports are down because our president is angering our trading partners and their retaliation has been far more effective to date than our tariffs or threat of further tariffs.
So much for the great deal maker in chief.
4
I used to love the pith, wit, and perception of the commenter Socrates but I have not seen his name in these parts for quite a while. I hope he is well.
3
Trump is willfully ignorant. Willful ignorance = stupidity.
8
When will Poor Privileged White Male Snowflakes decide they have been played by the Race Card, while the RePub Billionaire Donor Class has been shoveling their dollars into their tax free, offshore Bank accounts? When will they finally stop worrying about those Brown and Black Folk at the bottom of the food chain and notice who has boot on their financial neck from above?
8
Paul,
Please excuse Donald Trump.... he skipped those lectures at Wharton on macroeconomic theory and trade tariffs and trade barriers... he was too busy avoiding the military draft (bone spurs you know!— trust me) and spending his allowance money from his Dad.
Sincerely,
A Fan
5
With all this negative Sovietized mass-media coming out of New York City--the man doesn't have a chance of a second term, especially with all quality coming out of the DNC Politburo for 2020, right?
1
Never underestimate the ability of Trumpistas to ignore or rationalize away any negative press about their hero.
I wouldn’t say that the DNC Politburo is worse for America than the GOP Kleptocracy.
3
“Sovietized,” is pretty funny, considering Sean Hannity’s grotesque behavior for Pravda and Trump’s playing spin the bottle with Col. Putin.
2
I don't agree with Trumps tariff and tax policies that exacerbate rather than fix the trade problem, but I have two areas of concern about the problem.
First, we lost a lot of high paying manufacturing jobs. I understand comparative advantage and the global arithmetic that shows everyone is better off with trade because it produces more. But business decisions to move production where it is cheapest are guided mostly by where they make the most profit. If they can make a, say, $100 item for $5 less abroad (after adjusting for transportation and other frictions), then they make it abroad for the $5 saving. In the analysis, no consideration is given to the social value of the $60 per item in lost wages – income to American factory workers – and the impact on employees and families. Any assumption that the ex-employees can find other work at similar pay just ain’t so.
Second, we lose manufacturing capacity which may be vital to national security – not just war machines but necessities required to keep our economy working. We won WWII in part because we out-produced the Nazis. They had better tanks, and planes but we out-produced and out-lasted them.
We have a National Materials Policy to ensure we have basic resources like key metals on hand. Maybe we need a broader manufacturing policy to ensure we have reserves of all the products needed not just for military but also domestic consumption. Otherwise we could be held hostage to countries or cartels like OPEC.
52
@Rocky
I agree with you on many of your points. But you seem to have bought into the idea that manufacturing jobs went abroad. Some did. But most manufacturing job losses are the results of automation. Consider the Carrier plant where Trump "saved" American jobs. Carrier had planned to relocate their manufacturing offshore, but Trump bribed them with tax incentives to keep their factory here. They promptly invested their $16M windfall in automating their plant in Cleveland. The job losses were about the same as had been projected.
You are completely right that we have to care about the people who are losing these jobs, but I suspect the answers are a combination of training people in skills needed in the new economy and providing a safety net for those too old or otherwise unable to adapt. If you are under 30, laid off from a manufacturing job, and not able to deal with computers, go to nursing school. The pay will be comparable and you will have lifetime job security. There's lot of jobs out there, we just need a way to retrain people so they have the right skills.
38
@Rocky There seems to be a wrong assumption underlying your comment : it is not that we “lost” high paying manufacturing jobs. We gave them away to low wage countries and - often completely underestimated - automation. American corporations were the driving force behind this development that ended up creating the trade deficits. Here is the ironic part: robots and other automation methods will be even “cheaper” than those low wage countries and we will probably get a large part of the manufactoring back into the country - minus the well paying jobs that have been replaced by machines. I think it is amazing how the current administration is ignoring this worldwide trend and how little we do to dominate the automation and robotics markets.
21
@seoul cooker
I agree that automation in the US accounts for a significant part of job losses. However it does not account for the losses from all the products that were formerly manufactured in the US and are now manufactured overseas, or now have major components manufactured overseas with only final assembly left for here.
I agree that we need much more training and a better safety net - we should have had it from the start.
But a key point is that in our free market system, the value of the job and and the income it provides are not factored into the decision to move jobs overseas. A major defect in our free market system, capitalistic system.
8
Well said. Trfump's ignorance is malevolent, that's the problem, given that the information about what's going on, supplied by experts in economy, is readily available. Braggadoccio and stupidity on Trump's side seem abundant; too bad they have no intrinsic value. Folks out there, please educate and inform yourselves, so you won't have your leg pulled by an expert demagogue selling you 'snake oil'. Otherwise, this vulgar clown's jokes will be on you.
1
Mr. Trump has a very naive and uneducated understanding of tariffs and deficits, so it should come as no surprise that his "policies" would increase trade deficits. Nor is it surprising that the unnecessary tax cuts for the wealthy would increase budget deficits and debt, since there was no effort to pay for them.
Republicans are doing exactly the opposite of what they claim to stand for. Instead of fiscal responsibility, they are the epitome of fiscal irresponsibility. They fail to consider long-range ramifications of their choices. They reward their cronies and the wealthy while harming everyday Americans.
56
@Barbara
The second he went on about how terrible our trade deficit is was the moment I realized he either had no understanding of what that meant, or he did and was just using it as a talking point to get his base riled up. Neither way leads to effective policy.
11
And so....Republican voters....what do you think about this?
"He's making America great again"!!! He can do no wrong"!!!
"I don't care what the failing new York Times says, they are fake news"!!!
And so it goes, and so it goes, and so it goes........
4
Grandstood, for 'grandstanded'?!?
Trump has no idea (I would put current GOP in the same bucket) - ho anything works.
They only know - how to break and point finger.
2
Republicans and Conservatives "lying"? Good god, I say sarcastically!
2
Beavis and Butthead pretend to go to business school. And threaten to sue anyone releasing their grades. And now, after fourteen or so bankruptcies, and a few dozen lawsuits, they are in charge of the world's trade policy. Only the GOP could put this clown show in charge.
6
This is rich coming from Krugman.
Krugman never met a deficit spender he didn't like, until he got caught up in the OMB and TDS rage.
Orange Man Bad!!!
Trump Derangement Syndrome!!!
This Republican administration, in control of the presidency and Congress, has been deficit spending for all of its time in power, with no end in sight.
The only time that Republicans don’t love deficit spending is when Democrats are in control.
7
If we have a trade deficit with some other country, then we are losers, it's as simple as that. If you are a simpleton.
3
Paul, please stop writing "Let's be clear" in all your columns. It's a rhetorical crutch. You are the clearest writer among all the writers in the Times and have no problem making your points.
3
Bonespures McCombover is a "genius!"
"Yet Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant."
And they're proud of it.
2
We voted an ignoramus crook reality show star into the highest office of our country.
We should all be so embarrassed.
Vote 2020
Indict and imprison trumpworld.
3
The subtitle to this op-Ed should really be “Trump really has no idea how anything works.” And you can just reuse that for all your articles. That might save you a few minutes each week.
2
The Republican Party bills itself as Christian Family Values Party but is led by a thrice married serial philanderer who wants to date his own daughter.
That tells you all your need to know about how phony the party is.
7
“Trump really has no idea.” Fixed it!
1
The people who have elected this fool do not know how international trade works either..2 more years...
1
Wait. Are you saying the "I alone can fix it" man was wrong? I'm shocked. Shocked I tell you.
1
Why write about republican lies that have no effect on anything? Slow day in the world of economics?
@tbs
Unfortunately, Republican lies about the existential threat our debt posed to the country during the Obama admin had a very large effect on the economic recovery post 2009. It was far more important for McConnell and team to attempt to insure that Obama was a one term president. Talk about party before country.
1
If Trump wins in 2020 (Heaven forbid!) you may have to eat your words as clever and truthful as they are.
Let's hope America survives. We've survived a lot of dishonesty and even a bit of ignorance at or close to the top (A. Mitchell Palmer, Andrew Mellon), but I'm not sure we've survived gross stupidity at the very top.
God save our country, because I'm not sure we can trust ourselves to do it any more.
In order to get elected and implement his evil, autocratic, self-enriching policies, he had to bamboozle the buffoons....
Now, to keep the scam alive, he won't let go of his stupid claims.... and the GOP Senate plays along....(gotta keep that base.... right Mitch?)
So, as we march toward war (Iran) and the rich get richer.... we will suffer for our sins of not cherishing and supporting our democracy, as serious, responsible, invested CITIZENS.
Next time REJECT THE GOP....
2
When will Republicans wake up and stop this imbecile,
Tariff Madman Trump?
With "Art of the Deal Donald" at the helm, trade deficits are skyrocketing, the national debt is skyrocketing and the health and welfare of our nation is plummeting!
Why are we letting this lunatic, Trump, destroy our children and grandchildren's future?
1
Responding for Donald Trump here: " What does a Nobel Prize winner in Economics know about trade?"
63
Mr. Krugman suggests that President Trump's bizarre statements about trade are proof of presidential ignorance. However, in the case of Mr. Trump, an equally valid explanation is that he's just lying.
The usual advice is "Never attribute to malice that which is adequately explained by stupidity." Unfortunately, in Mr. Trump's world, the converse must also be seriously considered.
4
International Trade isn't the only thing Trump knows nothing about!
2
The question is how long a great nation like America can survive massive dishonesty and ignorance at the top?
Because this dishonesty of course serves only one purpose: to create fake crises and then fake solutions, distracting voters from real problems and allowing the GOP to use their power in DC solely to enrich themselves and their wealthiest donors.
Now they're applying the same combination of dishonesty and ignorance to judicial nominees - for the very first time in US history. That will have an impact for decades.
At the same time, it's not only "the economy, stupid". The defining issue of this century is climate change. With the GOP deliberately making things worse, how much of America will survive beyond 2100, if their dishonesty continues to work (thanks to close and indispensable collaboration with the 24/7 Fox Fake News, of course) and they can control DC for more and more years?
1
Well, they are able to get away with their dishonesty and ignorance because of the complicity of the media and the pusillanimity of the Dems
Gravity works.
“But Trump’s twin deficits show that his party has been lying about its policy priorities, and that he is completely clueless about his signature policy issue. Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top.”
Can we survive? Only if we get rid of as many Republicans in Congress as possible!
1
Trump went to Wharton where he got a seven per cent in arithmetic!
2
Deficits are ok when used to pay for infrastructure or other needs that will increase productivity. Borrowing to pay for tax cuts is a terrible idea.
2
Dr. Krugman does not understand.
Deficits produced by tax cuts for the rich are acceptable.
That great draft dodger [who had better things to do during Vietnam letting others fight and die in his place] explained that
Ronald Reagan proved deficits do not matter.
1
Trump's love for debt and running deficit budgets is child-like in it's naivete. It's also mafia like in its dishonesty. Trump's disposition towards tariffs is borne out of his racism first, then his corruption. He uses it to exact bribes for his family businesses from his counterparts. Then, there's who all this bungling benefits...
Vladimir Putin is sitting pretty now. Kompromat pays!
---
Things Trump Did While You Weren’t Looking [2019]
https://wp.me/p2KJ3H-3h2
3
Trump campaign promises
Build a wall and make Mexico pay for it
Put Hillary in jail
Repeal Obamacare
End sanctuary cities
Tax cuts for the rich*
*The only promise fulfilled.
3
I believe a lot of our problem here is that there are few people in power who understand economic theory and practice to the degree Dr. Krugman does. Of course, I'm sure he's available for consultation, but no Republican in Washington is really interested in understanding economics. All they understand is political posturing.
Take Trump (please). He has a BS (we all know what that means in this case) in economics from a good school. But I can absolutely guarantee he doesn't know squat about economic theory. As for economic practice, the only principle he operates under is this: I want to keep my money and get yours, by hook or crook.
7
I appreciate that you have finally made fairly clear the true, beneficial nature of our trade deficit which we finance by issuing Dollars that will never have to be redeemed if we keep our house reasonably in order. I would hope that you would follow up with a further (wonkish) article on the Dollar Exchange System which makes all of this possible and is in fact the greatest trade deal we have ever done, as Charles de Gaulle never failed to argue.
2
The professor is incorrect, or perhaps intentionally left out the fact that while yes if we put tariffs on CHINA ALONE it is like squeezing a balloon and deficits would increase elsewhere, if instead we had a universal and HIGH tariff (like we used to have) on all products from all countries (hopefully finished goods but that could be tinkered with), then companies would be forced to either open factories here to produce the goods, creating jobs, or keep building elsewhere and lose out to American companies, or if there are no American companies the money raised from tariffs could go to re-investing in US jobs (the government could DIRECTLY CREATE JOBS). All of this is absent from his post today, sadly. The professor is right to point out how the GOP used the deficit to block Obama from doing anything. Why anyone believed them I'll never know. Obama should have known better and should have fought against the nonsense, instead he tried to meet them half way, conceding their argument was right just debating the amount they were right. Also the media should have noted their hypocrisy instead of treating Paul Ryan like a policy wonk and a SERIOUS PERSON.
3
@Prede
Problem is too many parts (not the finished product) come from a lot of other countries that businesses use in America to manufacture things. They would be handicapped versuses businesses in other countries who use the same parts but have lower price to get them.
1
@Palcah First off you don't put high tariffs on raw materials. Additionally the US market is big enough to be separate and not be involved in this race to the bottom.
They don't care, Paul. They don't care about proof, disproof, feedback, or measurement. They don't care about data or empirical results. They don't care if they're revealed to be lying to the faces of the American people.
Start from the idea that none of what you're seeing is an accident or a failure. They're looting the economy, offshoring as much wealth as they can get, and walling themselves off from America and the rest of the world. Davos Man is running America, and not for America's good.
You're a literate man, Paul. The numbers don't tell you the story you need to see. It's in Edgar Allan Poe: "The Masque of the Red Death":
"The red death had long devastated the country. No pestilence had ever been so fatal, or so hideous. Blood was its Avatar and its seal -- the madness and the horror of blood....But Prince Prospero was happy and dauntless and sagacious. When his dominions were half depopulated, he summoned to his presence a thousand hale and light-hearted friends from among the knights and dames of his court, and with these retired to the deep seclusion of one of his crenellated abbeys."
That's Trump's America. They actually think they can take refuge from it. Of course Trump has no idea how any of this works. he knows one thing: smash, grab, and leave. His mistake is that he has nowhere to go.
3
The stable genius and tariff man has no clue about international trade since he didn't bother to show up at Wharton School of Business to learn anything. Perhaps his father bought his diploma.
5
Well, I clicked on the "difference" link and with a bit of brain effort think I understood the points made and could relate it to the balloon analogy. But then how many people read articles like these, as are tuned to such as Fox News' explanations for their personal economic problems, which is always liberal Democrats?
Just like most subjects, agent Orange knows nothing about economics. I remember in the campaign, he started to bloviate about his command of debt. He suggested he could negotiate a buy back of the federal debt at a discount, like how he stiffed his creditors, in his Casino deals. He was quickly silenced by one of his hencemen, who had some grasp, that the worlds economy runs on dollars, and that what Trump was suggesting would lead to world wide chaos.
Then there is the area of world affairs. He professes to know a good Nuclear arms deal from a bad one, when he didn't even know what the TRIAD was.
This is the month of St. Patricks day, the Irish would simply refer to him as an ejut.
4
One part of the problem is the press.
In reporting on the Trump import taxes, they all called them "tariffs," instead of "import taxes"— which is what they really are.
How about half the time call them "tariffs" and half the time call them "import taxes"?
Otherwise, you are just an enabler.
4
Tariff Man ignorance and dishonesty making him look like a loser in his own eyes should be the least of his worries.
Going from Tariff man to Con Man is probably what he worries the most. Wrecking the US economy would not land him in court but writing hush money checks and obstructing justice will, according to his own ex-lawyer exhibits in the House.
I agree this great country will recuperate, hopefully without extreme pain.
2
"Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top."
One can only hope....
4
Once you get the power, the goal is to keep it. Trump is steadfastly holding the seat on the political train for the next Republican come 2024. In 2020 The DNC will have done something stupid to make sure the Wall St democrat gets the nomination under the false flag of "centrism." Republicans will vote against, progressives will & should vote their conscience, and we'll have Trump for four more years. This won't matter because the nation exists and is run for the well off on a sliding scale, and the are doing fine. The end.
@CK: The Democratic Party might be much more effective if it treated the United States Federal Government as the one public corporation all citizens have one share of ownership in, with the Congress and Senate comprising its board of directors, the president reporting to this board as a CEO, and every election a proxy battle.
1
@Steve Bolger - I feel your interest in floating that slightly different analogy, but I find it tepid. Separation of powers under our Constitution means that the CEO does not report to the Board, they report to the next election.
1
This is what you get when you put the kid with severe learning disabilities in charge of teaching multi-variable calculus.
1
Klugman should be paying attention to effects that go beyond dollars, like the fact there is a shortage of machinists in the USA because so much of the work has gone to China. Of course, someone could argue that someday machinists won't matter so much because most everything will be automated. But even if this could be true, in the meantime, much of manufacturing and the whole supply chain that goes with it has relocated to China, and it is terribly hard to get it back.
It is not just about the dollars.
Dollars are dollars. But the USA capacity to make things matter.
We may discover this someday if we are in a military conflict with China and find out how much machinists really matter.
3
What Mr. Krugman ignores is that the president's vision to make America great again has three prongs, but only two - tariffs and tax cuts for the wealthy - have been implemented. The metaphoric stool needs the third leg for it to stand on its own. Budget and trade deficits become a thing of the past once we build The Wall.
A wall is a leg in a stool?
1
Many people misunderstand Trump. He is, first and foremost, a con man. A grifter. Presumably, he would like to be a good president, but he doesn't know how. So, he'll settle for APPEARING to be a good president. This involves convincing his base that he's doing a tremendous job. And so, there is a great disparity between his actual performance and his performance as told by his propaganda apparatus (e.g., Fox News).
To shed light on this phenomenon, the NY Times and other news sources should poll the public and Trump supporters about actual facts, not opinions. In the economic realm, they could ask whether 2018 GDP growth was better than any year under Obama (it wasn't). They could ask them if most of the decline in unemployment rates for blacks and hispanics came under Obama or Trump (Obama). They could ask if trade and federal deficits have gone up or down since Trump took office (up). They could ask if the stock market has gone up faster under Trump or Obama (Obama). I have very little doubt that Trump supporters would get most of these answers wrong.
5
Paul, I'm very concerned that you want to use New Zealand as a guinea pig / lab rat for 'Modern Monetary Policy' - please spare us that. We know the answer already in the aftermath of the virtual bankruptcy of the country in 1984 and our subsequent raft of heavy-handed Neo-Liberal policy interventions: 'Just because it doesn't work in practice - it doesn't mean that it doesn't work in theory'.
Why is it that when the GOP does not deliver on what they claim to be their core principles, or even seem to violate them, few seem to care but if Democrats come up short on their policy positions people lose their minds? Why does the GOP continue to get a pass over and over for decades when all they ever do is revoke protections for the public and environment and hand the wealthy and industry unimaginable quantities of wealth? Why do so many people wilfully refuse to see how the GOP is abusing them, and dragging the rest of us down with them?
6
I own a small retail business that is affected by the TTT (Trump tariff tax) and in the course of a day I encounter customers who ask me how I'm doing; the discussion inevitably comes around to the President's trade policies. Like me, most agree with the points in Mr. Krugman's article, but occasionally I get a strident Trumpista who insists that the President knows what is best for our country and would never betray our interests. To them, facts and reason just do not matter.
It never fails to amaze me how doggedly ignorant some people choose to be.
11
3.8% unemployment rate & the budget deficit goes up 77%!? What is wrong with this picture? Everything. Remember Paul that the ECB has introduced a new stimulous program & the Fed has slowed or halted its "unwinding" of debt purchases. Warning!warning!warning Will Robinson!
4
"About the dishonesty: Is there anyone left who believes that Republicans ever really cared about debt and deficits? The truth is that the phoniness of their fiscal posturing should have been obvious all along."
I guarantee you that the next time there is a Democratic president, Republicans will once again clutch their pearls about the deficit, and the vast majority of the news media will eat it all up. Despite the fact that there's literally decades of evidence pointing to GOP disingenuousness on the matter. The US press steadfastly refuses to let go of anachronistic and false stereotypes about the political parties in America. It would be hilarious if it wasn't so depressing.
4
When the primary motive of the G.O.P. is to ensure that the wealthy reduce taxes, the G.O.P. will say anything to get votes. The G.O.P. has only one coherent and consistent idea: the wealthy should keep as much money in their control as possible. (The rest of us are just plain fools.)
All the other so-called "conservative" policies are important to the G.O.P. as long as those keep people voting to support wealth concentration at the top. For example, if the anti-abortion groups also believed that capital gains tax rates and upper bracket income rates should be increased, the G.O.P. would drop the "right-to-lifers" in a heart beat. If the military industrial and security complex said taxes should be increased to pay for them (think all post 9/11 wars and security measures), rather than borrowing and barely paying even the debt service, the G.O.P. would think twice about increasing D.O.D.'s budget and allocating more money to those folks.
4
Budget deficits do matter. Please consider the analogy of consumer credit card debt. Every time a consumer does not pay off his credit card bill every 30 days, he is effectively raising the price of his purchases by the interest rate charged on the balance due.
So let's say Joe Sixpack buys the new 4K OLED TV on sale - saves $200! But if he just makes the minimum payments, he is effectively raising the price by the interest rate charged by the cc company. Ultimately he has secured no bargain.
And then there is concept of a Total Available Funds. Every time we expand the Federal Debt, we need more of our tax revenues to pay the interest on that loan. This takes away money that could be spent on infrastructure spending, debt principle reduction, social programs, defense...
While I agree with Prof. Krugman that there are times to be borrowing, they should be when we are in trouble - wars and economic downturns. During happy times (like now), we should be running a surplus. We should be creating a rainy day fund. It has happened before. It could happen again. It just requires adequate revenue: TAXES!
There was a time when you could depend on a conservative to be fiscally conservative. Now it's up to the liberals. The last President to run a budget surplus was a Democrat.
5
Do not these deficits present a clear and future danger to our country?
And don't we owe an obligation to those that follow?
4
More deficit means more consuming more than producing. That means conservatives have become what they fear most: "takers".
5
Trump declared bankruptcy multiple times. Why would anyone think he knows how to run a country's finances. America should be encouraging free trade and then provide the products the world wants. Instead of penalties offer incentives to buy American.
5
The real problem with deficits and tariffs is not fiscal ignorance, nor is it the political rhetoric. The real problem is that the geniuses who design and authorize the budgets are not playing with THEIR money. There's a world of difference in the mindsets between someone who has to personally pay back the borrowed money and someone who literally has no cash in the game.
4
Take the budget deficit and the trade deficit together ... it is easy to see that the nation is on the road to poverty.
Not much to say, beyond that. The people that suggest otherwise are refusing to look at the obvious.
If it were just for awhile, or if it would stop, maybe there would be hope, but it has been going on for so long, and it shows no sign of stopping, these dual deficits ... it is a fast moving, heavy train ... headed for a brick wall that is a mile thick.
Later, it will be amazing to see how obvious it all was.
4
Lets face it both parties love to spend. The difference where the spending goes. The GOP sends dollars to the rich who will save the money, while the Democrats send dollars to the needy who need to spend them right away and stimulate the economy. This is why the economy nearly always does better under Democrats.
