Thursday, September 16, 2010
On Krugman and free trade:Did you catch Krugman's column earlier this week? He's upset that the Chinese are "taxing imports while subsidizing exports" by manipulating the currency, and that "depriv[es] other nations of much-needed sales and jobs". He says that maybe the U.S. should consider tariffs to counter this unfair activity. Question: How is China "manipulating" their currency any different from China having cheap labor? Looking at the black-box that is China's manufacturing, who cares? The impact on the U.S. market (principally labor) is the same: lost jobs due to outsourcing or price-undercutting. Somehow Krugman - a free-trader, as far as I can tell - is able to differentiate between the two aspects of Chinese trade (currency rates : labor costs) and sees only one of them as meriting a response. I suspect that Krugman is making a value judgment here. Because low Chinese wages are seen as somehow "natural", there's no need to counter them with tariffs, whereas with currency manipulation, there is. But that's not economics. That's philosophy. Krugman's column was revealing in that respect.
posted by Quiddity at 9/16/2010 04:31:00 PM
9 comments
I doubt the tariffs would square with the WTO.
I do believe that you're missing Prof. Krugman's essential point – that artificial manipulation of the currency is the problem here, not the impact of disparate wages per se. He uses the word “artificial” three times in the article:
...that China is deliberately keeping its currency artificially weak.
...any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs.
...China’s artificial cost advantage has actually increased.
And Krugman explicitly states what he's against:
...policies that benefit Chinese special interests at the expense of both Chinese and American workers...
Manipulation of the currency by the Chinese government is both unfair – it hurts workers everywhere - and inefficient, says Krugman. But just because rectifying that artificial manipulation would have a positive effect on American (and Chinese!) wages does not make it economically equivalent to protectionism, which is intended to increase American wages while reducing those of Chinese workers.
This is not philosophy, it's economics. Or to slice it more finely, Krugman is concerned with market efficiency here, but he's also trying to convince his readers that there are concrete benefits to his proposal – so he mentions the beneficial effect on wages. That's a nice side-effect, but it's not the main reason for eliminating currency manipulation.
Philosophy comes into play when we argue about whether it's better to try and grab a larger slice of a shrinking pie – i.e., protectionism – or whether it's better to let the free market do it's optimal thing, and then use taxation and redistribution to even out the results.
eb wrote, "Philosophy comes into play when we argue about whether it's better to try and grab a larger slice of a shrinking pie – i.e., protectionism – or whether it's better to let the free market do it's optimal thing, and then use taxation and redistribution to even out the results."
But we'll never use taxation and redistribution to even out the results.
eb wrote, "This is not philosophy, it's economics."
Of course it's not economics. Anytime an economist makes a normative rather than positive (descriptive) statement, it's no longer science, it's a statement of values.
... let the free market do it's optimal thing, and then use taxation and redistribution to even out the results.
That's like applying the accelerator and brakes simultaneously. The essence of the free market is that people are willing to risk their own capital when their unique personal knowledge and business theories tell them that they are likely to make more money. So you start a small company making computers in your garage instead of being a well-paid but peon engineer at a big computer company.
A regime of "taxation and distribution" reduces your possible profit if you succeed, and thus reduces your incentive to act on those sort of daring instincts.
In short, you cannot simultaneously induce people to take big chances to try and make big money, and at the same time tell them that if they do make it big, government will confiscate their profits. That's a classic "heads you win, tails you lose" situation.
One of the big reasons that this recession cannot end until the Obama administration is gone is the same reason that the recession began in the first place. The recession began when it became clear that the United States was about to elect a "tax and redistribute" socialist as President. The business community smelled it a mile away and went into self-preservation mode -- shedding jobs and protecting capital. The stimulus failed not because it was too small, but because it was a huge redistribution program -- exactly the opposite of what the business community wanted.
Government is supposed to protect people's property, not "redistribute" it.
Redistribute is a fancy word for loot.
jms wrote, The recession began when it became clear that the United States was about to elect a "tax and redistribute" socialist as President.
Yeah, it had nothing to do with the biggest financial collapse since the Great Depression.
Christ, you're an idiot.
jms wrote, Government is supposed to protect people's property, not "redistribute" it.
More blithering idiocy.
Most redistribution the government performs is from poorer to richer, in the form of giving legal sanction to the collection of economic rents.
Of course, your IQ is too low to understand the concept of "rent."
I think you are missing the essential point. The professor has emphasized on "artificial". Give him another read.
This is Ibrahim from Israeli Uncensored News
Yeah, it had nothing to do with the biggest financial collapse since the Great Depression.
The collapse was largely caused by the socialist seizure and government takeover of the automobile, health care, student loan and banking industries, the demonization of independent physicians and doctors, and the terrorist tactics used by the Obama administration against business executives, such as sending mobs of "protesters" to terrorize their families in their homes. American business went into hiding, and they are not about to come out until the danger has passed.
Most redistribution the government performs is from poorer to richer, in the form of giving legal sanction to the collection of economic rents.
You mean like Cash for Clunkers and electric/hybrid vehicle subsidies? What makes you think I support economic rents? All that government interference in the free market is improper. I'm glad you don't support it. I don't either. So I don't see your point.
And where's the "blithering idiocy" in government protecting property? The alternative isn't exactly setting our economy on fire.
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