7
I believe that is down to the marginal propensity to consume
So fun to blame Trump ain't it.
I have little respect for ALL the AMERICAN Companies that manufacture abroad ... ALL kinds of low-cost, low tech (except for labor) manufacturing sold under the names of US companies could be brought back to the USA -- textiles, clothing, shoes and why not put tariffs on the rest? (I am really tired of bad Walmart quality -- wear it once and toss it out! -- which is what one person I know does.)
BTW what do we export besides soybeans and lumber? Pretty insulting IMO for a major industrialized nation to become the breadbasket for the world and to chop down old growth quality trees for building projects abroad.
4
Krugman--- “we have low savings compared with other countries.” Only 1 line on this, PK?
This should be the whole column topic as 2020 candidates rev up to beat GOP. That would influence our political discussions more than 'trade deficit' talk.
Explain why we pay more than other countries for everything we need---college, health care, housing, etc.
You'd think such an important imbalance that hurts our citizens would be the #1 topic on our news media, or at least be prominent. What's the news for?
But it's neglected as if we're cut off by 2 oceans and a Canadian border.
Unlike many capitalist democracies, our politics venerates private corporate profits as priority over all other values, equating this with American Freedom. That's why we are the lone holdout on universal HC among modern nations who achieved this in the 20th C.
So private profit = American. The public good = big govt socialism. So the US turns its elections over to private mega donors for funding, and lets high cost media campaign ads inundate and manipulate the public.
Other countries use more public funding, for shorter, less costly elections, and limit private money. They don't let the airwaves be dominated by paid election advertising.
Huge ripple effects.
We are already clued in to Trump lies and cluelessness. What could be more obvious?
"A great nation can survive dishonesty and ignorance a the top"? Good. Now devote columms to concrete solutions on how to fund the nation's needs.
9
Between Trump and the 8 year temper tantrum the GOP threw over Obama's presidency this country is becoming unbearable and it's falling behind on infrastructure, basic scientific research, and failing as a democracy. Aside from that, it's business as usual with the usual suspects getting whatever they want from our government whether the Democrats are in charge or the GOP is running the show.
Trump is nothing more than a con artist and a failed businessman. That the GOP supported and continues to support him no matter what he says or does proves their moral and spiritual bankruptcy. The real shame is that 99% of us are paying for the whims of the economic elites who value their wealth over anything else, even contributing their fair share.
8
I think the real issue is that academia and the media doesn't care how international trade works and the effects on the American citizens.
Trump may not know how it works but he is at least paying attention to the needs of the American citizens.
Shame on the economists who endorse the stupid trade policies around the world that hurt American citizens.
1
The Republican Party's message has always been disingenuous at its core, because it is justification (and rationalization) for the elite powers (mainly rich white guys) to get as much as they can at the expense of working stiffs. Until these working stiffs understand the game that's being played, confusion help maintain the status quo.
8
And as we know, the Republicans are ginning up the deficit as a reason to cut Medicare, Social Security and Medicaid.
9
About the dishonesty: Is there anyone left who believes that Republicans ever really cared about debt and deficits?
Is there anyone left who believes that Democrats ever really cared about the poor?
3
It makes me almost ill when I think about how much good America could do, both at home and abroad, under responsible leadership. After all, we are the wealthiest nation in the world. And we used to have a reputation for fairness and integrity, although not always lived up to.
Under Trump, we are squandering both our financial and reputational resources for nothing but stupid campaign promises. The rubes who voted for Trump and still support him are the only ones happy. Except for Vladimir Putin. He's happy too.
6
Very informative and helpful article.
And, please, my brothers and sisters, peruse Dr. K's "Nobody Understands Debt," from January 1, 2012," which you can easily access by clicking on "always nonsense," in the penultimate paragraph of today's column. (I've always wanted to use "penultimate" correctly in a sentence; my middle child loathed me using it of her. No sense of my struggles nor small delights, she has.)
Like many others, I, too, worried deeply and often about our huge national debt. It seemed dangerous to this layman: What if we go belly-up? Lions, tigers, and bears, oh, my!
Therefore, like medical treatments, I guess I should trust the experts, also, when delving into and trying to make my way through the dark and esoteric caves of macroeconomics: Despair, all ye who dare enter this slough of despond.
[In some arcane translations, "Krugman" means messenger of economic truth. Or it should, anyway.]
4
It is inexplicable to me how anyone accepts trump’s view of any issue. He applies the same childish analysis to everything. “They” are taking advantage of us, and only he has the boldness to speak up and the smarts to fix it. He identifies an offender, vilifies them, uses demagoguery, and enacts a plan that is useless. We’ve heard this 100 times. Who is foolish enough to swallow this?
7
Haunting those last words "luckily, a great nation..." can survive. Yes, perhaps but at what cost? Most shocking to me has been the GOP and its love affair w/debt after years of being married to deficits will mean our beloved grandchildren will suffer. Not from climate change or bad child care ...but deficits. Trump's such an opportunistic fool that yes there is a swelling trade deficit b/c our products are more expensive for other countries. That and the tax cut for the 1% and the Wall. Bona fide boo-boos.
4
It is really sad to watch Trump apologists now pathetically adopting the "trade deficit is not a measure of economic health" line that they shouted down months ago. Trade deficit might not be a measure of economic health by itself, but Trump engineering the opposite of the result he was supposedly aiming for is a measure of his ignorance and ineptitude.
6
A great nation like America can survive, but is that a worthy use of four years of our lives, we survived?
We went backwards, we lost precious time mitigating climate change, we are more divided and on edge as a people.
Worse of all we have a clueless authoritarian who has vanquished the Republican party and is constrained only by his own incompetence , and the green shoots of a youthful Democrat congress.
5
Frankly, Paul, like most economists, tends to cast post facto explanations as operating principles. Nonetheless, the key thing is that what has happened was predictable and the Trump administration and GOP led congress were well aware of the likely outcome but went ahead, claiming up would be down this time. We may not be hurtling over a cliff, but our current path is making things worse.
Beyond the stupidity and duplicity of Trump, who seems happy to believe his own lies, what is most concerning remains the overall dishonesty and hypocrisy of other elected Republicans. They are lying when they say up is down but when it suits them, they will lie that down is up. And who benefits from this hypocrisy? The people who pay for their campaigns. These donors don't care about the lies, as long as they personally benefit from the tax cuts and other favors that they buy.
The GOP has become a party of false patriots who wrap themselves in (or hug) a flag which they stole from Lady Liberty.
6
If I recall correctly, I am fairly ignorant in economics , 75% of American GDP is generated by consumer spending.
With average income stagnating since the seventies and cost of healthcare , housing and education skyrocketing , Americans find themselves in a precarious state ,lots of debt and minimal savings,poor and leaky social safety net .
Trumpism is destroying and destabilizing American society with the consensus of the GOP creating a status quo that looks more like Brazil rather than any other industrialized country.
The very rich on the top have made the rest of the population slaves , even if the abused one don’t recognize this facts lost ,as they are , in their american dream .
5
New Times reader here. I know this is an opinion piece, but it would be much appreciated if Mr. Krugman highlighted a few specific tariff/deficit/savings numbers from appropriate sources that helped make his point. I have found the only hope for a productive conversation about any of these kinds of topics is to anchor them in clear cut facts/numbers, and remove as much of the he said she said as possible.
2
1. "...they used it to buy back a lot of stock, passing the gains on to wealthy investors..." who of course, had a lower tax rate.
2. "Tariff Man" has become "Deficit Man" and is becoming "Florida Man"
3
"Advanced countries that borrow in their own currencies can and often do run up large debts without drastic consequences — which is why the debt panic of a few years ago was always nonsense." ----- as was intimated years back by none other than one dick cheney, the conservative icon, when he said "deficits don't matter." so, you conservatives remember that the next time a democratic potus or congress decides to spend as much money on education, infrastructure, and social programs as you enjoy spending on the military industrial complex; tax cuts for the wealthy; and useless, ugly walls on the southern border.
4
Its simple. A large percentage of Americans are rubes and simpletons. It not getting any better by the looks of support for Trump. It's the only explanation for the charlatan Republican Party's ability to stay in power. Now they have the faux intellectual support of conservative ideologue courts, corporations, and Fox News to guarantee the supporting public stays stupid and uninformed. It will be an ideocratic oligarchy soon, if it isn't already.
5
The other day I looked at things from a different perspective thanks to the New Green Deal....That policy philosophy has been criticized as being Socialist. So I started to think about Socialism....And then it dawned on me the following : If Socialism is so , so bad then why do Americans spend so much of their money buying goods from Socialist places like China? If Socialism is so bad why do American businesses spend so much money investing in plants and workers in Socialist countries? And , even when efforts are made and money provided to get them to bring jobs "back home", why do they resist? Isn't it kind of like deploring racism and investing in slavery? Or...like telling you you got a tax cut and your take home pay is now higher, and then saying your refund was less or you had to pay at the end of the year because you didn't have enough taxes withheld from your check? We "gave" you more....but you didn't give us enough. I simply cannot wrap my head around these things.. It's the same as "we have lowered the price of our candy bars!!!!" until you figure out later the candy bar is 1/3rd smaller. And you buy it anyway.
4
@walking man
China is not a socialist country.
The other western countries are "socialist" compared to the USA, which is why the metrics of their societies are better than those of the USA.
1
Trump's grasp of the intricacies of taxes, deficits, international trade and tariffs is one of the reasons that the Wharton School of Business is not highlighting the fact that the current President of the United States is one of their graduates. Or is he really? He should produce his grades and his diploma!
4
What I find sad about this informative news opinion story is that I can't send it to an old friend of mine, who used to work on Wall St.
Why not want send it to him?
Because my friend -- at one time, years ago -- said Krugman is a "socialist."
Door slammed -- conversation stopped -- FOX news volume is turned up louder.
We are not a great country when we allow darkness to destroy us.
Letting light in, might shine a bit of light on the truth.
4
We need to understand that Republican hypocrisy has a large element of racism as well. Every time Republicans support an opinion or action on the part of Trump which they would have condemned for President Obama what logic can there be except underlying racism for America's first African American President.
4
And don't forget, all the foreigners invested in our stock market that received the benefit of the share buy-backs due to the tax cut. Effectively, Trump and the Republicans are borrowing money to pay foreigners!
Are we tired of winning yet???
1
You’re overthinking this, Mr. Krugman. Trumpublican Party stupidity and mendacity operates at a far lower level and is predicated on two shameless, bold faced lies:
1. “This tax cut will pay for itself.” That one’s right up there with calling for more guns as the antidote to gun violence - which of course isn’t beyond these folks either. Somebody call Jindal and Brownback and ask ‘em how that ‘pay for itself’ business really works.
2. As a result of these tariffs, “money is pouring into the U.S. Treasury from China.” That’s rich. Pick the pockets of American consumers (who ultimately pick up the tab as those tariffs work their way through the food chain of goods and services) - and tell them somebody else is paying. It’s a convenient way to recoup some of the tax revenues lost because of the massive tax cuts for the rich referenced in item 1; and the losers are all those Walmart shoppers who vote for the pickpockets.
Are we sure there’s only a sucker born every minute? I’d say the sucker birth rate has got to be higher than that.
3
The Republican's goal is to starve government of the green blood (funding) that makes informed governance possible...pure and simple.
2
The only piece of economic information I needed to know about America was that so many people had a car loan. A loan for a house I understand, its a one-off necessity few can finance up-front. But a car? Cheap, reasonably reliable but ugly cars are commonplace - why do people have car loans? Because the economic literacy, as one commentator put it, is astoundingly low.
Does it surprise anyone that Trump is economically illiterate as well?
BTW, à propos of a big debate Capitalism vs. Socialism, for god's sake call it whatever you want if the system works for a good of the people, it works for me.
Capitalism in it's present reincarnation is brutal and unjust, and that's why we're having this debate on all platforms, since what we have now clearly doesn't work, and the obvious manifestation of our rigged system is trump, Individual1, who is still allowed to preside in a oval office to the disgrace and humiliation of the whole country.
4
Al this winning, all these alternative facts. It does get tiring. I think I'll nap until Nov 2020.
2
It is obvious that Republicans are unconcerned with fiscal responsibility..or even with the common decency of putting the financial health of the United States above the self-serving egotism of their RINO leader. The party that calls itself “conservative” has abandoned all conservative principles except their relatively newly adopted evangelical ones.
3
The GOP is full of hypocrisy. They were against budget deficits before when Obama was there, but are not now. They were moralists before but now they protect an immoral President. They were against executive action and Presidential over reach like National emergency before, but not now. May be this has something to do with the last President being an Afrcan American and the current one being white nationalist, as he himself declared few months ago.
3
"Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top."
Can being worlds most heavily armed global warming denier be considered part of our greatness? How about before and after the city of Mosul?
1
My only question to trump followersis:
Who to believe?
Krugman an Economics Nobel Laureate or
A 6 time perremial bankrupt?
The choice is as clear as the sky after a hurricane
2
Trump really has no idea how international trade works.
Trump really has no idea how MANY THINGS work.
2
If his base ever even hears this message, they won't understand it and they won't believe it. In one ear and out the other. Teflon man continues to amaze the rest of us who are watching this whole circus.
2
"Is there anyone left who believes that Republicans ever really cared about debt and deficits?"
If there is, just remind them of Dick Cheney's famous quote from the early 2000's: "Reagan showed deficits don't matter".
2
Trump promised to protect the American heartland.
Now, on account of his hubris and ignorance, the American heartland is getting hammered. To be a soybean farmer in the Midwest is to be in financial free fall.
2
the sad truth is, trump doesn't care. he is there to line his pockets with public tax money and is winning on that front.
2
Like many other citizens of this country, a country that has welcomed you when your planes could not land on 9/11, one that has fought and died as your ally in war, I now boycott your goods because you deem us a threat to your national security. I have no idea whether or not our boycott has any effect. However, if it does, I cannot see it improving your balance of trade.
2
Trump thinks that China is paying his tariffs but it's actually the American consumers who are doing the paying. Given enough time, Trump will crash the strong economy left to him by Obama.
2
We might survive dishonesty and ignorance, but what makes America great is brains and values like freedom of the press, liberty and justice for all, not just the justice one can afford.
Dump Trump!
2
I am not an economist. I have never taken a course in economics. If I had, I think I'd have failed it. Big time.
And you, Mr. Krugman, are a professional economist. A man who (if you will pardon my mentioning it) have amassed many a laurel. Which (of course) I respect.
BUT--
--your language here is (as ever) straightforward and hard-hitting. Reading your piece, I am struck by the recurrence of such words as "dishonest"--"dishonesty"--"ignorant." And others.
Of course, even over the two years of Mr. Trump's administration--and the six years of GOP Congressional dominance that preceded them--
--we were (most of us) not fooled. OF COURSE we knew--they detested Mr. Trump's predecessor. OF COURSE we knew--they were "gunning for him." OF COURSE we knew--any spokes they could stick in that presidential wheel were welcome. Eagerly sought for. Clutched as a drowning man might clutch straws.
We were not children. Not most of us.
STILL--
--thank you for bringing all this out. With such clarity. With a touch of salutary acerbity. We need that right now.
Will the bottom fall out of Mr. Trump's administration?
Will the bottom fall out of the GOP? As constituted right now, I mean--purblind and malignant, catering (with a sanctimonious smirk) to the needs and wishes of the super-rich.
We shall see. In the meantime--
--please keep 'em coming. Columns like this.
Do they make a difference? In the country at large.
Maybe. I hope so.
2
Could we ever take him seriously about trade when he has his suits made in China?
2
Face Palm!!
Of course, Trump "really has no idea how international trade works."
Trump has no idea how anything works!
Especially the Constitution, the Congress, the Agencies or Departments, the Court system, the rule of law.
2
I've long thought that GOPers would be perfectly happy living in a Latin American country where the top 1% own everything and live very well. The rest live in poverty. GOPes can look you in the eye and say they hate elites, while sending their kids to Yale, and saluting their great hero Trump, a rich man who went to private schools.
2
It would have been nice to see the column where Dr. Krugman predicted the trade deficit would go up...
"Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top."
Dishonesty and ignorance are nice words for describing lying and stupidity. But as prolific a liar and as stupid as Trump is, the Guinness World Record for lies and stupidity belongs to Trump's followers. These people are witless enough lie to themselves and to believe not just Trump's lies, but their own lies.
Is America lucky enough to survive that? The jury is still out.
2
Paul, you say "What about the ignorance?" That phrase applies to EVERYTHING Trump does.
2
Would be interesting to see Krugman debate Paul Ryan.
1
didn't you get the memo? deficits matter only under Democratic administrations; under Republicans, "deficits don't matter," according to no less a maven than Dick Chaney.
2
What happened to "I alone can fix It!" ?
1
The majority in America and the global community are aware of these facts but 52 to 58 million Americans view them as bogus. When it comes to Trump, they suffer from Jim Jones/ Charles Manson syndrome thus Trump is the chosen one, Trump does everything right and his critics are haters. Optimum recipe for winning the 2020 elections.
1
The Trump administration - and his GOP court jesters - are also ethically deficient.
2
The Titanic is loose amidst the icebergs. The captain’s philosophy is “full speed ahead”, as he will be able to get beyond the bergs more quickly. Sometimes he drives blindfolded, claiming to steer only with his ample “gut”. Other times, he is gone from the bridge entirely, taking “executive time” to watch Fox News. Lately, he has been claiming that the icebergs don’t really exist. He is will stop paying attention to his lying eyes. In fact, recklessly, he steers directly for some of the bigger bergs. How will the Titanic survive? How did he get to be “captain”?
2
Tariff Man, Deficit Man, America First Man call him by any name but he could still be the only man standing in 2020 with a better chance to get reelected than any other man. Maybe he has no idea how International trade works and maybe he never will get a Nobel prize for Economics but he does understand the financial goals of individual American's economy better than any arm chair opinion columnists who predicted economic disaster if Trump became president. .
1
The tax cut for those who didn't need any help pushed through by Ryan and his fellow GOP'ers, when the Trump presidency was on fumes (because they had just failed to take health care away from tens of millions of people) showed just how determined the powerful in this country were to do anything. When that "anything" is to prop up the old trickle down falsehood that "a rising tide lifts all boats" we have only seen things get worse. Recessions in 1987 (Reagan) and 2008 (Bush) tell the tale.
Ryan spends his days now hoping that people will somehow forget what he did before he bowed out. Buying back stock with the windfall generated by tax cuts - nice work if you can get it. Of course, Ryan will show up on boards of various benefitted corporations.
The tax cuts are a symptom of the disease that grips this country - vote a certain way without thinking through the consequences, then hope that the elected will solve "little people" problems, as advertised during the campaign. As Krugman points out, prices of everything have gone UP.
Like a friend of mine once said about the wealthy and the more than wealthy, "that's why we all live in little pink houses." Maybe some day people will wise up.
8
Barack Obama's legacy is tied to the steady economic management during the Great Recession by his administration and the Federal Reserve. It is truly frightening to me to consider how we could have survived that economic calamity had Trump been President.
The deficits incurred during the early Obama years largely were the product of decisions made before his Administration began to stabilize the collapsing economy in 2008--before his Presidency commenced--and afterward to stimulate the economy until it stabilized, which finally began to do late in 2009 and early 2010.
As Dr. Krugman states, deficits are not bad per se. It does not take so very much knowledge to see that GOP harangues about expanding trade or fiscal deficits are political spears to be hurled at the opposing political party. But, it is mesmerizing (and funny) now to listen to GOP politicians make garbled explanations about why the massive deficits created by the GOP tax reforms a) have not generated sufficient tax revenues from economic growth from these lower marginal rates for corporations and individuals to offset lower tax payments and b) why the GOP has nothing bad to say about either traded or ballooning government deficits.
It makes me believe that GOP economic policies are threats to the public economic health and we need a better means of inoculating ourselves from this virulent disease spread by the GOP.
3
All true, Doctor Krugman, all true. But let's not forget that over one third of President Dunning-Kruger's corporate tax cuts are going the the very same folks who are cheating us when they force us to buy their superior, cheaper and better made products.
Maybe he didn't realize that so much U.S. corporate stock is owned by foreigners?
Or perhaps he was told and just wasn't sharp enough to understand the implications?
Or possible he just didn't care?
My guess is that it's some combination of all three.
5
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that [we have low savings] compared with other countries."
Yes, we have low savings. As long as interest rates are almost negligible for savers; CD's, Credit Unions, Money Market funds & good ol' passbook savings accounts (less than 1%)- why bother? And...as long as America have no real living wages, millions simply have nothing leftover to save.
The double conundrum of low interest rates; great for consumer debt (except credit card debt) and terrible for savers.
4
"In reality, prices received by foreign exporters haven’t gone down. Prices paid by U.S. consumers have gone up, instead."
Cut taxes for the wealthy, increase taxes on the poor and working middle classes. Because that's what the Republicans and this regime have done in effect.
I heard one of the guests on NPR say this very thing this morning, in a passing way, in conversation.
Why the Democrats do not hammer this message every day is a mystery to me.
5
Did it ever occur to Americans that part of the trade deficit is do to that The US these days are producing less products that appeal to us in foreign countries. Previously we were flying in MDD planes and Boings but there were no Airbus. We were driving American cars but not anymore, as EU or Japanese are really better.
Ok this is written on An IPhone, but is it produced in US?
We have Mac Donald’s but this is not good food. I got fantastic Californian wine recently, and the supermarkets here have US raisins and ketchups. Denmark has both some US produced fighter aircrafts. We can get US leasure shoes and clothes here, and we have Amazon, Google and Facebook all American, and we see a lot ofAmerican movies and series, but otherwise difficult to think what other American products that there are to lower your trade deficits.
1
@Jensen
Well said.
If you want good ketchup, buy some Canadian product, tastes a lot better than the American products.
@Jensen: Do you visit the US as a tourist?
I"d love Dr. Krugman to explain why the tax cut led to a lower savings rate. One would think that more $ in people's pockets=more in their savings accounts. Am I missing something?
wealthy people who gain cash as a result of stock buybacks are usually not going to invest those funds in bank savings accounts or CDs that pay less than the rate of inflation. they'll stash the dough someplace that yields the highest return, or avoids taxes, or both. this gave a temporary boost to the stock market, but of course it was basically fake.
3
What this really shows is that we need to do a better job of educating our people with economic understanding. Our secondary schools must help our young get the principles of our economic system them people like Trump can't pull the wool over so many eyes. This is probably why the Republican Party has gone from the most educated to the least educated body of voters. This party has preyed on the uneducated too long.
3
It's understandable that Trump may not understand the intricacies of international trade, but his reliance on his economic advisor, Peter Navarro, is unconscionable.
It seems that sometime after Navarro received his Phd in economics from Harvard, he underwent a brain transplant to remove all traces of conventional trade theory.
5
@pinewood
When it comes to his overseas sweatshops, Trump understands that his workers can go to jail for a legitimate grievance, such as pointing out the unrealistic quotas they have to fill each day before they end up getting paid dirt wages.
THAT he and his GOP court jesters understand.
1
It is astonishing that Trump has certain beliefs that are in conflict with both parties. But it is even more incredible that he does not take advantage of readily available experts in fields he knows nothing about. Dr. Krugman as always is one such expert. Thank you sir.
5
@Gery Katona: Trump's gut biota knows more physics than the faculty at MIT.
2
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries."
Best explanation of the trade deficit ever. Americans, with their "buy-on-credit" habits, have long lived outside their means. Greedy banks and investment houses of course play a huge role in this.
In 1999, Clinton deregulated banking,
and commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. It ultimately was a bad idea, creating loans to people who couldn't pay them back, but Clinton did leave a huge surplus.
The math ultimately didn't work,
and the 2008 recession arrived. This was under Republican W. Bush, who left a huge deficit.
Obama, a Dem, did his best to bail out the banks and keep the country running. He succeeded.
The Trump deficit cannot be blamed on banking deregulation or stimulating the economy. It stems directly from borrowing money to give wealthy corporations and individuals a tax break. The US must repay this debt. It will do so by slashing social programs and environmental protection.
Trump's deficit comes solely from perversely serving the rich at the expense of 90% of Americans. No incentives are offered to increase wages, train for the technological future, create green jobs and products. The wealthy sit on their liquidity.
This complacency lowers American wages and competitivity. They need a swift kick.
7
If the economies of two countries are unequal there will be a trade deficit as the smaller economy country is just not going to buy an equal amount of goods and services as the country with the larger economy. This seems obvious to me. Some of the issues with China have to do with copyrights etc which, while a serious issue, has little to do with any trade deficit. It is also kind of obvious that WE pay the tariffs not the selling country so in essence we are punishing ourselves. This is why protective tariffs were seen as useless long ago. Better would be to put comparable standards on some products so that the buyer can be assured that their lower priced product is of equal value. But again, a separate issue.
China offers a more attractive place to run sweatshops than the US, but even that haven is fading, as more manufacturing sifts down to even lower cost places such as Bengladesh and Vietnam. if Elon Musk succeeds in colonizing Mars, and it is discovered there are Martians who will work for peanuts, then we will have a trade deficit with Mars. US workers are losing the race to the bottom, because other countries offer an even more endless supply of uneducated workers.
3
Physics note:
The balloon analogy to world trade and tariffs is a good one, but not exactly as used here. When squeezed in one place, the balloon does not increase in volume by exactly the same amount elsewhere. PV=nRT. Squeezing increases the surface area and the pressure within the balloon, and while the increased pressure reduce the volume slightly, it also gives off heat.
Thus, the Trump tariffs have reduced some trade volumes in soybeans, steel, etc., but they have definitely increased the heat and pressure of International Relations. And other countries can increase the heat further by squeezing back.
5
Let's also be serious about even genuine business investment. Much of it will go into eliminating jobs. I work in financial services and see efforts to automate even very complex work - so that only the most complex decisions will be made by people.
I am personally glad to be near retirement.
4
Trump is quoted as wrongly believing “our jobs and wealth are being given to other countries that have taken advantage of us.”
Meanwhile, way over on the socialist left:
Q: So basically, there's never been a single trade agreement this country's negotiated that you've been comfortable with?
BERNIE SANDERS: That's correct.
A distinction without a difference.
2
Trump will ignore the latest historically bad numbers on the budget deficit, the trade deficit and the low jobs numbers.
When he is pressured to say something about these issues, he will blame Obama, Hillary, Canada, Mexicans, Merkel- everyone but himself.
He knows his base is gullible- but at what point do they finally open their eyes? Probably never.
15
I disagree with Paul on this. US trade imbalances are driven by savings imbalances, not Trump's “bad deals” - or even competitiveness.
As an advanced economy, the United States would normally be expected to run trade surpluses, and yet the country instead has run large deficits for nearly five decades. This strongly suggests the existence of distortions in the global trading system, namely:
(1) Income inequality in the US, which effectively represents a transfer of income from a low-savings sector to a high-savings sector—that is from ordinary households to the rich, causing the savings of the rich to rise faster than investment.
(2) Excess savings abroad (or, what is the same thing, demand repression), mainly by households in East Asia (China, South Korea, Taiwan and Japan).
Because of its deep, flexible, well-governed, and completely open capital markets, in a world of *excess savings and insufficient demand,* the United States absorbs a substantial share of excess savings from abroad.
These savings, in turn, force down U.S. savings, causing the United States to run the largest trade deficits in the world.
To escape this condition, the United States must reduce its trade deficit with the world, but not by addressing the trade deficit directly through import tariffs or quotas. Instead, the United States must address foreign capital inflows directly, perhaps by taxing them.
@VCR: US gun policy could cost the US foreign tourism industry enough to balance the trade deficit.
2
Krugman and other globalization apologists consistently present a distorted picture which is biased in favor of the corporations whose profits have swelled and against workers whose jobs have been lost and whose wages have stagnated. Globalization as currently carried out is a factor which must tend to reduce wages in the US, because international "free trade" in labor must tend to flatten any differences. It is good that wages in China are increasing, although conditions for workers there would not be tolerated in the US (and other countries are worse), but US workers would rather not have this done at their expense while corporations increase their profits. Krugman has nothing to say about the contribution of globalization to inequality in the US, or indeed about what it does to wages in any realistic way. Trump will do nothing to improve things in international trade, but unfortunately there are few in the US who seem to have an interest in doing so.
@skeptonomist Fortunately or unfortunately, globalization is irreversible and will only strengthen in the years ahead. Smart communities will make use of that fact for their benefit; dumb ones will wallow in the past. Temper tantrums wont get us anywhere
2
Prof K writes the Republicans' deficit posing was "an attempt to weaponize the deficit as a way to block and undermine President Barack Obama’s agenda." More important, it was direct, long-ongoing assault on Entitlements, those pesky payouts ordinary Americans are merely entitled to, like social security, Medicare, VA and lots of service-related stuff, Medicaid, child welfare, etc. Anything that uses tax dollars to meet the needs of those who earned the payments or need them due to age, disability, etc. Anything that does not benefit the ultra-rich directly.
I have paid income, Soc Sec, and Medicare taxes this and every year starting in 1966. Am I not entitled to my current monthly payouts that they want to cut to lower current taxes? 50 years of payments made. Entitlement.
11
@Old Ben: US voters should start tracking how much of public spending comes back to them as income or tangible benefits when thinking about what happens to the money they pay in tax. Taxes are not as high as they look if adjusted for benefits received. And the benefits could be much more than they are now without the drain of military spending.
11
@SteveBolger
As my mother used to say when she was a Republican state legislator, "Taxes are actually good as long as you get your money's worth."
3
Tariffs not only make things more expensive for American consumers, they have a huge effect on businesses that rely on the materials being targeted. In August I got three local quotes for a gutter job on my house. After hearing that the aluminum tariff increased the quotes by 15%, I started checking online if I could do it myself. After watching a few Youtube videos I decided to give it a go. I ordered all the materials and completed the job in two days for about 1/4 the price of the lowest bid. How many more millions of potential customers were lost when people decided to do it themselves or just forego a project affected by tariffs?
4
Both sides of a trade deficit get something in theory and in practice. China and the other less-developed countries which are now running surpluses with the US get manufacturing industry and the jobs that go with it (and increasingly service industries, such as call centers in India) and in return must invest in the US. Which does the US really need now, good jobs or more investment capital? If we really needed capital, then the tax cuts for corporations would be a good thing, but in reality the best thing that they can think of to do with the money is buy back their own stock. Are foreign investors really interested in investing in US industries, with high labor costs, that would compete with their own? As a matter of fact they have been forced to do so in the past with political pressure, for example in the case of requiring Japanese auto makers to have US production, but there is none of that pressure now.
When trade with countries like China first opened up, the idea was that we would sell them manufactured goods and the trade balance would go the other way. Now that there is actually a deficit it is rationalized on the grounds that the displaced manufacturing workers would get presumably better "service" jobs, but those workers can't go back to school to get the MBA's required for the jobs in finance which to some extent have actually opened up.
However, another four more years of Trump and his Republican supporters in the Congress would, in all likelihood, mean the appointment of many more Supreme Court and other conservative Federal judge whose decisions could well reshape the character of our democracy.
Four more years would probably lead to further attempts to weaken health care and education, the curbing of civil rights and voter registration, and weakened support for immigration, environmental and climate initiatives, housing, science, arts and humanities, and other Federal programs.
It may also mean very detrimental foreign and defense policies and program actions affecting our own, our allies, and the rest of the world's security and economic situation. Some steps, perhaps inadvertent, might also lead to a major war.
Finally, through the Republican's "starve the beast" legislative strategy, the ever-rising national debt would rob the country of the vital ability to turn the country around if and when a new, more centrist president is elected to office.
Perhaps affluent Americans may survive this President for a while but, in the longer term, what about all of the rest of our citizens and their children, the character of our nation, and the general well-being of the rest of the world's inhabitants?
6
@just Steve: I have yet to see a judge do time for abuse of judicial discretion.
Interesting. So these massive tax credits for companies were not reinvested in any form.
2
I have been running a deficit with my local supermarket for many years. That has never bothered me excessively..
2
If the debt/deficits were to rise by merely the %age of annual inflation it would be a trivial matter. BUT... an endless 'series' of increases above such a 'wash' is not sustainable. Even if the debt is in one's own currency.
At some point, as classical theory has it, there has to be a renormalization, which is conditioned on what a given nation has to sell that others want. Or, put blunt: a currency revaluation. Down.
One might ask, what do we have to sell? The trade imbalance suggests- less than we need.(& has anyone else noticed that the price of fish, meat and canned goods- all easy to export to hungry world- have risen quite a bit in the last 2, 3 years?). Ahhh..."financial services" & "investment products", not the l east of which, in an unstable world are gold standard US securities.
So, how about this model (the WIMPY economy- I'll gladly give you an IOU for nest Tues. for a burger today, vs being a gas station with an army): our dollars (IOUs) flood out into the world, where they do not remain in the hands of little folk (or ever reach them) but concentrate in the hands of large institutions and oligarchs (same dif). The Oligarchs take that wealth and put it into "investments (including the gold standard bonds"). As luck has it- the ever increasing deficit/debt of the US Gov has created a perfect sponge to soak up excess IOUs, taking US taxpayer income tax to pay the interest.
Every debt is someone else's wealth. So the machine churns on. Until the panic...
2
Professor Krugman stated: "Companies didn’t use their giant windfall to build new plants and raise productivity, they used it to buy back a lot of stock, passing the gains on to wealthy investors." The average 401K workplace investor lost all the stock price gains of 2018 in the last quarter. We are told to take the long view but the insiders knew the time to sell at these inflated buy-back gains. The tax bill has shocked many middle class families because who knew: we need to take out higher deductions from your W-4 to off-set the removal of deductions no longer allowed. Nice to be on the ride with the billionaires but what’s in it for Americans.
5
If the tax cuts had the result of feeding only the Republican fat cats, it would be one thing, but as we all know the politicos of both stripes and their wealthy constituents benefit equally.
Our governance is more about maintaining the lopsided status quo than advancing all the citizenry. Since our founding those who have been seated in political office have shaped governance to resemble a Democracy whereas it has never strayed too far from the path of kleptocracy.
If one bothers to look beyond the buzz word of "freedom" and the actual allocation of our tax dollars this is not a harsh or exaggerated assessment.
Castles are not constructed by dint of the king's sweaty brow.
Part the curtain drawn by "Citizens United" and follow the money.
1
The GOP deficit hawks are merely on sabbatical and will re-emerge as soon as their party looses control.
You can count on it.
8
...but if you want to forget all of this uncomfortable reality then go out and spend all of your income and savings in a 4-year binge, buy lots of stuff, be happy and don't worry about the hungry days that come next...
Foreigner's prefer US financial assets to our goods and services. Where would you keep your savings, especially if you lived outside North American or Western Europe? I believe it is called Balance of Payments.
1
Kuddos - great piece. But, since what should be obvious isn't, the last sentence should be expanded by one word, "Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top", MAYBE.
2
There is a difference between an actual policy agenda backed by specific programs and actions designed to attain a desired goal and political sloganeering.
When not backed by actual policies, shouting slogans such as "America First" or "Bring down the deficit" is political theater at its worst.
2
It seems to me that creating a large deficit through tax cuts was just the first step. Step two was to have been to cut spending on "unsustainable" social programs so as to reduce the deficit!
6
Of course, and that project has long been known amongst so-called fiscal conservatives as “starving the beast.”
The question is, why has the GOP been so successful politically, despite their economic ideas being largely false? Yes, the electoral college is part of the answer. But the deeper answer is the GOP has relentlessly propagandized twin truisms: Government is the problem and free markets are the solution. Democrats now have a superior economic argument: the Rich are the problem, as are free markets (they cause financial crashes), and broad sharing of wealth is the answer. Multi-decades of stagnant incomes, millions of jobs sent overseas, and an undeniable plutocracy ruling the Nation, make this argument broadly convincing. When the GOP yells socialism, Democrats should respond, the Rich always say that, but as everyone knows, they are the problem and sharing wealth broadly is the solution. The Rich have always feared large majorities will implement broad redistribution programmes, because .1% of the electorate cannot defeat 99.9%. The Rich have forestalled this possibility with Great Lies: Government the problem, free markets the solution, Socialism! Right now, the .1% are shaking with fear, rightly so, because the Democrats now have, and are pursuing policies to implement, a massively popular counter-argument.
7
Even if Trump and Republicans lack comprehension of economic phenomena, it is comforting to see they possess understanding of worldwide geopolitics, human rights, climate issues, immigration policies, needs and pitfalls of domestic educational and health systems, and - above all - have the conciliatory spirit, humility and moral fortitude required to successfully tackle all issues we as a nation confront.
Deficit, schmeficit...
3
As well as passing the tax savings to investors, the executives passed them onto themselves as it increased the value of their stock options which probably is the real reason this is done.
2
It's been painful to watch both the blue and red team whistle past the graveyard of fiscal responsibility in recent years. Defense budgets and the war on terror somehow not mattering when it comes to balancing our national checkbook. Kicking the can down the road on a failing social security system. Managing to accept the staggering national debt, perhaps only because the effective interest rate is so low. And now not a thought for steady deficits. So after decades on the blue team I joined the white team a few years back when I finally accepted that either individually, or collectively, they couldn't come to terms with the reality that the domestic economy can't sustain the current trend. Maybe it's just their fight for political survival (i.e. re-election) but my hope has been replaced with fearful conviction that the two teams will allow us to fail as a nation, however slowly. There was never anything about the current POTUS that instilled hope, but witnessing the red team's complete abandonment of what I mistakenly thought were their core principles is more frightening than ever.
2
@ep, you lament "It's been painful to watch both the blue and red team whistle past the graveyard..."
The Democrats have been consistent and fact-based in their fiscal presentation all through President Obama's administration, and now during trump's. The 'bothsides' argument ignores the fact that republicans are the ones doing this, and have been since Reagan.
Be careful when you come away with the conclusion that we are opposing teams, and that both teams act in bad faith. We should remember that "United we stand, divided by trump's lies, we fall".
Just the facts, that's all we need. Those alone show the malfeasance and bad faith of republicans in power.
4
@ep Please don't call the military budget a "defense" budget. It has precious little to do with defense...
2
@deb. Not really. Obama and gietner bailed out the banks and Wall Street and the vast majority of the crooks kept their jobs, bonuses and tax cuts. Gietner then went on to a multimillion dollar job with...wait for it...Wall Street. The democrats could have put glass-steagal back on place (which Clinton with dick armies help had been rescinded) but instead they helped put in a series of regs which have been systematically dismantled, feeing the financial services to prey on us, at our expense again. The republicans are worse, the democrats are bad and not clean.
1
Paul Krugman, touted by the Times as a world-class economist, says over and over again that budget deficits don't matter. It's a constant theme of his columns. Logically, that can't be true. There has to be a tipping point, otherwise government spending could be unlimited with zero taxes. I would welcome a Krugman column explaining what constitutes a deficit tipping point and what the consequences of exceeding it are.
3
@PWR, you are right! Logically, budget deficits matter. And you are lying when you declare with silly certainty that Dr. Krugman ever denied it. Putting deficits in perspective with other factors is not denial, but you know that. Hmmm. Maybe he should just declare that his gut tells him trump is bad. Seems you folks would believe that...
Republican hypocrisy ABOUT deficits is a constant theme of his columns. He has already discussed the topics in which you fake interest, and when he did, you called him a leftie shill.
trump followers think his yuuge gut is smarter than career economists, climate scientists, law enforcement, universities, NASA, the military, the entire American diplomatic corps, all non-FOX journalists, AND the founding fathers.
So every single Krugman article gets your sneering response, while you pretend to value information. When trump's gut (and wallet) tell him that Putin would make a great co-president, "Wouldn't that be beautiful?" you'll dutifully sneer at Americans like Dr. Krugman again.
Very lazy American vigilance, trumpies!
1
The GOP gave a juicy tax break the wealthy that don't need it. Trump starts 'easy to win" trade wars that hurt farmers (soy beans anyone?) and consumers (tariffs are taxes).
We're one election away from the call to cut on entitlements.
9
@Dutchie
We're one election away also from Russia not caring about sanctions because they're the ones who will be getting all of China's business - not only when it comes to selling them pork, corn, and soy products, but also energy and weapons.
All deals to stave off nuclear proliferation are gone under Trump.
Also, I'd like to know what Lavrov was doing in Vietnam.
9
Trump is missing the worst part of our relationship with China, and that is China ignores our patents, steals our trade companies secrets, reverse engineer, confiscate methods of production and even management practices. 20% of US companies report being hacked into by China.
Our trade relationship with China is thus: China steals our ideas, then manufactures and sells the stuff our ideas created back to us. China is not stealing our manufacturing (we gave that away in the 1990s), but China is stealing our knowledge base needed to produce the goods that our manufacturing produces, and Trump and his band of hapless negotiators are going to drop the ball on this with China.
The Trans-Pacific Partnership, TPP, had its shortcomings, but the TPP would have given the US the muscle through an alliance of 14 Pacific Rim nations and the US to confront China on intellectual property theft, unfair trade practices, environmental degradation and worker rights. But, as we saw in 2016 not a single candidate in either party could support TPP. And, without the power of TPP, China will give us nothing of substance - just watch what happens.
7
The first year at Wharton includes a solid Macroeconomics course that covers all of this. Would be interesting to know Trump’s grade.
16
@John Stroughair It was a 'B', for 'bought'.
2
@John Stroughair
"The course is very unfair. Waah!"
2
Z- ?
2
“Oh, and the tax cut has utterly failed to deliver the promised investment boom. Companies didn’t use their giant windfall to build new plants and raise productivity, they used it to buy back a lot of stock, passing the gains on to wealthy investors”
This is exactly my problem with Kelton’s defense of MMT. As the above is what “over investment” really looks like. I understand the MMT’s aren’t trickle-downers, but something is amiss there, and totally incoherent with the goon squad GOP snake oil economic “policies” that so many fall for.
Let’s hope we can endure the lies from the top as a nation. Fox “News” validates the incoherence and peddles the poison.
4
American protectionists and isolatists -- you know, the MAGA-hatted Trumpies who think global trade is robbing them of their jobs -- should pay heed to what Brexit is doing to Britain's $105 billion auto industry, which employs 186,000 workers and accounts for 12% of Britain's exports. Honda and Nissan are closing plants that employ 7,000 workers directly and thousands more in their supply chains; Ford is ending engine production in Wales; Michelin is closing a a tire factory; Schaeffler, a German parts manufacturer, is moving out; and JLR, Britain's biggest car maker is closing two factories and throwing 4,500 out of work. Why? These companies say it makes little sense to remain in a country that will face tariff barriers once it leaves the European Union.
20
Dr. Krugman gives important information about deficits, debt and trade— he is an expert.
It is important to note that trade is not just about $, its often about power.
China, specifically, has alarmed the US and world with its trade practices (eg: tech theft, import restrictions etc...). It’s just another example of an international power grab through unfair trade practices. Can you say 2025?
The approach to trade by this administration may well be uneducated, but in the case of China, it could result in restraining those practices that undermine fair trade and potentially harm other countries.
Even a blind squirrel gets a nut every now and then (?).
1
Fortunately, our country is now being run more like a business. Unfortunately, it's using a Trump business model.
10
Called, screw the other guy, Trump gets rich and then file another bankruptcy , this time the Bankruptcy of the US.
2
I'm sort of surprised that Professor Krugman doesn't point out that the US fiscal deficit, which is in part financed by selling US securities abroad, increases the demand for the dollar, increasing its value, which in a paper I read was by 16% relative to an international basket of currencies of developed economies. Which in turn increases the current accounts trade deficit. Hence, the Republicans, and mainly Trump have overwhelmed any chance the tariffs had at stopping Chinese imports, and is why we don't see the increased cost in our goods. But if the deficit was reduced we would, and as he points out, we would still import, we'd just see it in from of higher prices.
The Republican argument against both the Green Deal and "medicare for all" is essentially that we can't afford it, that it would cause the budget deficit to expand and thus do injury to the american economy. But wait...The budget deficit is expanding and so is the trade deficit and yet no republican has said a word and we are doing just fine !
Both the Green Deal and "medicare for all" are targeted by republicans as dangerous as they equate both with exploding deficits but the reverse is the more likely outcome as the expense of uncontrolled climate change will ultimately present as losses of productivity world wide and will have significant impact on world wide economic expansion.
Furthermore a health care system that is available to the entire american population will lead to a healthier population and will have the leverage it needs to bring down medication and treatment costs, all of which will translate into a more productive population that no longer fears being bankrupted by health care costs. If america wants to bring down budget deficits in the future, this is a good time to become serious about the climate and "medicare for all" !
11
America can only run a trade deficit because the dollar is the de facto international currency. In essence, it is backed by the ability of a foreigner who has dollars to buy American goods and services. By continuing to run a trade deficit, we are selling America. Look at the foreign ownership percentage of the Fortune 500.
1
The GOP as a whole hasn't cared about either debt or deficits since nominating Reagan in 1980. Can the mainstream media please report what the GOP *does*, rather than what it *says*?
GHW Bush was the last major Republican to actually care about deficits, and it cost him re-election in 1992. Since then, there's been not a trace of ambiguity: they only talk about debt and deficits when a Dem is in the White House, so they can use it as a cudgel against funding Democratic priorities.
This isn't just old news; it's positively ancient news. Anyone who graduated from journalism school when the GOP last cared about deficits is reaching retirement age. How on earth does a single reporter buy the GOP line that they care about deficits, when they don't remember a time when they actually did?
8
The pro growth at any cost, whether it's the republican ever expanding economy with ever more consumers spending ever more money or the unlimited population growth both parties support (all on a fixed environmental base) none of this can go on forever. Cancer cells grow forever until they kill the host organism. We can try to do the same thing to the country and the planet as thought the rules don't apply to us, but they do. A whole new way of looking at the world and our place in it is needed. Long term sustainability is needed. Not our usual boom and bust short term thinking.
4
Policies of the current administration are making the corporations richer at the expense of common man who pays tax. Would love to see an intelligent and scholarly person in the current administration who works for the benefit of both .
3
The reason we have large trade deficits is because we buy from other countries more than we sell. It is as simple as that. And we buy more than we sell because over the last 40-50 years our executive and legislative branches allowed the blind market forces run amok and ship manufacturing, sometimes just whole industries to the countries with much cheaper labor. Along with millions of decent paying jobs. And the skills these jobs require.
We opened our markets to our trade partners while some of them did not do the same to the same extent.
The international trade may and should be free but only as long as it is fair and the playing field is level.
Economy us a system with a lot of inertia.
You cannot expect things to change overnight or even in a few months. Sometimes it takes years to see things fixed after certain policies or agreements have come into play.
A Nobel prize in economy winner may be expected to understand this.
1
A rising trade deficit at a time of high unemployment means trouble. A rising trade deficit at a time of full employment means....that we're in the 21st century of globalization effects. That this is not understood is trouble.
1
Reading columns like this, one gets the impression that trade deficits, like the budget ones, don't matter. Just changing ones and zeros in the memory of a computer in the basement of a bank.
But the Great Lakes region is an industrial wasteland because of this stuff. Young people who would normally have gone to work making things are joining the military instead. God help us if the Afghanistan War ever ends.
Most of us don't care what's going on in computers in Manhattan bank basements. We do care when the factory in town closes, or our whole region is just a superfund site, and the main occupation is using drugs and playing video games.
Even prosperous places in America do nothing in the world economy. Yes, there are Amazon trucks driving around, and the Walmart hasn't closed yet, but we have no function in the world economy beyond buying stuff and sending the money overseas. The better-off among us are living off the rents from assets earned a couple generations ago.
7
Dear Paul,
You have written things like this several times “Let’s be clear: Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy.” I think they key word is “Present” which is not clear. How long can we continue to have low savings until we experience present danger and what factors, eg global warming consequences, might accelerate that time? I believe the USA needs trillions of dollars to cope with the coming consequences of global warming. Can our economy really sustain such additional debt? Maybe but not without changing our tax, spending and economic incentive policies to cope. You have made your points about Trump and Republicans endlessly. It would be appreciated to hear what needs to be done. With 2020 coming, it would be appreciated.
2
This Conservative who votes Democratic cares about deficits. During the good times we should not be running deficits. Of course, even FDR didn’t truly believe in Keynes.
2
Democrats need to make this one of the main issues against the Republicans in the next election. It is one thing all Americans agree on!
4
Prof. Krugman,
I know nothing about economics, but I am pretty confident in the belief that Trump pursues "policies" designed for one of two purposes: 1) to enrich himself; 2) to score points with his base. So, I think you could have stopped with "dishonesty".
11
What is damaging about the ballooning deficit is that the country received no benefit from it. Only the already wealthy benefited from Trump’s tax cuts. That money could have been used to improve our country’s infrastructure to make us a world class country again. The GOP blocked Obama’s efforts to improve infrastructure and almost succeeded in blocking Obama’s rescue of our economy all in the name of “fiscal responsibility “. Republicans only care about the deficit when Democrats are in power.
13
Krugman provides a primer on trade deficits, correctly pointing out:
“The overall trade deficit is always equal to the difference between domestic investment spending and domestic saving (both private and public). That’s just accounting.
The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries.”
However, he should have made the following clearer: US budget deficits drive trade deficits, which always meant that Trump was going to fail to reduce trade deficits, absent a recession.
Krugman, IMO, is far too assured and sanguine about the LONG term impact of trade and budget deficits. The simple truth is, at best, we don’t know. However, logic and the longer scope of human history tells us that they do not matter ....until they do.
1
Tax revenues did not materially decline after Trumps tax cuts. Nominal revenues stayed essentially flat in 2018 vs 2017. Federal spending however has risen substantially the past two years - the blame for that falls on Trump & Republicans.
Spending & tax revenue are in no way on the ‘same side of the scale’ - that literally makes no sense. They are two terms on the same side of the deficit / surplus equation. The fact that three dozen people ‘liked’ your comment is concerning. They made a politicized vote, not an informed one. The level of economic illiteracy in America is astounding.
1
@Once From Rome
I am unconvinced of your economic literacy. When you note nominal revenues stayed flat, you seem to be implying that the tax cut didn't reduce revenues and didn't increase the deficit, only spending did. Spending definitely contributed, but so did the tax cut.
You have to take account of inflation (you can't compare nominal dollars from two different years in any meaningful way - that's very basic economics), as well as the growth of the economy. Taking both of those into account, tax revenue was about 4.8% lower than it would have been absent a tax cut - roughly $150-160 billion - pretty close to the estimate of a debt increase of $1.5 trillion over 10 years from the tax cut.
4
@Durhamite The Roman did not click on the link from that Dean Baker wrote. The article is quite good.
“The overall trade deficit is always equal to the difference between domestic investment spending and domestic saving (both private and public). That’s just accounting.” Uh did anyone read that article referenced? It is actually the Sum of this difference Plus the surplus/debt. That is currently in the red at $1000 billion per year (projected but pretty realistic).
1
The nation will probably survive Trump's ignorance for another two years, but another six and with the GOP controlling the Senate and perhaps congress? We seem to be on auto pilot with no direction at all. Will stagnation and slow decline be our ultimate destruction?
305
@just Robert
Here's a suggestion: Vote for the Democratic nominee no matter what!
I was talking with a Bernie supporter who is planning to do exactly that.
My response: "That's nice. Why didn't you do that in 2016?"
19
@just Robert
I lived through the stagnation of the 1970's. Not much fun.
8
@just Robert The answer to that question lies with us. If we work hard to get out the vote, if we insist that Democratic candidates not slander one another as they fight for the nomination, if we fight the twin evils of money and gerrymandering in politics --- there's plenty of room for optimism.
5
Did the Republican tax overhaul benefit any family in America more than the Trump's? Each of them got a huge reduction of taxes on their personal income. Their company also will pay significantly less taxes , increasing their incomes. The elimination of the Inheritance Tax will save his children billions of dollars in taxes. That's all Trump cared about, not reinvestment in the economy or reduction of our national debt.
The entire exercise demonstrates the real priorities of the 'me first' Republican politicians. They believe that as long as they benefit personally, the country is better off. Forget what they say, focus on what they do...
13
Our savings rate is far lower than many other countries. We’ve all been ‘marketized’ into spending our guts out.
Capitalism at its best.
Education has become a cash cow for its purveyors.
Medicine has become a charge-all-that-traffic-will-bear proposition.
Americans are exhorted to BUY, BUY, BUY!
Extraordinary wealth is celebrated (trump), and we can all achieve it!
Is this the fall of the American empire?
504
@Gary Remember 9/11 when the entire country stood at attention and collectively said “we are in this together. Leaders, tell us what we need to do in this moment of crisis”. And, Dubya stepped up, fearless leader that he was, with a ringing call to action: we could best serve our country by going about our daily business as if nothing happened, and, most importantly, SPEND MONEY! The two answers to every problem in this country are to spend more money and cut taxes. God bless America!
73
@Gary Our savings rate reflects the stagnation of wages for lower 90%, while the cost of housing, health insurance education, continues to sky rocket.
88
@Gary
About celebrating extraordinary wealth (like Trump) I'm not sure if you mean Trump celebrates it, or if the common folk celebrate it.
My point: I very much doubt Trump is wealthy at all, I think he's up to his neck in Russian debt.
60
I'm no economist, and I know it's a utopian dream, but what would a legislated 10% pay raise for everyone making less than, say, $250K done for the economy?
I have a feeling the answer is: a lot of good.
4
It's all part of the "starve the beast" strategy, isn't it? When Republicans are in charge, they cut taxes and balloon the deficit; when Democrats are in charge, Republicans do whatever they can to block Democrats' success by demanding fiscal responsibility, usually by cutting as much spending as possible, which means economic performance will suffer.
They have policy, and they stick to it--it's just not for the reasons they say.
621
@David R
Perhaps a way to say this so that people better understand the GOP strategy is to say "privatize the government?"
10
@David R - Its not starve the beast, its exploit it. Republicans balloon the deficit with tax cuts to the rich. Democrats deal with the recovery by increasing taxes. Rinse and repeat every other election cycle. Its a “Wealth Pump” that uses the US treasury as a means of extracting excess wealth from the many and giving it to the few.
23
@David R yes, GOP clearly is consistent, focusing as they do on increasing their own personal wealth above everyone else.
11
The problem is that this time corporate debt is also at record levels. The private sector also has a debt problem.
In a capitalist economy like the USA, public deficits (debt) only works insofar as it can alleviate the situation for the big corporations (and, if it can do the same for small and medium businesses, it's a bonus). But now big business is also maxed out (Apple's trillionaire fund ony exist in the virtual world; the moment interest rises, it will vanish).
2
I' m a bit confused. Don't want to disagree with PK but...
If you look at the Consumer Price Index, seasonally adjusted for all items, it increased about 1.9% between Dec. 2017 and Dec. 2018.
Compared to the CPI during most of the Obama years that's a bit higher but compared to the years since 2000 it's a bit lower.
Perhaps the tariff "hit" to the CPI hasn't kicked in yet?
Data here:
https://fred.stlouisfed.org/series/CPIAUCSL
https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-and-inflation-rates-1913
if you belong to the other tribe deficits aren't cool. I get it Krugman.
1
Really Paul Krugman it is not either in the idea of the respect of you as a writer and economist or in the effort to legitimate a conceptualisation of the economy to use this form of colloquial style.
I find it vulgar and diminutive to the cause.
Short cuts are never good.
I hope the Dems can put this economic mess into concise talking points along with healthcare so we can win in 2020. #nomoremuddledmessages
5
"Tariff" Man? I think he means "Tax Man".
2
The GOP abandoned the "common sense" image approach along with all of their other supposed bedrock beliefs just to get in bed with a "winner".
9
Pick a issue and the Republicans lie about it. War, healthcare,dept,deficit, justice,facts,climate change,Democrats, personal responsibility, they even lie about lying.
21
Trump has no idea how ANYTHING works. 'Cept bankruptcy.
16
Republicans have only two questions regarding America:
1. Where's the money?
2. How do we get it?
10
With all due respect, Dr K, Trump has no idea about anything other than himself. He is mentally impaired and surrounded by all sorts of sycophants who lavish praise upon him hoping to gain some sort of advantage.
As the scheme appears to be working, at least in the trailer park-Fundamentalist-Christian-anti-abortion-gun-loving-racist crowd, spineless but otherwise normal GOPers (Senator Lindsey Graham comes to mind) are joining the gang of enablers who hope to cash in on Trump's ignorance and yearning for praise, however outlandish.
It is a worldwide phenomenon every two-bit dictator is playing, and winning, up to now.
17
Trump has no idea how anything works.
6
"Yet Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant."
So, not telling us anything we didn't already know.
6
One subject here is orange man's combo or arrogance and stupidity. Another is how Republicans lie. They are global warming deniers. How can anyone with sense trust them given that? What gives them power is the failure of Democrats to speak with a clear voice on global warming, the economy, or much of anything. Until now.
7
@Daniel Mozes Republicans (but really Conservatives) denied lead gasoline is harmful, they denied tobacco causes cancer, they denied anything and everything that had a special interest. They were always about money and power, and always against science and the common people.
1
“ He’s a Real nowhere man
sitting in his nowhere land
making all his nowhere plans
For nobody “.
Lennon/McCartney, 1965.
Nobody said it better. Period.
31
We pay for trade deficits with little pieces of paper that bear low interest rates--do I have that right, Paul? You mean that we're borrowing to fund current consumption.
You forgot to mention that we can also fund our trade deficits by selling off our assets. In the past you were happy to mention that around 1/3 of U.S. stocks are foreign-owned. Where did the foreigners get the dollars to buy those stocks, Paul?
But you know all of this already. You just don't feel like mentioning it in this particular column. You are at your worst when you abandon your objective economic analysis and deliberately slant the evidence in your zest for liberal advocacy.
Trump, the GOP, and their chronologically old Donors have made a "POP UP" business of the American Government. The tawdry Rallies are but a smokescreen marketing ploy to hide the bitter truth that all of the above are a band of thieves with bought judges in the highest places (Manafort's recent ruling)...in some cases. And, all their Base seems to care about is Hatemongering. Educated Americans never voted for this, knowingly...so now we are stuck with the Dumb & Dumber Trumps who Bully from their ignorance, tell ugly sexist jokes, and lie because they do that normally. They didn't win the Popular Vote. They do not "represent" us, and the majority of Americans are growing to despise all of the above because we are their intended victims. "How many Trumps does it take to think up and pander a "Be Your Best" Campaign while they rob us blind?
5
Can we stop pretending, once and for all, that virtually anything the Republicans do these days is principled?
Deficits: Bad for Obama, but not a problem for Trump and the Republicans, apparently.
Foreign relations: Obama was bad for “apologizing for America”. But it is OK for Trump to lick the boots of murderous thugs like Putin, Kim Jung-un, Duterte and Bin Salman.
Tariffs: Horrible when Obama talked about them—killers of free trade! But when Trump imposes them, the GOP does nothing. No action.
Treaties: Any treaty Obama did was bad. Trump killed all of them—TPP, Paris Accord, Iran nuclear deal and NAFTA—saying he could do so much better. Net result so far: Zero except some modest changes to NAFTA, which won’t really impact the economy much.
Health Care: Republicans said ObamaCare was terrible. But Republicans never got the votes to repeal it and also never came up with ANY better plan.
Judges: McConnell used every tactic in the book to stop Obama’s judicial nominations. Now the most unqualified nominees, so long as they are anti-abortion and pro-gun rights, get approved.
Business Support: Obama was bad for his “handouts” to save the economy after the 2008 banking crisis, which truly was caused during Bush II’s watch. But Republicans have no problem giving “handouts” to corporations and other uber-wealthy Republican donors, who certainly didn’t need the money, via massive tax cuts.
Here is all you need to know about today’s GOP: Our guy good, your guy bad.
14
Economic Collapse Man or World War III Man, before he is done.
4
The chaos caused by this president has to stop.
5
"Luckily a great nation like America can survive a lot, including dishonesty and ignorance at the top."
"America" is not a nation. Your nation is the "United States of America". The rest of us who inhabit America - Canada and Mexico in North America and the many nations in South America -refer to you as the United States or the U.S. - and are quite resentful of the fact that you have co-opted the "American" label.
I am a Canadian and a North American. My Mexican friends are also North Americans. And my friends from Colombia and Venezuela are South Americans. We are all American.
7
If you keep me in power, you can loot the country. That's all. I have a thing for brevity, sorry.
10
Trump and GOP policies are a total disaster. the fiscal deficit is exploding, and the trade deficit is exploding. The ultrawealthy, who benefited the most from gop tax bill are buying more imports than ever, causing the trade deficit to skyrocket. exports are shrinking. Trump's tariffs have jacked up consumer prices for everytjing from coca cola to cars.Republicans are a clueless lot.
5
I don't debate economics with Paul Krugman and there is nothing in this op-ed I will argue except I am able in my anonymity to postulate that Trump voters did not vote to make America great again they voted to destroy an America that makes them angry and depressed.
I love America and have lived in both red and blue America. Economics is not America's problem.
Trump was hired to destroy what little life was left in America's soul and he is succeeding beyond all expectation.
I have often said; be careful what you wish for.
Trump may be so successful in destroying America that you have no choice but start over with a definition of what you wish to stand for.
18
Thank you, Mr. Krugman, for pointing out how hypocritical the Tea Party and Republicans are when it comes to the deficit. Mark Meadows and his clones should be put on the spot in every election and made to answer for their goofball claims about how "immoral" it is for the government to spend more than it collects in taxes.
The American public needs to understand how ignorant these positions were and are - and more importantly, how little the people making these claims understand about what's good for this country.
5
I got a can of three tennis balls today for $2, just about what I used to pay nearly forty years ago. Made in China, put into a pressurized can, transported across the ocean, unloaded at an American port, trucked to my city and stacked neatly in my neighborhood sporting good store.
I have no idea how this is possible.
Nor do I understand how it is possible that we can run a half-a-trillion dollar trade deficit, year after year, and pay for it with some 'paper.'
I wouldn't mind paying fifty cents more for the can of tennis balls if it will solve a problem but Dr PK tells me that there is no problem here.
Thanks.
1
@SV
That “paper” otherwise known as money is a certificate of value. Usually given to show labor was done. So, we exchange proofs of labor in this modern economy.
Then you throw in banks & stock trading: interest rates and investments and those proofs of labor grow by betting on future labor or growth.
It’s not random paper. It’s proof of labor or growth. Just easier to transport.
2
@SV Your tennis balls wouldn't be $2.50 if they had been made in American all these years, they'd probably be $20 more. At least. And they wouldn't be made by some work for the union label person. This wouldn't be a job that paid a living wage that provided a person a chance to build a life.
That's the real problem. Yeah, I know one can live without tennis balls, but what about more needed items?
1
'Trump really has no idea how international trade works...' nor does he listen to people who do.
President Trump practices snake-oil economics, more precisely, he follows the alchemists' dreams who sought to turn lead into gold - except he seeks to turn tariffs into wealth and deficits into assets. All he needs is a wand, a pointy hat festooned with stars and an audience willing to suspend disbelief for the promise of riches beyond imagination. Naysayers beware else they face insult and punishment from the pointy end of his magic stick.
5
Ignorant People Elect Ignorant Leaders, Ignorant Leaders Destroy the Country. The ignorances of the masses is the single most dangerous threat to existence of the United States of America as founded by our Founding Fathers. And we are witnessing the openning act right before our own eyes. While there may be no Trump Administration in 2020, but the 62 million Americans who could imagine that a Trump like person could indeed save them and this country from misery will still be here well passed 2020.
9
So why did Trump do all this tariff stuff? Is it more of a distraction? Endless fights for him to engage in? More transactions to personally benefit from (staking one industry against another for the highest bidder)?
We all know these are stupid ideas promoted and implemented by deplorable, evil people. So what's the real angle?
3
It's difficult to decide which is dumber; a man who goes broke running a casino, or a party that couldn't come up with anyone better to lead it.
Which leads to the uncomfortable question: how did they end up in charge, and why have they been getting away with it for so long?
6
Republicans always ruin the economy, the Dems leave a surplus. Denigrating the opponent for the thing he does, like lying or running up the deficit, didn’t start with Trump. He just took it up to a whole new level.
5
As Dr. Phil says, "future behavior can be predicted based on past behavior." I have a bridge to sell and will throw in some land in the Everglades to anyone who actually believed that businesses would take the tax cut and invest it. It is frightening and insulting that Republicans think that the electorate is dumb enough to buy their snake oil.
1
@Janet
I agree fully to your statement, however, due to apathy and laziness, look who got elected! If there is to be a shift for the better, the Dem's need to put forth someone who can communicate that they will work across the aisle to make life BETTER for all US citizens and who will speak bluntly about what happened (and is happening) with regards to how the GOP is using fear mongering and lies to enlist the ill-informed "base" as their soldiers (but still keep them under control by stifling them at the same time).....It's truly amazing what has happened to this country. America has always been great. Sadly, many people of the GOP base feel that "their" America needed to be great again. That America does not and should not exist any more. Times have changed and humans have progressed in many ways for the better. The base needs to come to terms with that and take a step up. Fear, greed, racial phobia's, are just ways to control the ignorant. Sadly, it worked.
1
But almost half of Americans did, and do, buy the snake oil.
1
"Trump really has no idea how international trade works." Of course not. It's possible to train a golden retriever that loves to learn how to do field work. It's impossible to train a willfully ignorant narcissist who loves only himself how to do anything.
So, in selecting a friend to work with, it's only sensible to choose the golden retriever.
6
As certain as the sun will rise in the east and set in the west, if the Democrats are successful in the 2020 Presidential and Congressional elections we can expect Republicans to once again disingenuously raise their hypocritical hackles over budget deficits. They are the party of no shame, no integrity, and utterly no morality.
4
This fact, “Trump really has no idea how international trade work” is one of many facts that were easily ascertainable prior to electing the goon. Trumpism: using hubris where competence is required.
4
Krugman is torn between competing concepts here: Krugman wants to point out that trump is, as usual, a fraud and a faker in his claims that he knows how to and will reduce the deficits. This point is accurate and valid. But Brother Paul K. has a peculiar mental deficit in that he always wants to say 'Deficits almost don't matter.' It's just not true, ask Greece, ask your 20 something kid who has maxed her/his credit card and is now begging you to 'help him/her out'.
3
Trump's history of 6 bankruptcies should have told us ALL his lack of smarts about anything.
6
Mr. Krugman is too restrictive in saying "Trump really has no idea how international trade works." Trump has demonstrated time and time again that he doesn't have any idea of how anything works!!
3
People are forgetting that:
1) Trump is not in it to fix anything. He is simply focused on making money for himself.
2) Every action can probably be justified by someone or company tied to trump making a killing behind the scenes (for example by shorting stocks/bonds) before it is announced which quickly moves the markets.
3) Once the scammers leave the white house I'm not sure SEC will have enough time to sort through all the financial shenanigans happened during their time.
4
"But Trump's twin deficits show that his party has been lying about its policy priorities...."
This is a crucial point. Today's Republican party is a cabal of devious liars, proud to have one of the most pathetic and ludicrous liars on the planet as their standard-bearer.
The GOP has committed intellectual suicide. President Trump is exhibit A in support of that statement, although he is not the cause.
4
Great points in your article, but let's try to decode it a bit further. Deficit this, deficit that, lie this lie that, Tweet this, Tweet that, blame this, blame that... and we all get very distracted and numbed with all the persistantly confusing messaging from our President.
What on earth is all the churning of information about?
In the malase, I'm wondering what part of the national treasure is this White House out-right looting. Like, after he's out of office we'll find out that billions from the US Treasury were transfered to accounts in the Bank of Cyprus or some other money-laundering haven.
And you have succumbed to the master of confusion.
We are enduing this Trump prescription for a trade deficit because it was, at random, one of the Macroeconomics101 lectures he actually decided to show up for when at Penn.
1
Prof. Krugman’s writing sometimes leaves me confused. For example, what is meant by this quoted phrase?
“prices received by foreign exporters haven’t gone down”
1
Trump and republicans lying about budget deficits and economics? Who'da thunk?
3
capitalism is about to suffer its third catastrophic failure in under 100 years.
2
The phoniness of the Republicans has indeed been obvious all along. It remains to be seen whether or not our society can survive this level of corruption. The time has long past to get rid of them. All of them. We must all go to the polls and vote against them at every opportunity. Don't let them cheat us with cheap dirty tricks again. And we must avoid fighting among ourselves. The stakes are to high. We need to get together instead. That means we must learn to tolerate people with different opinions. Did I mention that we all need to show up and vote?
1
Trumpism has exposed the fake claims of the GOP across the board, from budget deficits, to patriotism, to separation of church and state, to our democracy and Constitution in general. With those stripped away the GOP are left with racism and tax cuts for the rich.
1
Clearly Trump is totally clueless about his signature issue, having never had any experience with international trade, or the effects of tariffs, or the negatives of deficits. He claimed to be the king of debt, after all, so he must have thought deficits were a good thing.
But let's not forget, he's completely ignorant about his other signature issue, the Trump Wall, which has also been an utter failure. It wouldn't prevent any illegal immigration if it ever did get built, but he apparently also doesn't know about the Rio Grande, or all the private property that would have to be seized to build his silly wall.
So yes, Trump is ignorant, incompetent, and a total failure. But there's one thing he's great at, which we should all give him credit for, and that's cheating on his wives. No other president has ever cheated on more wives than Trump, much less paid as much to try to keep the affairs quiet.
2
Smoot (R) and Hawley (R) were the tariff men behind the infamous 1930 tariff act signed into law by President Hoover (R) that pushed fast the US and world economy into the Great Depression.
Cluelessness and ignorance at the top are nothing new in the GOP and can be damaging even to great nations.
3
A couple of omniscients observing America from above might have a conversation like this:
O1, "What are those people doing down there."
O2, "Looks like they're running a stress test on their economy and democracy."
O1, "What? Intentionally?"
O2, "Yeah, they did that a few years ago to their banking system."
O1, "Why would they enact policies and programs that are contrary to their best interests? At the same time they inject into their country healthy doses of fear, political corruption, civic dismemberment and demagoguery. Are they mad? What do they hope to learn?"
O2, "How not to do it?"
2
Wait, Trump doesn't understand the effects of tariffs?? What does he do all day, watch tv?
2
I think it's safe to say that you could fill a thimble with the stuff that tRump does understand. That which he doesn't understand and is, to boot, woefully incurious about could fill the oceans.
1
Your colleague, David Brooks, wrote in a column, maybe ten years ago, that it takes about 10,000 hours of plying your craft to become really good a it. So, ignoring Pres. Bonespur's complete lack of intellectual curiosity, basic intelligence and ability to consider the advice of experts, there's no reason to expect any other outcome. The number of candidates vying for the presidency who also lack this 10,000-hour benchmark also gives me pause. The presidency is no place for OJT.
1
Please, Mr. Krugman, the President's vast experience as a multiple bankrupt and his many years as a game show host will serve him well in the end, and he will right the ship of state.
2020 issue. Do we reelect a tax and spin President?
Tariffs are a fee paid by the importer for access to the U.S. marketplace. Access to, and utilization of, this marketplace has innumerable costs associated with it in terms of social costs, economic costs, infrastructure costs and the costs we must bear in terms of, say for instance, global warming - resulting in part from the unregulated pollution stemming from the production of goods destined for the U.S.
Tariffs are not a tax on the consumer. If they are, where exactly is the collection point for these taxes? Who is the collector? And what is the actual rate the consumer pays on a tariff?
Yes, international trade is profoundly complicated and there are many unintended consequences that come about as a result. One of those is a very real perception by enough voters that free trade and unrestrained imports are costing them their livelihoods and or affecting their lives negatively. Then they vote for a man like Trump or Sanders, who promises to help them. Then our Betters tell us what idiots we are and how we simply don't understand. And then we go out and vote for someone like Trump or Bernie again.
Ain't democracy grand!
1
“Trump really has no idea how international trade works”.
Why would international trade be any different than the legion of other things he’s willfully ignorant of?
2
Survival depends on how long the dishonesty and ignorance continue.
1
Why so surprised in any of this? Does anyone know the guy's history? Do you have any memory of his antics at all? 4 bankruptcies. Surviving them either via daddies money, or oligarch monies from unnamed sources (heh). This proves that he's a second rate business man, though a first rate con man. This is the essence of the man known as Trump.
But let's not let the Republican Party off the hook in this. They have enabled the man's behavior. In failing to do their elected job they have waltzed all of America into a kiting of our debt to levels beyond Pluto. A debt the interest of which will be the size of our ENTIRE MILITARY BUDGET by 2025.
They indulge the privileged class with unneeded favors. They are just as bad as the con man they support. All of 'em need removal from their job positions. And right now would not be soon enough for me.
John~
American Net'Zen
1
It may survive ignorance but like global warming, past a certain point it can't survive moral decay.
2
Trump doesn’t understand economics? Shocking!
1
A “great” country has two political parties of which one is the party of Trump, spewing sulfurous, venomous propaganda to rule through criminal enterprise. 65 million voters were defrauded in an election by this criminal enterprise, and this is not the first time. We, as a nation, have been debased and diminished in incalculable ways. Just when you thought the murderous sins of the Bush administration could not be overcome, the Republican Party embrace Donald Trump not for his moral and intellectual leadership, but for the exact opposite. His presidency was predicated and built on destruction, greed, and a White Christian national cosmology. Bar none the greatest threat to American democracy and world security is the Republican Party. The great dilemma we face
2
Can somebody pay for a series of ads on Fox News,, explaining that foreign countries don't pay Trump's tariffs? And how Americans do.
Maybe get that cathing cowboy to front them.
2
It makes no sense to run up debt. Eventually it will come crashing down on us. Experts, like Dr. K, are wrong all the time, they just know how to hide their mistakes under lines of gobbledygook. Look the value of the dollar, at one time, was backed by gold now it is backed only by confidence. Once the world thinks we can't pay back our loans the dollar will crash. The stock market is the same way. Their value is basically backed by nothing but confidence in the fact that if the company's profits go up so do their stocks. Again once people think that won't happen the house of cards will fall. I am just waiting for that day to happen. And it will.
2
@Rick - Then you’ll be happy to repeal the tax cut we just received? What about raising taxes to pay for our debts? Curbing military spending? Investing in domestic job creation through innovation?
4
@SDemocrat. Absolutely. It is immoral not to pay for things we use. I am for a balanced budget amendment. Our military is plenty big. Innovation, in the end, is a good thing. Think progressive, not regressive.
1
The idea where we have to pay the higher price for tariffed goods and also the subsidies for farmers and industries hurt by the same tariffs seems like a wonderful way to run the economy!
4
This is unrelated but relatable sneaky little item I just witnessed this week that irks me. (Full disclosure- I am pro real immigration for the same reasons I dislike this tax angle). I went to a ski area in Vermont. I had not been there in decades. I noticed that the super majority of employees in basic functions such as food services and housekeeping at the resort were from Philippines and Jamaica. These staffers are seen all around the restaurants and hotels at mountain village - but not in critical operations. They were so pleasant and happy to be here. I asked about their employment. They come as ‘temporary visa employees’. They are happy for the one-time opportunity for several months ( ski season ) , then return home country. They are NOT resident immigrants, not on a path to Green Card. They are essentially Guest Workers.
What I learned financially: 1. They are paid at close to minimum wage but that is much less than the prevailing pay scale at the resort town. 2. They have to pay for their dormitory out of their paychecks. 3. AND the KICKER based on my research - the FICA , also known as the Social Security and Medicare taxes of 15% which all of us pay as wage earners is EXEMPT for the guest worker and the employer ! Neither side is contributing to the system. So the foundation of the system for us to have others pay in who work is the USA is being undermined by the resort by virtue of the tax code.
5
Trump is a (very) old-fashioned Mercantilist.
He thinks all trade, like any other 'deal', is a zero-sum game.
5
There’s no doubt that Trump is out of his element on these subjects. He has no idea about the complexity of the economics involved. But surely he’s taking his cue from his advisers. Miller, that Leitgiser (spelling wrong) guy, the other man whose name I can’t recall - they are the ones who drive the train and haven’t a clue.
2
"After all, that big tax cut for the wealthy reduced national savings." I'm confused. I thought that deficit dollars, dollar for dollar, increased savings in the non government economy. And that is an accounting identity, not an opinion.
@Chris Herbert
Increases in the deficit do increase private saving, but unless one makes the extraordinary assumption that the boost to private income from the wider deficit has no effect on spending, this gain will be less than the deficit increase. Total saving (private plus the deficit) in the economy falls.
1
I truly believe that the Trump regime and its Republican allies in Congress do not -- and never have -- cared one bit about the impact of their policies on the vast majority of Americans, including those who also call themselves Republicans.
The GOP economic policy that tax cuts eventually lift all boats is a proven failure. But to Republican leaders, so what, as long as their wealthy benefactors at the top of the income ladder receive generous, if not obscene, tax cuts. Those are the people who benefit, while the rest of the citizenry is left to pound salt.
The accuracy of this comment -- the truth of it -- is demonstrated by a simple point: if Republicans really cared about addressing the pressing needs of society, they would never ride the bucking bronco of tax cuts. Why? Because they know in their hearts that without government revenue, programs to help the majority of voters will wither like grapes in a blizzard.
In other words, the Republican Party, like its titular head, is a complete and utter fraud.
23
I listened to Larry Summers yesterday. He had a sophisticated yet very tight analysis and view. He says federal spending deficits and the concurring debt growth are not the crux. Rather he posits: Because of the shift in income and wealth to a concentrated top tier there is MORE saving. The reason being - the wealthy only consume a bit more than an average person in US. So by equation, their excess income is saved. Then, because of such a large amount of capital available , they buy stocks and bonds. The demand for bonds drives DOWN interest rates. Then the lower interest rates drive up investment because loans are cheaper. However, the borrowing and investment is in the hands and for the benefit of the narrow wealthy cohort. Hence, the large average earners do not grow along side the top tier. Whereas, IF the federal government were to spend on infrastructure ( which it is not ) and provide a better even income basis for the lowest earners via minimum wages and simplified basic income assistance, the tide to raise more folks would be less choppy.
7
Mr. Krugman rightfully puts the blame on the Republican party for our astounding, shameful budget deficits.
Yet for all intents and purposes, the Republican party no longer exists. It died, or was murdered - take your pick - on May 26, 2016, when it abdicated to the Trumpian Party.
And what a party it has been if you're in the top 1%! Or even the top 10%.
Make no mistake about it. The Republican Party of Lincoln and Teddy Roosevelt no longer has a heartbeat (not that it ever had a heart).
Whether Trump wins or loses in 2020 is irrelevant in American politics. Trump will continue to order and control everything the ex-Republicans do, every person who runs for office, and decimate politically any who oppose him.
So Mr. Krugman's thesis that the national debt is irrelevant is correct. The guilty party who set the record for the most debt ever is dead and gone forever.
10
It is even worse than you think. Economist and Boston University professor Larry Kotlikoff says Social Security, Medicare and Medicaid are not fully accounted for in official number crunching.
These accounting shell games mask the actual debt, says Kotlikoff.
What is America's actual debt?
Over the next 75 years, Kotlikoff projects America's true debt at an intergalactic $210 trillion.
"We have all these unofficial debts that are massive compared to the official debt. We're focused just on the official debt, so we're trying to balance the wrong books...
"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $210 trillion. That's the fiscal gap. That's our true indebtedness."
Yes, deficits don't matter until you need to pay them off. Look at history. The consequences are disastrous.
4
@Mark
People who look at long term obligations without looking at long term revenues should all be forced work for the U.S. Postal Service, where they would soon learn how deceitful that argument becomes.
Over 75 years the U.S. Treasury will take in over 300 Trillion dollars at just today's level of taxation.
@Mark: Debt gets monetized when the Federal Reserve Bank buys it under the policy called quantitative easing.
Maybe Trump has made U.S. products less attractive. You don't want to be seen in Europe driving a Cadillac SUV..
7
The problem is not that the Republicans do not care about deficits. The problem is that the libertarian wing of the Republican Party ( the majority in control) wants to reduce government revenue dramatically because they believe in the doctrine that government only has a narrow range of legitimate functions and those activities are do not include the typical characteristics of a modern state. Those programs that they seek to delegitimize include health care, social security, educational support, and generally supporting those Americans at the bottom of the economic system.
As examples of these positions, consider the “ no tax increase pledge,” the price the first President Bush paid for breaking his no new tax pledge with a modest tax increase, and most recently, the Trump administration’s phony popularism. The program is to reduce government revenue, increase the deficit while promising that tax cuts will pay for themselves, and keep lowering the effective tax rate on businesses and the wealthiest Americans. They will insist on balancing the budget by cutting programs, not ending loop holes in the tax system, or higher marginal rates.
4
News Flash ? He was always deficit man. OPM man. All that Trump does is on the backs w Other People’s Money - be it his Dad’s to start, banks that lent, selling his name as licensing fodder on projects or NBC to campaign finance and federal spending. He has no skin in the game, so failing to pay back is no injury to him. He projects that ethos.
13
So why does the average citizen fail to understand these broad, economic fundamentals? Why do they continue to vote for GOP lies about the economy? Why do they fail to see the pattern of talking points and behavior the GOP spout when we have a GOP-led government v. a Democratic-led government?
The GOP uses short, catchy phrases that stick in people's minds while all else goes out the window. How do we change that conversation?
8
@June They also have limited access to radio and television other than Fox and other illusion-peddling services. If you hear only one voice, over and over again, you will tend to believe what it says.
6
More interesting than the fact the Republicans are lying is why they are lying.
It seems pretty obvious to me that the tax cuts were actually designed increase the deficit. Running these deficits will enable the Republican party to claim that cuts to social programs must be made to pay for them.
The debt? Well, that's just plain incompetence by the trump administration--which congressional Republicans are happy to go along with, as it too, serves their purpose.
18
Trump has turned the rich's double whammy into a triple whammy:
1) the rich got a huge tax cut
2) the corporate tax cut was used for stock buy-backs which transferred that money to the rich
3) the rich then lent the money they got to the government to pay the debt and now get interest payments from Uncle Donald for what should have been their tax bill, which they now claim as their principle
Smooth...
12
I am enjoying all the various wonky comments to this essay.
It reminds me that there are allot of folks out there who still know how to think for themselves.
7
"But in normal times they don’t reduce overall employment, nor do they make us poorer."
There is a strong correlation between trade deficits and economic inequality. Both started increasing dramatically around 1980. Many of our economic and political problems can be traced to inequality. So unless we redistribute the capital account surplus that results from a trade deficit, American workers are getting a bad deal.
3
Perhaps, as you say, the US can endure a period of "dishonesty and ignorance at the top", although for how long remains in question. But can it endure for any period of time pervasive dishonesty and ignorance, especially when combined with a loss of ethics and respect for first principles? We're currently in the process of finding out.
8
What can expect from a guy who probably did get more than 1100 on his SATs
1
Supply side has always been a con.
Tariffs are taxes on Americans, paid for by Americans
Trump promised to cut deficit and trade deficits.
He did not.
Ignorance ain't bliss
earth to Media, deficits only matter when tehre is a Dem
in White House.
35
Can't run government like a business. Government is set up as a non-profit service organization.
It is also the only organization in our country that can just print it's own money. But, with the
debt we already had, passing the Republican tax bill with it's tax reductions, was just nuts, and
is the precursor to the Republican's real goal of going after Medi-Care & Social Security.
82
That’s the function of global value chains. To import value in the form of products mostly made in countries of the global south. Surpluses in the form of money that either gets parked in shelter islands for further reinvestment or they can buy US bond thus expanding debt and the whole cycle that leaves profits for the transnational corporations. That’s been the story since the late 1980s. It leaves handsome profits for few, cheap subsistence goods for workers here to be bought with stagnant wages, and a well oiled machinery of global production and distribution. However there is a limit. Slowdown in Asia and the rest of the world will be the test of that limit
8
How to win back W. Virginia: We need major investment in renewables (green energy). A carbon tax will initially fund it. Put the renewable energy jobs in economically depressed areas. A tax to fund with directed investment could also stipulate mostly American made, a real national security issue. If you haven't noticed, the rest of the world talks, but there has been no change in carbon pollution levels, except up. The U.S, needs to lead here, a government sponsored program that drastically cuts carbon pollution going into the atmosphere that really works, so that China, India, and other nations can follow. This also needs to be the major agenda of the U.N.
A tax that will also reinstate manufacturing jobs in depressed areas, and provide service/installation jobs nationwide. Plus cheaper electricity where everyone benefits. With this plant trees, and fast. A tipping point is approaching. (Don't know what this is--learn and teach 5 other people)
13
@loveman0....When the US economy opened up to Chinese imports in the 90s, it lead to massive growth in Chinese greenhouse gas emissions. China is now the leading emitter, accounting for more than 25% of global emissions. Global warming is another consequence of free trade.
5
@Schrodinger What you are referring to isn't "free trade," it's development.
"According to the World Bank, more than 500 million people were lifted out of extreme poverty as China's poverty rate fell from 88 percent in 1981 to 6.5 percent in 2012, as measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms."
https://en.m.wikipedia.org/wiki/Poverty_in_China
10
Shame St. bernie and Trump trashed TPp, then, eh?
Something doesn’t add up in the article’s hypothesis— the personal savings rate in the last five years has actually INCREASED from 6.4% to 7.6%, yet trade deficit doubled in the period.
4
RSSF 1. Savings RATE is not enough to assess the AMOUNT of savings (same way as an increase rate of your salary does not say whether you make enough money - you could be doubling your income but still be barely able to make it to the next check). 2. Notice, that the article refers to both private AND public savings.
18
@RSSF
Check link. He provides in article. However, the idea is that we overconsume relative to savings, which disguises the reason production was shifted from the north to Asia in the 1980s. Deficits play a role in maintaining corporate profits
5
@Enri "Deficits play a role in maintaining corporate profits"
Deficits are the symptom of excess profits bloated by reduced federal tax rates on personal and corporation income which continues to cripple the economy with debt which burdens the wage earners to repay.
2
Deficits only matter to Republicans when there is a Democratic president. Prediction: the economy will slump, Trump's poll numbers will slump with it, a Democrat will win the presidency in 2020, and then Republicans will howl about deficits again. What I can't predict is if Americans will fall for it all over again.
92
@DB Yes, Americans will fall for it again. We are not trained economists and the Republicans make simple minded arguments, like "what would happen to your family if you spent continually more on things and services than your income?", fear techniques such as "America will be Greece if these deficits continue and bankrupt", and when they want to inflate the deficit, they will say "It's your money, not the government's money, so we will lower your taxes". On the latter point what they do not say is that the government will then provide fewer services, fewer teachers, fewer policemen, and a push to lower social security incomes.
32
@DB They usually do fall for it again, after a Republican president cuts taxes and makes everybody happy (except Dr. Krugman, who knows what they're up to), Then the Republicans start talking about how they'll have to cut what they call "entitlements" and voters worry about their Medicare and Social Security, and elect a Democrat, who has to raise taxes to bring down the deficit. But he raised taxes! so the Republicans get in again. Lucy and the football...
43
I think it would be helpful if Dr. Krugman could explain the various ways that a trade deficit can be reduced, as that is important to reducing our budget deficit, based on the national income accounting identity he references.
Other things equal, the larger the trade deficit, the larger the budget deficit, as we don't want a net drain on the private sector (the trade deficit is a net outflow from the private sector, the budget deficit is a net inflow to the private sector).
The Peterson Institute recommends three options: 1) Saving more, rather than consuming imports; 2) A weaker dollar; and 3) Taxing to make borrowing from abroad more expensive; such borrowing is required to fund the trade deficit.
Other ideas?
2
@David Doney There are other methods of reducing the budget deficit, like, um, raising revenue? Like reversing huge tax cuts?
The US undertaxes as a share of GDP; running an advanced OECD country is expensive, especially when combined with hegemony.
https://data.oecd.org/tax/tax-revenue.htm
9
@David Doney
Budget deficit can be reduced by reducing Agricultural Christmas morning subsidies, eliminating the Trump tax cuts, instituting substantially higher 70% marginal tax rates on income of $1M and over, eliminating the social security payroll tax ceiling.
Typical austerity measures (spending cuts) employed by the British have pushed that country's people into creating higher lack of education levels coupled with near poverty levels and substantially reductions in tax revenue receipts. The British austerity is a good example of what not to copy. Typical higher income tax rates on millionaire and billionaire incomes employed by Nordic countries has lead to pulling substantially all their country's people's into an educated and tax-paying middle class. Those tax rates have now been more evenly spread across more taxpayers, including the middle class, as family wealth has become more evenly distributed.
28
@David Doney
Raise taxes, eliminate loopholes.
2
Trump was elected President by a relatively small margin of voters in PA, MI and WI where many jobs have been lost due to foreign competition. It may be academically correct to say the trade deficit is equal to the investment rate minus the savings rate but to someone who used to work at a manufacturing plant making stuff that couldn't complete with similar products manufactured in another country, Mexico or China, e.g., the problem with the trade deficit has an entirely different meaning. And it's also true that some American manufacturers have moved to China and Mexico for much cheaper labor. If the Dems stand a chance of turning those voters around so that the dummkopf in the White House can be replaced in 2020, they are going to have to come up with a response to that situation. Hilary offered retraining. That didn't cut it.
7
There are reasons Hillary’s retraining plan didn’t cut it other than being unattractive to workers in MI, PA, and WI. For one, it wasn’t covered much by the media. You know, the emails. And Hillary didn’t pay attention to those states the way she should have. In short, it’s not clear how many workers even knew of her proposals.
13
@lester ostroy
While it is certainly true that manufacturing jobs in many of those areas have declined, and jobs have been moved outside the country, it is not the case that that process can be easily prevented.
Local politicians have offered tax savings, unions have offered givebacks and yet the process continues. One major factor is productivity makes manufacturing need less,workers. Another is that employing as many workers requires new customers in other countries, and those customers can’t afford products produced with expensive American labor.
So, what’s a company to do? If they manufacture here with expensive labor, they can’t sell enough to keep the jobs. Even if we could force Americans to buy them, consumers in other countries will buy competing goods produced elsewhere for less.
The solution to this is not to keep doing things the same way. Those manufacturing economies need to be converted to ones whose services and goods can be sold competitively and produce a living wage. That means moving those economies away from coal, steel, auto parts and air conditioning compressors, and toward software, healthcare and high value manufacturing using automation.
That will require more education spending and more people going to school for longer and encouraging more startup development.
Donald Trump pandered to the pain, but he is selling snake oil and he will just delay action that must be taken and make them more angry and poorer in the process.
34
@Jeffrey M. Wooldridge
There are about 76,000 employees (miners & administration) in the US coal industry. Simply paying all of them an average of $50,000/year to just stop would cost $3.8 billion annually. (That's 0.017% of GDP.) Their average age is almost 50, so transitioning them to Social Security lowers this amount every year.
The Trump tax cuts costs about $250 billion per year.
https://www.washingtonpost.com/news/wonk/wp/2017/03/31/8-surprisingly-small-industries-that-employ-more-people-than-coal/?utm_term=.af40d56c6f81
21
What Kurgman seems to be suggesting is that domestic savings, will increase amount of private capital in the hands of the working class, and middle class, and small business owners, and thus do the opposite of what the tax cuts did, by driving down the budget deficit; and at the same time such domestic savings tends to drive down the trade deficit. Is that what he is saying ?
Neither party cares about debt & deficits. But don’t blame the 2017 tax overhaul for this latest jump in the deficit. Nominal tax revenues are essentially flat. It’s federal spending that’s driving the deficit. Pelosi has a second chance to end deficit spending. She promised in 2006 to end it - instead she tripled it. Let’s see how she does this time.
1
@Once From Rome
Sorry, no. Spending and tax income are two sides of the same scale. If revenues (taxes) go down and spending remains constant, the outcome is deficits. If the all-republican Congress didn’t want to reduce spending, why did they reduce income? Leave Pelosi out of it.
53
@Once From Rome
Like flat wages?
if we were more successful we would be increasing our tax revenue.
4
In virtually every major previous tax cut since WW-II (JFK, Reagan, Clinton, W. Bush....), tax revenues in the year following the rate cut initially declined then they rose thereafter as the boost in economic activity kicked in.
With Trump’s cuts, nominal revenue barely declined. Moreover, hourly wages rose last year at their fastest pace in two decades. So, revenues were little-affected and wage & economic growth clearly accelerated last year. Your complaint is false & meaningless.
Pelosi is very relevant here. She promised in 2006 upon becoming Speaker the first time to end deficit spending - the House after all controls appropriations. Instead she quadrupled it. Now she’s Speaker again - if she’s serious about doing the right thing fiscally, then cut spending & balance the budget. Paul Ryan certainly was not serious about this - demonstrate that to America.
1
One reason that Republicans have harped and harped about the national debt and deficit spending for so many years is that doing so appeals to the ordinary "common" sense of voters. It seems logical to apply the standards of running a household to the government, whether it is or not.
Farmers, who borrow money to plant their crops and then pay the money back at harvest time, know what happens if the crops fail and they can't pay. Of course, none of this anything to do with deficit spending by govt., but it sounds good and that's all you need in politics.
The massive Trump tax cut, in addition to be a big wet kiss for the rich and mega-rich, was intended to give a boost to an economy that was in good shape anyway. It was also part of a long term Republican plan to drive the federal enterprise into bankruptcy, or as close to it as one could get. If the govt. were truly hobbled, business would not have to worry about higher taxes, any sort of regulation enforcement and never a thought given to expanded social programs. Heaven!
When you look at the simple test for Republican efforts, Who benefits?, time and time again you can see they never stop steering toward getting more money and advantage for those in the top 20% of earners and wealth holders. That's the whole game. Moreover, they would have loved a true depression during Obama years because the whole thing could have been blamed on the Democrats, allowing them to capture power for three to four presidencies to come.
52
@Doug Terry You have given a fairly accurate description of the republican 50 year plan, it is this: Starve the legitimate government, except the military, transfer the existing wealth largely to an oligarch class which will be protected by the military, and have the rest of the population available to service the oligarch class. It's really that simple.
72
@Paul
Low wages could be seen as part of the formula: when people can barely make enough to get by, most will take whatever job at whatever conditions prevail. Desperation in other words.
5
I made an earlier comment in which I stated that the US can run budget deficits forever as long as inflation plus economic growth exceeds the rate of interest rates.
It is completely wrong however to suppose that deficit spending is free money. Eventually it must be repaid. It is paid in the present by lower interest rates for savers. In the future, large deficits may make it difficult to fund rebuilding after a major national disaster, such as a hurricane destroying much of Miami, for example.
Krugman is correct that lower taxes for corporations did result in more buybacks of stocks and higher stock prices, which increases the gap between rich and poor (because poor people don't own stocks).
Moreover, it is also true that Trump has been dishonest in his portrayal of what might be accomplished by engaging in a trade war. Tariffs usually cut down the economic growth of both countries involved.
Sadly, Trump has not hired a competent cabinet to advise him on various policies including economics. Thus he enters negotiations with Xi Jinping believing that he is great at "making deals" but with no competent advice on economics.
You can bet that Xi Jinping has competent economic advisors.
So the expected outcome of negotiations with China are not that great.
We can hope that Trump doesn't do too much damage to the US economy. And economics is only one of Trump's failures.
Democrats should impeach and convince enough centrist Republican Senators to convict.
29
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries."
I like your work but this bit kills me. The concept of attaching savings to trade imbalance escapes my understanding.
2
@Geoffrey Heise I think what Mr. Krugman means is that because people in the U.S. tend not to save much, instead using their earnings to buy all sorts of things, including imported goods, which drives up the trade deficit.
If we saved more, we'd have less to spend on imported products, and the trade balance would be more equal.
18
@Geoffrey Heise
Krugman is referring to a text book economics relationship specifically the National Savings & Investment Identity. This is neither a liberal of conservative framing.
As a Nobel in economics with a global podium. Paul could go into concepts like this one in more detail.
I would also have him update the Kuznet models (another Nobel winner) of the mid 20th century to the technology realities of 2020.
12
@Gregg If I remember my Econ 101 correctly after 50 years, a lack of domestic savings drives up the rates U.S. companies are willing to pay for capital, which attracts foreign investment, payment for which counts "against" us in the balance of payments. Hence the relationship between lack of savings and the payment deficit. IIRC.
1
And even the Trumpian trade war has probably done only limited economic harm; the main damage is to U.S. credibility.
The latest fallout from Trump's excellent adventure of trying to to get the best of the Chinese in a trade war - Canadian canola, now banned for export to that country over supposed contaminants - When the cost of the Trump administration is finally added up it shouldn't only be calculated in US national treasure, but futures ruined beyond repair no only at home, but all around the world.
9
This is a good essay by Krugman, except for its partisan tone.
Federal debt does matter. It is of course true that if the interest rate is less than inflation the government can borrow forever, and the new debt simply inflates away.
And the Federal Reserve actually controls short term interest rates and has therefore been able to keep deficits from becoming a problem. At least so far.
For the last decade the Fed has kept interest rates very low compared with inflation. Even after the Fed tightening during the last year, 10-year treasuries are at about 2.7% interest. Inflation is at 2%.
But the economy is also benefiting from technological progress. For example, the i-phone I buy today takes pictures while the cell-phone of 20 years ago didn't. And its easier to use.
The Boskin Commission decided to modify the measure of CPI in 1996 and lowered the CPI by about 1% per year to account for improvements in technological products and to allow for more product substitution.
If we used the old measure of inflation which does not take technological improvements into account the rate of inflation would be closer to 3%. This would mean the government is borrowing money at a negative rate of interest.
The low rate of interest is a hidden tax on savers.
It would be more healthy if government securities had a higher rate of interest. Then when a crisis occurs, the Fed would have more ammunition to fight it.
And people would have an easier time saving for retirement.
4
The funniest oart of this lies in, “has therefore,” as it gorgeously illustrates Krugman’s point.
The budget and trade deficits may not endanger the economy as you say, but there are facts that can be gleaned from them. Republican led manufacturing and finance have been exporting businesses and wealth for a few decades now which did increase the deficits. The trade deficit increased after manufacturing left and the resulting loss of tax revenue meant both deficits increased. If the exodus does continue, then there is a danger of economic loss and revenue loss, and perhaps that's why the tariffs were instituted to increase revenue here. In addition to a loss of business, wealth, and revenue from the steady exodus, there is a national security concern. Many common products are no longer produced here such that in the event of any political or military conflict, we may not have supplies to endure the event. Our production machines are in other nations.
While this business and wealth exodus was occurring, the Republicans diverted attention to distract from it and more so during the Obama years as they used the economy as a weapon. I actually believe Trump is trying to patch economic holes, perhaps incompetently, but trying.
The initial appeals were to repatriate business but that was unsuccessful in large measure.
So, there have been less exports due to a strong dollar and less revenue due to loss of business leading up to your point of lower savings.
We need to bring back our businesses before they are nationalized by host nations in conflict. It can happen.
2
I don’t really I understand international economics and trading that well either; that’s the kind of thing it takes years or decades of studying to understand. I didn’t do that. Neither did Trump. I, however, am smart enough to know what I don’t know. Trump is not.
119
Oh, he knows that he doesn't know. He is a sociopath for whom knowing anything is simply unnecessary to his project of self-promotion. What IS necessary, and at which he is masterful, is gaslighting and lies.
You cannot expect anything but lies from a pathological liar. If we have learned nothing else with Trump we have learned at least that much.
5
@Randall "I, however, am smart enough to know what I don’t know. Trump is not.". That's the whole story. Stupid people don't know they are stupid!
4
One of the most subtle corollaries of a trade deficit is that foreign markets pay a considerable real price to maintain a trade surplus with the US.
They lend money at par when they redeem their USD and buy US treasuries or other government debt instruments (it's either that or FDI, what else can they do with the money?)
As the government prints more money to support the booming economy that is simultaneously running a fiscal deficit, the greenback depreciates in real terms.
So for the privilege of running a trade surplus, an exporting country has to accept discounted USD in return.
Now, look at China, and Trump's criticism of it as taking advantage of the US. Who is taking advantage of whom here?
America gets inexpensive, almost subsidized goods tailored to the price and quality they want, and gets its deficit financed so it can live beyond its fiscal means year after year, and the US pays for this privilege with money that is worth less than the money it borrowed.
China and the other nations that offer a trade deficit to the US are doing it a huge favour. For that at least, American should be grateful to China, instead of putting up trade barriers.
And as far as the steel, aluminum, and softwood tariffs on America's dear and loyal friend and neighbour to the north, well, that's just plain shameful.
19
@Econ John
You are confusing balance of trade (which is in goods and services) with balance of payments (which also in financial transactions).
We run a trade deficit and lose jobs. But there is no reason to assume that China or other countries are paid back in devalued US currency. You might be thinking of changing exchange rates, but there is no pressure on them when there is a surplus in financial transactions offsetting the trade balance. And the other countries like China are not losing.
They take their trade surplus (our deficit) and buy US assets (think big buildings and US companies) or loan the money to us to support the huge budget deficits, earning interest.
3
@Rocky
If China lends the US a dollar today, let's say that dollar can buy 2 Snickers bars.
Now assume the US continues to borrow, and continues to create more money, the dollar it pays China back with in 3 years will only buy 1 Snickers bar.
That is the price paid in the financial account by the exporter for the privilege of running a trade surplus in its current account with the US.
2
@Econ John
Why do you assume that the dollar will buy only 1 Snickers bar in 3 years? That is a baseless assumption.
The FED "creates" money, increases the money supply, to accommodate growth. If the economy increases 5% it requires a 5% larger money supply or the lack thereof will contract the real economy. It also increases the money supply enough to accommodate inflation, if not again it will contract the economy. The FED is accommodating inflation not causing it.
It can choose to not accommodate inflation - to not increase the money supply - but that will be recessive. That is the tradeoff between inflation and growth.
The writer mentions about the low savings of Americans when compared with others. The reasons for the same are
1) Stagnated salaries
2) No Government encouragement for savings. Practically no interest paid in the Banks and by the government bonds.
3) Only U.K currency is at a higher rate when compared with the American currency. As such the amount being repatriated by Americans working in other countries will be less by huge margin when compared with the Indians and Chinese working outside their countries. Moreover population wise America doesn’t come anywhere near these countries.
4) Trade tariffs have reduced the savings of Americans.
5) Huge college fee resulting in the huge loans etc.
3
@Sivaram Pochiraju
…..Or, we just spend too much money (much of it borrowed) on things we don't really need.
You convincingly say, "Let’s be clear: Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy."
I agree.
But, I believe, there is a clear, within this century, an increasing danger to the U.S.and the survival of our species from issues related to using coal, oil, and natural gas. The enthusiastic global market preference for the benefits of various technologies that have exploited these fossil energy resources are wreaking havoc in our human settlements and with our food and water sources.
Thus far, the investment capital created by the World economy has not yet been mobilized to evolve the World market preference for fossil fuels to provide sustainable sources of energy that have the potential to scale to the needs of the 10-11 Billion people expected by the Century's End.
A few of the gazillionaires are investing in fusion energy trying different approaches to creating the energy processes of the Sun, but Billions of $ have already been invested and it seems that it is unwise to put all of our eggs in this basket.
We should develop Maglev Launch technology to cheaply (only 1% of chemical rocket cost) place solar electric generating satellites in geosynchronous orbit to beam energy to Earth. Franklin Medalist, James Powell describes this system, which could deliver the energy for 10 Billion people for only 2 cents per kwhr in "Silent Earth, Will Humans Give Up Fossil Fuels" and "Spaceship Earth, How Long Before We Crash?"
7
It's not that Republicans don't like to spend money. It's that they don't like to spend money on social programs for people they don't know personally but see as being "below" them socially. Tales of one welfare queen a friend of a friend heard of once infuriate them to the point that they're willing to defund SNAP.
Wealthier welfare queens, say, the health insurance industry, they're plenty OK with.
149
@Andrew -- Here's the main difference between Republicans and Democrats:
Republicans only help themselves or people they know.
Democrats help themselves and help people they don't know.
The truest mark of honor and morality is helping people you don't know because you don't discriminate against others. Just because you don't know someone does not automatically mean they are undeserving of kindness and help and justice.
Republicans are constantly saying they are the family values and religious values party precisely because they are not that at all and precisely because they are the party of rapacity. It is precisely because they are the party of immorality that they are constantly doing damage control propaganda to counteract that negative image, and they do it by haranguing the populace lying 24/7/365 about how moral they are.
Republicans are only as moral as their mendacity is thick.
7
@Andrew
Full disclosure: lifelong Democrat here and now a Bernie/Liz 2020 type guy.
To be fair, both you and Chris's arguments make a bit of a strawman of some Conservative economists' positions. They don't hate poor people; on the contrary, they want to make them rich (work with me here, please).
They (Conservative economists, as I grok them) think Big Gov just crowds out investment and its heavy taxes make it very difficult for new businesses to succeed.
Yes, Big Gov provides a social safety net, but it, they reason, is part of the cause for them being necessary.
Big Gov makes no money; all real currency of value is generated in the marketplace. We need more real currency, not more unbacked pieces of green paper with pictures of dead presidents and statesmen on them.
Plus, Conservatives have a valid psychological point when they argue that a "real" job delivers more pride and satisfaction than a W.P.A. type of job, which, admittedly and objectively, performed many worthwhile projects -- but also some make-work jobs, which, granted, also have some value -- a paycheck.
Name-calling and insulting (Chris mostly) is unhelpful, even though I can see why it is often done.
An ideal Conservative would give generously, which, sadly, real Conservatives fail to do very often. Greed and selfishness are ubiquitous, which means Big Gov must step in, which fuels my Democrat self-labeling.
In brief, just saying that ideally Conservative economics is not completely absurd or mean.
1
@Jim Muncy -- You may say I buffeted up the straw man, but you brought him to life -- the unreal, ideal form of pure, unadulterated conservatism that does not exist on earth today except in the imaginations of a few milquetoast Pollyannas.
Note: I said Republicans, not conservatives. There is an important difference that you are not aware of! I was very careful NOT to refer to conservatives, of whom, there are many Democrats: Kirsten Gillibrand comes to mind. Don't make me explain the difference -- go look it up for yourself so next time you opine on a subject we are all made better by your ideas which are not without merit.
3
Like Dr. Krugman, I am not worried about trade deficits. Americans making more money and buying things made abroad is not a threat, despite Mr. Trump's opinions.
I am not an economist. I do understand arithmetic enough to be confused about the argument that deficits are not an issue provided GDP growth outpaces the deficit. I think there is an error in this.
The calculation should be that for deficits to be benign, GDP growth must outpace deficits PLUS the interest rate on the deficit. If not, debt and the interest on the debt will grow and eventually reach a tipping point causing the currency to be doubted which requires interest rates to rise to attract investment, exacerbating the problem.
I also note that given an aging demographic and the possibility that climate change will diminish GDP in the decades to come, we should remain chary of assuming new debt. The new debt to be assumed should be productive- building bridges that because of inflation will cost more later or providing education that has proven payoffs. Tax cuts for Don Jr.? Not so much.
I do have confidence in Krugman's thinking. Hope someone can reply and explain how I am in error. Thanks.
7
So it turns out that when it comes to basic economics Trump and his Republican cohorts--including the more free trade ones who tended to ascribe to trickle down theory--not only don't know bupkis about the subject but generally lie constantly about who and what their policy initiatives are actually supposed to benefit.
I must admit, I never in my life could have seen that coming.
12
@Glenn Ribotsky
Many have not seen it but it has been evident for decays. Time and again - including under Reagan and George W. Bush the Republicans pushed through huge tax cuts - also mostly for the wealthy - and every time promised that the tax cuts would spur growth that offset the rate reduction, producing substantial revenues. They never did but that has not stopped the Republicans from using that lie over and over again. Just look at any graph of the deficit and you will see it jump with every tax cut. It took a Democrat, Clinton, to give us the only balanced budgets in the last 30 years.
5
Now that the concept of requiring Presidents to disclose their tax returns, maybe we can also require them to disclose their high school and college grades. In both cases, the refusal to show those records is a red flag (no Russian pun intended).
26
@carrobin When they put their name on the ballot all NDA should be come null and void as well, assuming the other party to the agreement is willing.
4
Trade deficit by itself is not a bad thing. Some would even say larger deficit is a byproduct of a strong American economy (Imports grew faster than exports as the U.S. economy accelerated and much of the world slowed. The dollar grew stronger as capital flowed into the U.S., and the trade deficit grew to offset the larger capital inflows as it must by definition under the national income accounts.). What is bad is that the very same Trump admin that wanted to reduce the trade deficit ended up doing the opposite due to policies that they themselves enacted. And commodities, iron and steel (Trump country) have been hammered by retaliatory tariffs. And the American consumers have been saddled with $69 billion of "tariff tax" versus federal government, which collected an estimated $39 billion from the new tariffs. And get ready for the return of the national debt ceiling issue - Treasury is drawing down its cash hoard at the Fed. Republicans will be arguing how this doesn't matter or that it's a good thing. We are all living in the Matrix on an alternate universe.
4
Couldn't we say that our trade is always in balance, if we simply regard our debt itself an intangible "good"? Our debt is widely accepted around the world and people everywhere will accept it in exchange for all sorts of things, tangible or intangible.
No one seems mind that we continue adding to the pile year after year. It is that acceptability that makes our debt valuable. We jeopardize that with bizarre government policies at our peril.
2
As a centrist versed in economics, it seemed that we had reached a rare point of agreement on international trade. Both parties (shockingly) embraced the fact that free trade is generally good. This was a rare public policy bright spot. Our actual polices conformed with what all of the economic research said: free trade makes us all better off.
In the case of free trade, it was the Democrats that needed convincing the Free Market Republicans who led the charge.
Now, the Republican can't even get that right.
And here is the thing, this point is not up for debate. It is a simple fact. Just as climate change is simple fact. Or the threat the Russia poses to the Nation.
I wonder what the long-term impact will be on our nation when intentionally choose policies that we know will harm us. I wonder if there will ever consequences to the Republican Party for such cynical pandering? It doesn't appear so.
8
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries."
The question is, why don't Americans save more?
I think the answer is fairly obvious - we're busy paying higher rates than other countries for just about everything: college, health care, rent - and we're barely earning enough to cover all of those payments. How in the world can we save anything?
We've been worshiping the capitalist god for so long we can't see that it's been a golden calf all along. It's a false god - a false hope. We think one day we're going to be rich - and we're not about to let go of this fantasy.
We're so busy protecting America from "socialism" and so busy telling each other that we're more free than those other countries, that we don't recognize the hole we're digging for ourselves.
333
@TM Hole?
More like a canyon sized crater!
18
@TM
While I don't have facts and figures to back it up, I'd bet a handsome sum that Americans are much more likely to own spare cars, motorcycles (for fun as opposed to transport), motor boats, second homes, ATVs, a closet full of guns and oversized houses. We really like our stuff here.
Think about the gov't shutdown. There were gov't workers going to food pantries and unable to pay their rent/mortgage after a month w/o a paycheck. And these folks generally get paid quite well. I tend to think it's fine to live large, but you should do so only after you've saved enough to avoid financial disaster from a hiccup. Americans obviously fail miserably in personal finance 101.
10
@TM ... "we pay higher rates than other countries for just about everything: college, health care, rent - and we're barely earning enough to cover all of those payments."
We should have NYT columns devoted to why Americans can't save. That would influence our political discussions more than 'trade deficit' talk.
You'd think such an important imbalance that hurts our citizens compared to other countries would be the #1 topic on our news media, or at least be prominent. What's the news for?
But it's totally neglected as if we're cut off by 2 oceans and a Canadian border.
Unlike many other capitalist democracies, America venerates private corporate profits as the number 1 priority over all other values. And then identifies that with American Freedom.
That's why we are the lone holdout on universal HC among modern nations, who all achieved this in the 20th C.
So private profit =American. The public good =big govt socialism.
The US turns its elections over to private mega donors for funding, and lets high cost campaign ads inundate and manipulate the public.
Other countries use more public funding, for shorter and less costly elections, and limit the private donations. They don't let the airwaves be dominated by paid election advertising.
12
I think Dr. Krugman wrote before that International trade is so much more complex than Trump seems to understand or care.
Products are made all over and shipped in part or whole here or elsewhere, assembled, and sold all over the world. International trade has helped many countries raise their standard of living. It has not helped our unions. The unions were sold out since the Reagan era, one bad contract at a time. Trump has been a phony protector of unions, especially coal, steel, that are not viable to our new economy. Union membership was so important for the middle class and protected salaries and jobs. Many of the biggest businesses are anti-or non-union, Like Amazon. Europe has strong worker protections. Worker protection buoys the economy
17
@Frank Shifreen
How true, this last sentence of your post Frank.
2
Democrats have been scolded for being the party of tax and spend, while the Republicans have always been the party of borrow and spend.
17
Yes, Trump (and his economic advisors) do not understand basic macroeconomics. As Krugman says, the trade balance will equal (and will always equal) the difference between domestic savings and domestic investment. With government savings as one component of domestic savings, then if domestic savings goes down (due, for example, to the government deficit going up), the trade balance will go down (trade deficit will go up).
The basic economics of this is presented in more detail at https://aneconomicsense.org/2018/07/01/the-simple-economics-of-what-determines-the-foreign-trade-balance-econ-101/, with a discussion of the impacts (and non-impacts) of tariffs as well.
6
We have low savings because of payroll taxes. Fifteen percent of workers' paychecks are redistributed to retirees, who then spend it on domestic & imported goods (& services). Trade deficits do put downward pressure on demand for domestic production, which is why we have low inflation. It also inflates US assets. Foreigners return our dollars to us by purchasing US Treasuries, stocks, and real estate (like Trump properties). It's one reason why housing is so expensive in cities.
I'm not suggesting that we get rid of social security but we should fund it differently. Replace the payroll tax with a Value Added Tax on discretionary spending. In other words, put a VAT on spending and give everyone a tax credit for the VAT on the average cost of living. Workers can still get the same retirement benefits based on their career earnings and they would be able to keep their entire paychecks. That's up to a 15% raise. It would also reduce the cost of domestic labor.
3
Social Security is a savings program. If people don’t want to save for later even when their employers are matching the amounts, why would they choose to save if they could spend that money now?
2
@Jamie
Social Security is not only a retirement plan, it is life and disability insurance as well. About 40% of heads of households have no life insurance and many others have no disability insurance either. It is probably the most important (an apparently misunderstood) economic safety net we have.
7
@Charles and that shouldn't change. It should still be provided to the worker. That doesn't mean it needs to be funded by the worker. A VAT would get wealthy people with passive income and tourists to chip in. It would give workers a share of their own production, including profits.
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries."
I need this part explained to me. Anyone? What does "savings" mean in this context? Thanks in advance.
1
@Mark
If individual households would save more of their income instead of spending, in the case on goods manufactured abroad, the deficit would go down.
1
@Mark
We Americans do not save the money we get by putting it in saving accounts, under the mattress, etc. We just spend the money buying goods many of which are imported and as a result our trade deficit goes up. The ironic part of all this is that the money we get is borrowed money. The American economy has been driven for some years now by borrowed money resulting in increasing our debt. How long can we continue that path? I do not have a short answer for that question.
2
@Mark
The Japanese have a 12% savings rate whereas Americans save approximately 2% of their earnings. This is, perhaps, skewed as well since data shows that about half of households do not have $400 in savings. In short, we live paycheck to paycheck spending it all. This is why we are said to have a consumer driven economy.
5
My wife's pro-audio electronics manufacturing company has always designed and built their products in the US but many of the electronic components they use are ONLY made in China on which Trump has put a tariff. Most of their competitors build their products in China. As there's no tariff on importing finished goods built in China they don't have the Tariff problem my wife's company has so Trump in effect is actually penalizing here for manufacturing her products in The United States. Isn't that exactly the opposite of what Trump campaigned on?
1281
@Bob Clearmountain
Thinking a problem through so there are not so many unintended consequences. Unfortunately, not a strong suit of this administration.
243
@Ray Zielinski Short term thinking precludes considering unintended consequences. In the real world we see it with our traffic accident/fatality data. Safer cars with increasing safety features. Those nullified by the use of the "85th" Percentile mind set of our experienced and knowledgeable traffic engineers. The 85th percentile the Traffic Engineers crutch. Common sense parked outside the door. Traffic safety becomes secondary.
15
@Bob Clearmountain
I also think that most people really don't understand the economics of global trading, tariffs, taxation, and finance. So it's not too difficult for the issues to be muddled. This column is not easy for all to understand, but its intent is clearly positive. And the more its message is promulgated and translated to us, the better.
77
One of the flaws that Dr Krugman has is that he is a fierce partisan, and sometimes he engages in half truths in order to score partisan points. In his textbook, he mentions a few things about trade that he neglects to talk about in this column.
One big drawback to international trade is that it tends to worsen wage inequality in the US. Krugman's textbook says:
"...the effect of international trade on US factor markets is to raise the wage rate of highly educated American workers and reduce the wage rate of unskilled American workers." (P.227, Economics, Krugman and Wells)
Krugman goes on to admit that international trade is likely one source of the widening wage in equality in the US.
Krugman blames Trump's trade policy for the growing trade deficit, but he leaves out the context. Since 2009, our goods trade deficit with China has set a record every year other than 2016. The US global goods trade deficit has set records in eight of the past ten years. Normally, the New York Times doesn't report on this, because they don't want to admit what a disaster free trade is for America.
The New York financial industry makes a great deal of money from manufacturing financial claims on Americans and selling them to finance the trade deficit. The New York Times consistently advocates for the interests of the New York banks while ignoring the devastating consequences of free trade to the heartland.
https://www.census.gov/foreign-trade/balance/c0004.html
5
@Schrodinger
Krugman does not hide the fact that international trade contributes to inequality - he just doesn't mention it in every post he makes about trade - there isn't room nor the need to keep repeating.
Yes, we have had substantial trade deficits before Trump. Perhaps you heard about the global recession starting in 2008 that had a major impact on trade, disproportionately so on exports. But the recovery Obama pushed through over a recalcitrant Congress helped reduce it substantially.
A point Krugman is making is that the Trump policies are making it worse not better - thus the recent announcement of the much larger deficit.
Often there is only one right answer - it is not being partisan to push the correct solution. If the other side repeatedly pushes bad economics because of their own political bias, is Krugman required to give equal time to the nonsense? If I say the sky is blue and you say it is green, must I, in reporting the correct color of the sky, note that you think it is green?
2
@Rocky....Krugman is blaming the corporate tax cut for increasing both the budget deficit and the trade deficit.
Krugman blames the deficit on Americans having a low savings rate. He does not mention that there is a vast industry based in New York City dedicated to marketing debt to Americans. This industry is sustained by cheap foreign capital coming in from foreign governments who are manipulating their currencies.
Krugman claims that tariffs have almost no impact on the deficit. However, consider if we imposed a very high tariff rate, say 1000%, on all imports. Krugman is claiming that the deficit would not fall. I believe that both trade and the deficit would fall to almost zero under those circumstances. Krugman's claim that tariffs don't affect the deficit is ridiculous.
1
Krugman’s economics are not partisan, they are Keynesian. Democrats subscribe to the Keynesian economic model, Republicans support trickle-down economics. The former, based on significant research, has demonstrably worked; The latter is an excuse to give tax breaks to the wealthy and when implemented has never worked to improve the lives of the vast majority of Americans.
4
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries."
Dr. Krugman, with due respect, I suggest another and corollary reason. It is because the US dollar, rather than some country-neutral international unit of exchange, is used globally in trade between other countries. As that trade volume grows, other nations readily absorb excess US spending, thereby overpricing the US dollar. The hazard there is that we artificially become overly dependent on "bargain" imports. That supply of bargain imports can come to an abrupt end, when that international unit is devised (as I believe it will.) Those surplus trading dollars out there likely then will be dumped, driving down the relative exchange value of the US dollar. At that point retail prices here for everyday items may skyrocket, with no domestic suppliers left to fill the demand. To put it another way, I see this chronic trade imbalance as our becoming dependent on financial amphetamines that can be followed by a painful crash. Hopefully one day you will address that concern.
3
If I recall correctly, Republican opposition to deficits led to a less robust response to the Great Recession, while many, more learned observers recommended greater stimulus. The result was a recovery that many Republicans then criticized for being anemic.
41
"In reality, prices received by foreign exporters haven’t gone down. Prices paid by U.S. consumers have gone up, instead."
Prices paid by US consumers have gone up, and the money goes to the government. Sounds like a tax increase to me. Trump's Tariffs are a tax increase on people who buy imported goods. Like anyone who shops at Walmart, Target, or on Amazon. A tax increase. How come I don't hear Trump and the Republican enablers in Congress bragging about that?! Democrats need to make this very clear - Trump is costing American consumers money directly with his Trump Tariff Trade War. It's all Trump, all on him.
82
@Jim Brokaw
"Only the little people pay taxes." Basic principle behind the entire tax policy in the USA. Taxes here and every where -- on gas, electricity, telephone/cable, airplane taxes, highway tolls (use taxes) -- ALL REGRESSIVE TAXES in that they hit the little guy more than the big guy.
Can we expand the discussion. Where's the call for reinstating the 10% federal luxury tax dismantled by Bill Clinton, the commuter tax in NYS and NJ dismantled apparently by Pataki (to be replaced by congestion pricing and possibly another betting scheme). Income taxes and luxury taxes and estate taxes are the most fair forms of taxes.. but who care about fair??
4
You could also point out that the Republicans, who absolutely oppose all tax increases, are strangely silent about the fact that the tariffs are a tax increase.
1254
Largely it a larger tax on the poor and middle class. Republicans are OK with that.
169
@Peter-Republicans are also shorting the government of needed revenues so that when Democrats regain the reins of government they'll need to raise taxes. Sigh.
65
@PeterThe power Democrats also fail to note the tariff/tax increase.
11
We should out source Krugman’s job.I would like to see him work a real job where he actually did something that is required like plumbing or fix a car. If he opened his eyes he would see that the US economy is doing better than any other region in the world.
4
@Sean Mulligan
That's not what Wisconsin's soybean farmers think, and nobody could say they don't have real jobs.
Unfortunately, the GM workers at Lordstown don't have their real jobs any more and would probably take issue with your statement.
13
@Sean Mulligan
Actually, explaining how the macro economy works is a real job that needs to be done in order that those who plumb and fix may understand the economic forces that inexorably affect their lives.
4
@Sean Mulligan
One organization estimated that in 2015, 13.5% of Americans (43.1 million) lived in poverty. Yet other scholars underscore the number of Americans living in "near-poverty," putting the number at around 100 million, or nearly a third of the U.S. population. Open your eyes.
1
The constant refrain of "America can survive" is beginning to sound like wishful thinking. Are you all trying to convince us, or to comfort yourselves. It raises the questions: what would destroy America, and are we moving in that direction?
4
It seems to me that deficits might matter when interest rates are high.
1
@jim o
Indeed. And if it rained c-notes in the Oakland hills I would be rich. But sadly it's not raining C-notes here, and interest rates are quite low. In fact they have been low to moderate ever since Paul Volcker tightened the screws at the Fed, and the Fed has remained on inflation alert ever since. High interest rates are the least of our worries at the moment.
2
Dear Paul,
Trump is a mercantilist. He thinks the U.S. economy will get better if we can have a trade surplus. He also thinks that only countries, not businesses and individuals, can have a surplus or deficit. I do agree with Trump's proposal that all tariffs should be reduced to zero - that would be actual free trade.
2
@hm1342
More than tariffs represent restrict trade: important quotas, quality restrictions, buy-America requirements, slowed inspections, etc.
3
@hm1342
The EU proposes a zero tariff deal and Trump rejected it. He wanted to keep the 25% tariffs on pickup trucks and SUVs that the US has imposed since the 1960s
1
PK's most telling point is this: "the main damage is to U.S. credibility."
Europe has just declared the US to be a purveyor of falsehoods, along with Russia, China and unspecified others (probably including corporations). More and more nations are beginning to push back against malignant propagandizing.
Trump has dragged the US into a bog. It won't come out for at least 2 decades.
46
Can we not say what the real reason for all this is really about? Trade deficits allow the right-wingers to point fingers at other countries. It was Japan in the 80s, when you had the "Buy American" scam, perpetrated by Wal-Mart, which now sells a huge amount of stuff made in China. Of course, China's the bogeyman now.
Making an issue of the trade deficit allows wealthy conservatives to curry favor with the white working class while deflecting attention away from their own policies, like cutting funds for education and job retraining and opposing living wage proposals.
But yes, it is somewhat pleasurable to see Trump fail at yet another of his stated goals. Make American (Debt) Great(er) Again!
13
Consumers in China, I believe, are much more likely to decrease their purchasing of US goods because of a trade war than are consumers in the US. It would be interesting to know whether that has been the case. The Chinese consumers are likely a bit tighter and less brainwashed. Many people in the US see their role in society as one of being a consumer. It is what they have been taught to be. My guess is that the Chinese citizens are not well off enough in most cases to be that frivolous.
3
Two years in, we Democrats keep pointing out Republican hypocrisy and lack of good faith almost as if some day Trumpistas will get it and see the error of their ways. Krugman has a duty to keep calling them out, but what I’ve noticed about ordinary conservatives in my own dealings with them is they purposely lie, distort and misrepresent their positions, making any dialogue with them fruitless. They perceive themselves to be Trump’s foot soldiers and have embraced his instinct for disinformation to such a degree that I don’t recognize them as citizens or countrymen. They’re unthinking propagandists who in their petty desire to one up liberals have been swept up in a Gadarene rush to destroy our democratic institutions no matter the cost.
76
@AlNewman Thank you for the new word, “gadarene”, very appropriate. I’m going to find some places to use it.
3
This is what the GOP wants. An America where people cannot afford the basics in life. An America where the only ones who do well in life are those who were born into the right families or were extraordinarily lucky in selecting a career or making a discovery that consumers could use.
Their dishonesty about debt, about tariffs, about "entitlement programs" has been obvious for decades. Whenever the money is to be used to help working Americans or those who are not in their circle of rich donors there's never enough. If it's for the richest corporations and families the money grows on trees and the GOP can't do enough for them.
However, because people don't pay attention to results or the lies a good many believe what the GOP has said. All debt is bad. All people on welfare are lazy moochers. We can't have a better health care system. We can't learn from other countries because we're unique. The second amendment is the most important amendment of all. These are the lies they tell us to distract us from the real issues facing America.
Trump is incompetent. His entire cabinet is incompetent. He can no longer attract competent people to work with him. Mitch McConnell is a sycophant who will do anything to keep his party in power even if it endangers the United States. Deficits don't matter unless there's a Democrat in office. When working people need assistance it must be means tested. If the rich do they get it. Welcome to Trump's America.
123
Hypocrisy and dishonesty over the national debt and deficits - another reason I guess Paul Ryan ran for the exit as fast as he could.
6
@Dennis
Paul Ryan was sure to burn out. He told us he worshiped Jesus, who would have us be unselfish and sharing, and Ayn Rand, who would have us be selfish and uncaring. Given his lack of a coherent perspective, how could be survive the madness of the Trump era?
2
I have to toot my horn.
In today's column Krugman writes:
"Tariffs can, of course, reduce imports of the goods subject to the tariff, and hence reduce the trade deficit in that particular industry. But it’s like pushing on a balloon: You can squeeze it in one place, but it will just inflate by the same amount somewhere else".
From my comment posted just yesterday on trade deficits:
"Trump is so ignorant and arrogant at the same time that he thinks he can single handedly alter global macroeconomic forces. He cannot. Money flows are like squishing a balloon. Squeeze one part and another part expands. Squeeze that part down and another place bulges out".
15
Trump is a glorified hotel manager. He isn't a businessman that understands supply chains, discounted cash flows, capital allocation, equity & debt financing & the associated costs. He is Donald Trump, he plays a businessman with his fathers money. He has torched a lot of wealth. Yes, He is a billionaire, but to be worth only 4 billion despite an inheritance north of 500m in the 1970's means his returns have underperformed something as simple as a stock index.
43
@Adam Whether Trump is a billionaire or not will be determined when we see his tax returns.
5
@Adam
Also don’t forget — probably his only real success has been as a non-reality game show host.
3
Wouldn't you think the Dems could long ago have figured out how to campaign on GOP hypocrisy for the last 40 years? Not as the *only* campaign thrust, of course.
I'm not convinced they've figured it out yet.
In the 2016 debates HRC brought up an architect Trump had stiffed. Trump replied "Maybe I didn't like his work." Hillary just let it go, to my immense frustration. The guy had a contract. A contract! She could have said "So contracts mean nothing to you? Yet you want to make a contract with America? How many other contracts have you broken?" Etc etc. And she's a lawyer. Sigh.
52
Yes. The Democrats have not yet been able to crack this narrative and tell the story to Americans in an meaningful way. Doesn’t almost everyone hate hypocrisy?
5
Don't forget that the multi-billion tax cut for the wealthy was received by foreigners, as well. Many believable estimates are that as much as 35% of the tax cut did not even go to US citizens or corporations. That is Trump's version of foreign aid. Of course it is a complete waste, unlike real foreign aid, which Trump hates.
26
Krugman doesn’t care about deficits as long as the government is spending on leftist “bridge to nowhere” boondoggles like Obamacare and the Green New Disaster. Deficits only become a problem for libs when Republicans want money to secure the border by building a wall and/or to build and maintain a powerful military. Leftists routinely argue for expanding government programs like Medicare which eat up a large percentage of the federal budget, thus their rantings about deficits when Republicans are in power constitute the height of hypocrisy.
2
@Registered Repub
I'm just going to quote the column:
"Let’s be clear: Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy."
Democrats in general, and Krugman in particular, have a clear and consistent position on federal budget deficits: they aren't a currently an issue.
6
@Registered Repub
It is not your fault. Ignorance seems to be inherent in all Repubs DNA these days. 1. Folks that finally got medical coverage, despite its many problems, are grateful for the "Obamacare boondoggle" Over the past 10 years the republicans have offered nothing, other than repeal with no replace. 2. What is the Green New Disaster . 3. Deficits , if you look at history have grown significantly more during Repub giveaways to the rich and to corporation. 4. The military has got significant increases under Democrats as well as Repubs, mostly because of wars the Repubs stumbled into.5. Go find out how Medicare is actually funded. Right now it is solvent and Repub admins have borrowed money from it.
7
Trump doesn't have the slightest idea how anything outside of buying and selling property works...but he doesn't let not knowing stop him from doing it anyways - to heck with learning. He's done nothing but make rich folks a little richer at the expense of the health of the country, especially the bottom 99%, but don't expect Republicans to see the obvious - to them Trump is George Washington.
2
It was clear to many of us before the arrival of Trump--thanks to the tutorials you provided in the NY Times, Dr. K--that the Republicans' "debt rhetoric" during the Obama Administration "was...an attempt to weaponize the deficit as a way to block and undermine President Barack Obama’s agenda."
These elected clowns in Congress, supported by our tax dollars, never had an interest in doing the right thing for advancing the common good for the American people. Their interest from the beginning, in the words of Mitch McConnell, was to make Obama a "one-term president." Their opposition to his presidency was all personal, based on their contempt for our first black president, having nothing to do with principle or an understanding of economics.
It is understandable why the American people give the Republicans a 58% unfavorable score, according to a recent Gallup poll. Am surprised it is not higher, but encouraging to see that a majority of Americans have not been fooled.
25
The ignorance shown by Trump's misunderstanding of complex multi-national systems in which millions of producers and consumers trade goods and services and national monetary policy , along with his approach to negotiations, give color to his efforts to keep his boarding school and college grades from being disclosed. He was too busy hooking with women in NYC on the weekends to have time to crack the books on trade economics, game theory, monetary policy and ethics while at Wharton. His target support group of the poorly educated don't know any better and the donor class knows well enough that he is an incompetent fool, but are happy with the trade off of low to no taxes and licenses to pollute and rig prices, along with the ability to have their industry positions become the basis for Federal regulations.
4
America can survive a lot, but it cannot survive Trump's GOP. Manafort's "sentencing" today proves just how entrenched the old white man conservative deep state is in this country. Arguments about tariffs and deficits are now moot - unless the GOP is put down we are a vampire democracy. Twice in the last five election cycles the loser was made president. We are officially a former democratic republic.
6
Simple explanations-when a Democrat spends like a drunken Queens developer and runs up the credit card, then it is bad business, bad governance and just plain a no-no.
When a Republican spends like a drunken Queens developer and bankrupts the credit card, good business, good economic stimulation and job creator, and tariffs, those grand tariffs are really punishing the, well, consumer, not China, and those tariffs will help pay for the bankrupt credit card account.
There, Trumpeconomics explained.
6
@Dan
The thing is that under democrats the deficits are less than under republicans, thus less drunken sailor spending. And you get good governing, good business, and economic stimulation.
Under republicans you get full drunken sailor, bad business, bad governance, etc.
1
The current level of ignorance shown by Trump voters is amazing. The con movement is always about the 1%. They’ll give their voters a wedge issue or a little racism to build a coalition but the goal is always to transfer wealth upward.
We are witnessing someone that is as dumb as a bag of rocks rewrite norms, ruin our position in the world and advance Putin’s positions whose country has the GDP of Ohio.
How ironic that politicians who claim to be principled cons are terrified of a doofus. If you wrote the reality of Trump as a novel no publisher would believe the premise.
8
Deaf and blind — won’t listen to expert advice, preferring his gut. Blind when other countries react by imposing tariffs on their imports from the US or boycotting US suppliers.
And then too stupid to realize that US farmers and businesses will go bankrupt when they lose their foreign markets. Sad.
10
Dr. K. says: "Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top", and of course he's correct, but it's outrageously cynical of GOP'ers to subject us to such a low bar - the aim of both parties should be making sure that America thrives, instead of merely survives.
This brings up the point that all which is happening was predictable from the first days of Weasel 45*'s golden escalator campaign descent; all that has happened since that day has been the filling in of the broad outlines of corruption, sleaze and grift which have surrounded the guy for multiple decades, and could have been prevented if GOP leaders had performed the minimal political hygiene of demanding their party's nominee produce his tax returns.
They made no such demand, despite the obviously questionable character and utter lack of experience of Clear & Present Danger 45* as a candidate.
And the worse issue is that for millions upon millions of GOP'er voters, it's all fine - they are perfectly willing to tolerate anything (and everything ?), as long as it's not a Dem.
They don't care about the economic lies, the foreign policy kowtows to Putin, none of it matters, as long as a GOP'er is doing it.
Which brings us full circle to Dr. K.'s all-purpose truism: I.O.K.I.Y.A.R.*
We're in deep trouble.
* = It's O.K. If You're a Repbulican
5
I would say that up to a point, we can survive with an incompetent fool in the White House surrounded by equals. As a pilot I’ll say a lot of marginal guys are fine until something serious happens then all bets are off put two marginal guys together and give me a parachute please.
4
It is becoming obvious from Congressional testimony that about all Donald Trump knows about is how to defraud banks and insurance companies by lying about his net worth. He was very adept at that, apparently.
Fortunately, New York State financial services investigators are hot on his trail, thanks to the mountains of documents they've already been given and the subpoenas they have issued.
Robert Mueller may not bring down Trump but it seems more likely that he will be nailed for simple fraud. And the state does not have to worry about a lickspittle attorney general in Washington blocking the indictment.
6
“America can survive a lot, including dishonesty and ignorance at the top.”
What about apathy, avarice, gluttony, wrath, envy, and sloth? I sense a grassroots movement coming on.
4
Trump: The US version of Hugo Chavez.
He will do to the US what Chavez did to Venezuela.
Trump: Good intentions; Bad results...and getting worse.
3
@Angelo C It may be that Kaptain Kaos will do to the U.S. what Chavez did to Venezuela, but it WON'T be because of good intentions. Everything he does is for the benefit of one person and one person only.
1
@Angelo C
He doesn't even have good intentions, except for the rich.
1
Donald Trump is so repugnantly unfit for the office he holds, that it is our great national shame We the People were the willing enablers of such a travesty. So much of the damage to our nation will be irreparable, as will be the ignominious legacy of his portrait in the White House, for generation upon generation of Americans to avert their gaze for the hot shame of it.
7
Credit: Middle French < Old Italian credito < Latin crēditum loan, noun use of neuter of crēditus, past participle of crēdere to believe, confide, entrust, give credit.
Credible: Middle English (< Middle French ) < Latin crēdibilis, equivalent to crēd(ere ) to believe + -ibilis -ible.
Trump defines credibility because he isn't. He trades in credibility because he has no credible assets.
His followers are credulous, literally beyond belief and well into fanaticism.
His credit rating as POTUS and as a big time dealmaker is minus 500.
Here he is, the CEO of the Free World, and every quarterly report is worse than the one before.
His only move will be to do a merger with Russia.
Imagine, someone even Nicholas Maduro, Venezuela's answer to Herbert Hoover, can laugh at.
15
Tariff Man has always been Ignorance Man, refusing to study the actual details of how economics, world trade, or even democracy works.
Reminds me of the old saying, modified - "It's not what you don't know that hurts you. It's the things you think you know, that you really don't, that hurts you."
8
@TheUglyTruth The corollary of your comment is the Dunning-Kruger effect. Those with the least knowledge are most confident in their beliefs.
1
Massive budget deficits.
Massive trade deficits.
Massive compassion deficits.
Massive healthcare access deficits.
Massive infrastructure deficits.
Massive deficits in voting rights.
Massive deficits in representing the will of the people.
And most importantly, a carefully cultured massive nationwide intelligence deficit to miraculously keep them in rigged elected office thanks to a surpluses in guns, magical thinking, campaign finance corruption, income tax code corruption and rigged courts happy to keep the 0.1% surplus supply of gold flowing into their 0.1% troughs.
It helps to have major human deficits and a surplus of sociopathy when implementing, voting and championing Republican public policy.
Nice GOPeople.
571
@Socrates.....we also have a deficit in free media fulfilling it's function to inform voters on issues affecting their lives.
FOX News is the ideological GOP state media, across the land.
Much of the rest of the media is concerned with bottom line profits, and functions as political drama, reality show entertainment. Reporting stays within certain limits on which issues covered, and the range of solutions to problems presented to the public.
The last thing they do 24/7 is discuss the crucial issues of the day --how to fund HC, climate change, education, retirement, bringing back jobs, etc.
We see little on how other countries deal with these problems, in our media or in the NYT opinion page.
Instead of only criticizing GOP/Trump, the media needs to discuss positive solutions that the party opposite can use.
11
Re: "The reality, however, is that trade deficits have almost nothing to do with tariffs or other restrictions on trade. The overall trade deficit is always equal to the difference between domestic investment spending and domestic saving (both private and public). That’s just accounting.
"The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries."
This is just bizarre! When are you going to talk about capital flows and currency manipulation and how this leads to the devastation of our tradable goods sector, in particular manufacturing? http://rweconomics.com/htm/WDCh_2.htm
3
Paul Krugman writes: "The overall trade deficit is always equal to the difference between domestic investment spending and domestic saving (both private and public)."
But if domestic investment and domestic savings are both zero and consumers choose to buy all products from abroad then trade deficit will be equal to the total GDP. So I don't understand.
1
Forty years ago, Milton Friedman (a liberal economist in the open market sense) said if the Japanese want to send us TVs and VCRs and only want a piece of paper in return, who are the smart ones. Japan has been in recession/low growth ever since. Trade deficits are not the problem. Tariffs are a tax on the consumers.
5
Trade deficit is a permanent phenomenon in America irrespective of who is the President. There can never be trade balance mainly because of the fact that manufacturing of many products were already moved out of America long back. So please forget about trade balance whatever the steps the President might have taken or might take. The steps will only boomerang. It’s the American consumer who faces the music and not some one else.
What the President Trump has done is increasing the budget deficit permanently by giving the tax cuts to the rich and super rich, which is a recurring wholesale loophole unless some other President reverts back to the original position.
Basically fiscal deficit keeps on increasing year after year unless certain serious steps are taken to reduce it, which is most unlikely. Right now the fiscal deficit is around $ 22 trillion.
3
America is divided. Perhaps a third of Americans support Trump because they identify with resentment of minorities and foreigners, with immigrants as the scapegoats for everything that is wrong in their lives. A lot more people live in cities, are exposed to various cultures and try to get along with each other, despite inevitable frictions. A very small and very rich minority of billionaires and multimillionaires (think of the Kochs and Mercers) own the Republican Party, are content to whip up anti-immigrant xenophobia, and wage war on the ACA, social security, and any attempts to raise the minimum wage. They were behind the Republican tax cuts and have done very well out of them. For every million, they keep $50,000 more now. The middle class and poor are paying. Trump and the American oligarchs also wage war on any moves to protect the environment, regulate food and drugs, and protect the poor from usury and fraud.
34
I would like an explanation of the trade deficit in layman's terms, and this piece is not quite it. If we have a trade deficit, we by definition sending more money abroad then we are taking in, whether through investment or purchase of goods. It seems that we are transferring wealth from the U.S. to other countries. That is not sustainable forever, even if we can print money. At some point, doesn't our standard of living decrease? Don't we run out of saved capital to finance this trade? What am I missing?
4
@Ken L
Several of Krugman's past columns have done exactly what you ask for. Just do a NYT search for Krugman trade deficits. This column is on another subject.
And several other economists remarked when the deficit figures were recently published that this is all working out in accordance with first year macro-economics textbooks. Krugman's is the most used such text, but most others should do. Nor does it have to be the most recent edition - my Krugman textbook is at least six editions out of date and on this subject it works fine.
7
"Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy" Krugman
I agree not a present danger - but I don't know how long the "present" is or how long it will last. We are in new, uncharted territory given the historic size of both deficits.
The debt is over $20 trillion dollars - increasing $1 trillion per year. A simple 3% increase in interest rates on the debt - certainly possible in the near term - would itself increase the deficit by another $600 billion per year - and rates could go even higher.
The conventional wisdom is that debt is bad if not invested in income producing projects - such as education and infrastructure. We are wasting it on corporate tax givebacks to the rich and consuming it on military spending and other programs, passing on the debt to our children.
But the bigger problem is macroeconomic. Our economy requires ever bigger injections of Federal spending to stay healthy. When the economy is in recession, government should spend more, but when it's healthy it should pay down part of the debt so borrowing can be a tool again later.
What happens later when we have recession but already are running $1 trillion per year deficits and interest rates are already low like they are now? We have no tools left.
The foreign trade deficits mean we owe increasing amounts of money abroad. We owe $4 trillion - with over $1 trillion to China. What if they demand it back, or simply stop loaning us more money?
5
Thank you Paul. Tariff man has done worlds of damage with his persistent idiocy. My pet peeve is his tariff on Canadian newsprint. Live in a small town, with a long published small town paper. That paper did not survive the new print tariff. Neither did many other rural small town newspapers. Those papers the glue that holds small town communities together. That tariff overturned by the courts as unsupported by facts. But, too late - damage done. Beneficiary of the tariff - a large producer of newsprint in Washington State - with cheap subsidized Columbia River electricity. That producer owned by a hedge fund in New York. Trumputin was warned of the consequences, but ignored the warnings. The guy with the dead squirrel on his head is afflicted with the Dunning Kruger Effect. He does not know what he does not know. But, suspect that lobbying and political contributions are part of the tragic story here.
7
The Republicans cared about deficits when they thought they would have to pay for them. Now that they passed their tax cut for the wealthy and the middle class and poor will have to pay for the deficits of course they don’t care about them
12
Sad that ypur understanding of deficits came so late. All thanks to MMT and heterodox economists you refuse to acknowledge. Sad.
Now: "Just the other day they were sure that they were being wise and serious by talking in apocalyptic terms about the looming danger of debt"
Then: "Well, basically we have a world-class budget deficit not just as in absolute terms of course - it's the biggest budget deficit in the history of the world - but it's a budget deficit that as a share of GDP is right up there. It's comparable to the worst we've ever seen in this country." Paul Krugman 2004
Now: "The only thing they have had left to cling to is the proposition that in the long run we are all doomed"
Then: "Don't you wonder that there's going to be a financing crunch?" Paul Krugman 2004
Now: "Social Security is about where it has always been, with spending expected to rise by around 1 percent of GDP by 2035. Medicare spending, formerly projected at 7.2 percent of GDP in 2035, is now projected at “only” 5.6 percent."
Then: "What I envision is that at some point, we have about 10 years now until the baby boomers hit the United States." "I think, where in that 10 years the crunch comes, I don't know. I think there's a real possibility that next year or one or two years from now, when they see that actually the same irresponsible tax cuts as the solution to everything continue, we might have a crisis that soon but more likely towards the end of the decade." Paul Krugman 2004
2
@Ron T - Don't forget his beauties from Election night.
Since then, the market is up 30% and unemployment has dropped to record lows.
"It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? Frankly, I find it hard to care much, even though this is my specialty.... Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never." - Krugman, Election Night
"Now comes the mother of all adverse effects... So we are very probably looking at a global recession, with no end in sight" - Krugman, Election Night
4
@Ron T Fifteen years ago. All that proves to me is that Paul Krugman is not an implacable ideologue. Times change, opinions change. Anyway, too many right wing ideological stalwarts in place in our society. That, along with a fear of demographics - which are immutable - brings us to the divisiveness we see today. Register, contribute, vote -- no more apathy. Dump Trump, Ditch Mitch. Take our Republic back.
4
@Ron T
And in 2008 we had a recession, just like he predicted within 10yrs.
2
Why does anyone still think Mr. Trump is at all concerned with what is good for the US economy. If it does not bolster his ego or pocket book, he is uninterested. And the really sad fact is that most of his supporters not only are unable to tell you what "economy" is or even spell it correctly, they do not care or even know what a deficit is.
16
Trump is a "deficit man" in more than one sense of the word. He has a vast deficit of : Decency, Morality, Ethics, Compassion, Tolerance, Communication, Transparency, .... the list of deficits is long.
As for the notion that Trump does not understand how International Trade works - I think that asking him to understand the simplest elements of how any sort of engagement would work is a bit of a challenge let alone the complicated moving pieces of a global trade jigsaw puzzle.
204
@Plato
You left out one deficit. Intelligence! trump isn't smart enough to win the game of boardwalk without cheating.
3
@Plato
Forgot intelligence on your list.
3
One does not tariff their way out trade imbalances, and tariffs do not bring jobs back. How about creating products and/or services of value that can be exported? How about we have an Apollo Program like initiative to develop alternative, clean energies, and be the foremost exporter of these capabilities? China is investing in this space. Why can’t we?
38
@Joe Arena
In Portugal, I was told every new house must have a solar hot water system. Huge solar farms are all over the Iberian Peninsula. Evidently the tech exists.
It's the US will that does not--far from being "Free world leader" it's the "Free world laggard."
28
Krugman writes, "Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy. Advanced countries that borrow in their own currencies can and often do run up large debts without drastic consequences — which is why the debt panic of a few years ago was always nonsense."
Then in the entire rest of the article deficits and the debt are treated like "a clear and present danger to the U.S. economy." He consistently talks as though increasing federal deficits are going to explode the economy.
I agree that the Republicans are hypocrites, but it does not help the situation to act as though the finances of the federal government is like one's personal finances, and debt and deficits are bad for these finances.
A reader, max, said in a reply to one of my comments:
"So much of our economic issues could be solved if people understood that the US cannot run out of money, and how hard it is to cause hyper-inflation from government spending alone."
max is correct.
9
@Len Charlap
Exactly, Krugman still thinks of gov deficits as if the money went overboard and vanished nto the sea. Instead gov deficit is by an accounting identity equal to the private sector surplus and allows the private sector to rely on its own debt less. This is great for the long term stability of the economy. Data bears it out.
2
@Len Charlap
Indeed Len & Max. Japan is a clear example of how hard it can be to get out of DE-flation and get a couple % inflation going.
2
I didn’t read it that way. Krugman is pretty clear that the economy is not substantially threatened by these deficits. The economic details support the claim that the president and his party are ignorant and deceitful, which is where the real danger lies.
7
In the 19th and 20th centuries, developing countries shipped low value commodities to developed nations and received high value manufactured goods in return, transferring wealth to the then wealthiest nations, like Great Britain.
But thus far in the 21st century, the US is shipping low value commodities to China and receiving high value manufactured goods in return.
This is all about relative labor costs, so the only solution is increasing automation. That is how US farmers successfully export commodities today and how steel mills and manufacturers will have to adapt as well.
This increases the demand for highly skilled engineers and software designers, but reduces demand for middle and low skilled workers.
The most important infrastructure investment we need in in education.
43
@Look Ahead
Many of the supposed high value"finished" products we import from China are in fact intermediary products in what is now a service economy. Look at textiles, Last half of 2018, the average import unit value of men/boys imported was just under $2.70. When was the last time you paid $3.00 for a pair of pants? The rest of the price is value added in the United States, advertising jobs and business, trucking, retail jobs. I mean even for your iPhone probably more than half the price you pay goes to marketing and research jobs in the United States, then there all the jobs created developing and marketing apps that go on you phone.
Stop thinking of value added as simply welding two things together.
11
@Look Ahead
I could be wrong, but I think technology involved in steel production left the barn some time ago. U.S. plants didn't invest in updating and other countries did - at least back in the 60s and 70s when I lived in the Pittsburgh area. Result: huge mills closed, people laid off permanently.
6
@Ray Zielinski....The US still produces a lot of steel, but the industry is far more automated than it was in the 1960s.
3
I learned Capitalism is the art of practicing greed. Even the Chinese have learned the American way as Communism is only a small part of governance there now as the free market has shown it's benefits in spectacular growth around 7 percent annually. But now as you pointed out last writing, not only are our consumer goods dollars going there, but the funds necessary to finance the federal deficit, enlarged by the Tax Cuts and Reform legislation, is coming from China mostly who now hold our debt plus interest along with those hundreds of billions of consumer goods dollars. Additionally, over decades, American wealthy and businesses have been exported there so all the benefits of labor pay and overhead money go the Chinese as well. I'm using China as the best and biggest example.
Yesiree! Trump and the Republicans really know how to grow an economy..........every other one but ours.
It's more than just trade deficits, it's the whole dang' economy.
7
The truly dark side of Tariff Man Trump's abject failure to bring China down is that like North Korea we are now much much more likely to see a military confrontation as the U.S. patrols the South China Sea while China also establishes bases there with its own naval forces. China has clearly won the trade war and the "easy win" for the Tariff man is now a devastating economic as well as political loss. Let's all hope that Trump declares a win if China finally decides to enforce intellectual property rights which, at this point in their development, they no longer need to steal from us. Even if Trump tries to claim a victory from the jaws of his defeat, there is still the Taiwan situation that an emboldened China may now press as needing to be resolved as the Chinese province it technically is. Trump sees the world as win-lose rather than win-win and that along with the tightening circle of the Congressional and Mueller investigations may lead to a deadly catastrophic confrontation. It's that "deficit" of thinking that is the real threat we, China, and the world confront.
7
When the Government has a deficit, it has to borrow to pay the bills. Otherwise it has to print money, we do have some restrictions on that, it has to sell bonds, the fed has to buy them, and then print against them. But you do not get all the money as you have to pay interest on those bonds, and the more you try to sell the higher the discount has to be, as the higher the debt, the lower the confidence.
Worse yet those bonds are bought by the very people you are trying to undercut with the tariffs, so we pay both the increased price on the goods, but also pay the same people who own our debt. A two way loss, China still sells goods we need and do not make here any more, or they make cheaper, and we pay them interest on the debt we incur trying to keep the economy going. Keep in mind it is not just Swindler Donald's tax cut causing this deficit, it is the GOP who allowed it to pass. It is they who sold the snake oil that says business will make more profits and tax revenue will increase. So I have not seen a projection of how much a profit increase will be needed to offset a 20% tax cut, and how much more goods will have to be made and sold to make up the difference.
They did not tell us that,all they said was it would juice the economy and make us all richer, with some allusions to increased employment and higher wages. How much employment, how much more wages, just believe us they said, have faith and pray, just like that good old time religion.
18
The mechanics of foreign trade are simple. If China keeps selling us a lot more then they are buying, the end up with a lot of dollars - which they are adverse to let happen. One option is for them to start charging more for their goods to offset a drop in the value of the dollar. But the other option is for them to loan it back to us, thus evening out dollar flows.
As the dollar is actually increasing in value, it is the latter that is happening, and it can only happen if we need to borrow more dollars because of low domestic savings and high domestic spending.
Who is the biggest domestic borrower? The US government now running close to $1 trillion in deficit spending per year, primarily a result of the huge corporate tax reduction and large increases in spending on the military and other programs. So while Trump rails against lost jobs, he exports more jobs.
Economists and others support free trade since it improves efficiency and makes the pie bigger for all. To little attention was given to fact that it would put significant downward pressure on wages. In essence it would push towards equalizing global wages over time which meant major losses for many US workers while wages slowly increase globally.
One possible remedy should have been substantial increases in education and vocational training to prepare workers for higher skilled opportunities that could open up. But that was never done. In fact, the Trump's Department of Education is reducing training funds.
17
We still need to know how much money the Treasury is taking in from Tariffs so we can compare that figure to the increase in the federal deficit created by the Tax Cuts and Reform legislation passed and signed by Republicans. I'm convinced the real purpose is to reduce the Republican inflated federal deficit increase.
@PATRICK, the government does not take in money from tariffs. Tariffs are price increases paid by consumers. Period.
29
@trex
China does not collect the Tariff. US Gov does. It is an import tax on the buyer.
14
@trex
Read your comment again.
The consumers pay extra for imported goods a portion of which is tariffs dollars that go to the federal treasury. Tariffs are taxes on consumers who buy imports. The Tariff taxes go to the treasury.
7
I've seen numbers indicating the tariffs are costing 1.4 to 3.0 billion per month for our economy. I guess it really hits farmers and light manufacturing more than the rest, the retaliatory tariffs and the loss to Chinese markets for soybeans.
What it really says is Team Trump and Team McConnell really have no idea what happens when they claim something or make huge tax cuts, they're going to do it anyway.
Bringing back balance to our govt requires a leader who understands that money-driven politics has to be brought under control. The SCOTUS decision allowing corporate speech drowned out citizen's speech.
I'll support a candidate for president who will seek to put limits on corporate money in politics and who supports a Green New Deal. I know of one who isn't taking PAC money.
268
@lightscientist66-Another possibility is that they are using the power of their office (aka government) to pick winners and losers. Unfortunately, many U.S. companies and citizens are paying the price. Hopefully we'll yet have a chance to wake up and recover from this nightmare.
12
@lightscientist66 I don't see what can be accomplished in the way of campaign finance reform since SCOTUS has said in Citizens United that the Constitution itself gives corporations the right to overwhelm individual campaign contributions. And if CU isn't adequate to the task, this SCOTUS will reliably overturn any legislative progress in campaign finance reform, 5 votes to 4.
Republicans have more money than Democrats. The GOP at every level will capitalize on that fact at all costs.
6
We all knew when Ryan proclaimed the need for "Duties" two years ago that they would be taxes on consumers and the result was a remission of the idea. But a year later, Trump protected the guilty by renaming the "Duties"; "Tariffs". Same idea, different name, but this time the idea was to offset the deep growth of the budget deficit by the political payola Tax Cuts and reform legislation passed by Republicans who never seem to learn the harm they do.
The "Dishonesty" goes hand in hand along with Republican power. To me, their idea of "Deregulation" is just another way of saying we will get rid of laws so we can return to the good old golden days of pillaging the nation. So the tax cuts came first, followed by the tariffs that take money from the many millions of common consumers instead of the Corporations and wealthy as a form of shirking social responsibility for all the vast large scale benefits and works they get from the government services paid for by the consumers instead of them.
I had an idea; since the Republicans have been railing against new immigrants saying how they are a burden on taxpayers and the nation, lets afford the wealthy and their representatives a free deportation to a nation where they moved their businesses and wealth. I don't want to pay the services they get for free. They don't pay taxes. At least immigrants pay sales and property taxes indirectly as well as spending most of their income in, you guessed, the Republican businesses.
67
@PATRICK So well said Patrick!
2
The GOP tax cut was a fairy tale, all it did was make stockholders richer, it did not increase supply and demand. Ignorance of economic principles is the friend of schemers and scammers, and keeps GOP senators in office with help from Citizens United.
We the consumers pay the tariffs, as long as the sellers in the lower cost countries can sell below our production costs, we will keep buying. But worse yet, those products that have been moved offshore can not return without a high cost here.
For instance, fabric mills would have to be rebuilt, they have either been torn down or used for other purposes. We still have some steel mills, but not as many as we did before the Japanese built better and newer ones in the 19890s, the giant mills like U.S. Steel in Buffalo are gone.
The bean farmers seemed to think they would profit somehow, but China does not respond to bullying, they have long memories. They may seem to be responding, it sort of looks that way, they will not let the west tell them how to run their economy, no more opium wars for them.
We only have to look aback at the Smoot=Hawley Tariff act to see the consequences of protectionism, the result was a major contributor to the 1929 crash.
Debts do matter, spending has to be cut, we know the GOP will try to make those cuts to those who can not respond. And they are revising the judicial system to keep their ideology in power for the next few generations.
142
@David Underwood - You write, "Debts do matter." Are you referring to private debts or federal debts and what does that statement have to do with what has preceded it?
4
@David Underwood...Smoot-Hawley is commonly cited by economists who are advocating for free trade. What they don't mention is that at the time the US ran a massive trade surplus. Other countries retaliated against Smoot-Hawley and the fall in demand for US exports outweighed the fall in imports. That left the US short of demand and deepened the Depression.
There is evidence that trade deficit countries benefited from the rise in tariffs.
5
The US does not have a spending problem (unless you want to talk about "Defense" spending, which virtually nobody does). We have a revenue problem.
9
Dr. Krugman, I do have to ask a question that may illuminate my ignorance, but still, it is weighing on me.
Isn't the United States bankrupt?
Sure, we have great credit, but surely that will end one day. And if we are bankrupt, than isn't it all just smoke and mirrors, no matter who is presenting what economic theory.
With the greatest of respect...
Hugh Massengill, Eugene Oregon
11
@Hugh Massengill - How can a country that can create out of thin air as much of the currency its debts are in go bankrupt?
15
@Hugh Massengill As Krugman points out, our debt isn't much of a problem right now because we owe it in our own currency (and we can always make more dollars by issuing treasury bonds), and because we can borrow money at historically low interest rates right now. As long as the US economy keeps growing significantly faster than the interest on the debt, it will never be a problem.
15
@Hugh Massengill
Nope to both questions.
If we were still on the gold standard, maybe. But Nixon finished the job of taking us off.
Japan has something like *twice* its debt-to-GDP as the US. And its problem is DE-flation, not IN-flation.
Countries whose debt is not in their currency are in a very different position, however - Greece, Venezuela, etc.
Bottom line: national economics are very, very different from family economics, except for those families printing US currency in their basements.
17
"The budget deficit has hit a level unprecedented except during wars and in the immediate aftermath of major economic crises; the trade deficit in goods has set a record."
There you go again, citing facts and figures!
419
@Lennerd
Krugman also said this: "Let’s be clear: Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy."
His only point (as always) is that Trumps and the Republicans are hypocrites when it comes to fiscal responsibility: "Yet Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant." He is right on that score.
I'm not sure if Krugman has ever complained about either trade or budget deficits when a Democrat was in the White House.
9
@hm1342
When President Obama assumed office in 2009, the US economy had rising unemployment. The motor vehicle industry looked like folding. The financial system was struggling with asset values and debt.
To stop the US economy from a catastrophic recession, Obama hit the stimulus button. Receipts from government revenue fell with tax revenue of $2.52 trillion in 2008, $2.10 trillion in 2009, $2.30 trillion in 2010. It took until 2013 ($2.77 trillion) for tax revenue to exceed the 2008 level.
As government revenue was falling, the budget deficit was $1.41 trillion in 2009, $1.29 trillion in 2010, $1.30 trillion in 2011. Then budget deficits fell sharply. The last Obama budget deficit was $585 billion in 2016.
The combined budget deficit under Obama from 2014 to 2016, was $1.51 trillion.
The combined budget deficit for Trump from 2017 to estimates for 2019, is estimated to be $2.48 trillion.
Trump has had record low unemployment levels combined with moderate economic growth, yet the budget deficit is rising under Trump.
The recent economic record shows Republicans are only concerned with the budget deficit, when there is a Democrat in the White House.
62
@hm1342
"His only point (as always) is that Trumps and the Republicans are hypocrites when it comes to fiscal responsibility"
He also complained about Trumps ignorance in this piece.
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Trump and the republicans are interested in what benefits their donors the rich and powerful. Trump is a rich spoiled heir and Kushner is a rich spoiled heir and they will leave office with billions based on holding the office of president. How could a thrice married billionaire living in a gilded triplex on 5th ave bearing his name relate to an unemployed factory worker in the mid west, of course he can;t but he is a demagogue . Instead of tax cut for the rich and powerful TRump and the GOP should have initiated an infrastructure bill but the rich and powerful call the shots with the GOP and the Koch's get what they want unemployed factory workers do not.
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@REBCO: "Trump is a rich spoiled heir and Kushner is a rich spoiled heir and they will leave office with billions based on holding the office of president."
That may very well be true. I would love to see the Times do any story about members of Congress utilizing their position and contacts to enrich themselves while in office.
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@hm1342
Yes they should be looked at too however Trump and Kushner have control over foreign policy and those seeking to influence the most powerful nation in the world know they should stay at his hotels and give Kushner the billion$ he needed for his 666 5th ave bldg. That is a big difference.
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@hm1342, AOC didn't run to feed at the pig trough in the swamp. However, a former bartender and daughter of immigrants has lived her entire lifetime on that type of income and probably thinks she's now "rich" because she earns a salary of lower six figures (I presume) and benefits for actually doing what she was elected to do: represent her voters.
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Paul,
Your comments are well-taken.
BUT, until you or the relevant talking heads can provide numerical evidence that the current and last-two-years economic policy has done real harm to U.S. Citizens, of which I am a recent member, no one will take this seriously.
You, and the unmitigated experts on both sides of the congressional aisle, need to prove that REAL money is being forfeited by EVERYONE, except the obscenely rich.
PROVE to those who voted for trump that they have lost real disposable income. ONLY then will you convert them. Words will not do it. NUMBERS, where it hits them in the back account, WILL.
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@Jon Few people in trumps camp... if in fact any will every convert to anything that does not include trump worship but I think the deficit says a lot of the state of the nation in of and by itself.
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