Bill Greider on Why Paul Krugman Was So Wrong

I know I often give Paul Krugman a hard time. The big reason is he does not always seem to take the responsibilities that come along with his stature seriously. While he has staked out some important positions and defended them vigorously, such as firmly opposing austerity, and took quite a lot of heat for his early opposition to the war in Iraq, in other areas he is often too inclined to fall in with conventional thinking. And don’t get me started on how he defends dubious Obama behavior. The fact that the Republicans are bad guys does not make the the Democrats good guys by default.

A good piece in the Nation by Bill Greider, which focuses on Krugman’s long standing support of free trade, and how, contrary to his predictions, the results were not positive for ordinary American workers. Greider, who has long stressed that our system is not open trade but managed trade, and that other countries manage it with much more attention to protecting their workers than we do, has reason to personalize this discussion. He does point out that Krugman’s positions on trade were widely held among mainstream economists in the 1990s. But it is still fair for Greider to call Krugman out. First, Krugman, as a trade economist, was taken seriously not just in the profession but in wider policy debates. Second, Krugman took it upon himself to act as an enforcer, and went after people who dared suggest that opening up more sources of low wage labor might reduce pay levels in the US. In particular, he savaged Greider:

….for many years Krugman made it his personal duty to act as the watchdog warning the public against non-economists peddling false ideas. In practice, this usually meant skewering progressive writers who criticized globalization from a liberal-labor perspective—offshoring of jobs, stagnating wages, sweatshops and all that…

So Krugman chewed on my new book instead—One World, Ready or Not: The Manic Logic of Global Capitalism—which he described as “a thoroughly silly book.” He made a nasty campaign against it, first on Slate, Microsoft’s online magazine, next a harsh review in The Washington Post, then again in his book entitled The Accidental Theorist. I have to admit it. In Krugman’s telling, I did sound like a drooling idiot.

I don’t intend to reargue the matter, but my book was bound to provoke authorities like Krugman because I concluded from my reporting that the global system was careening toward “wrenching catastrophes” and eventual breakdown. I essentially argued that the global trading system, despite its fabulous wealth-creating powers, was generating new production far faster than it created new consumers with the wherewithal to buy all the stuff. Someone in the system would have to close some factories. The US effectively accepted the role of “buyer of last resort” for the world’s over-capacity, every year buying and borrowing more from abroad than it produced at home. That is where the trade deficits and swelling debt came from and the rising inequality. They all persist under Obama.

So why did Krugman and all of his colleagues get the trade equation so wrong? The simplest explanation is a failure to test theory against reality. Krugman simply dismissed emerging economies, and China in particular as a threat to America, as did pretty much anyone who looked at Japan in the 1960s. Greider excerpts sections of a 1994 Harvard Business Review article by Krugman:

“I hope to have made clear,” he added, “that the seemingly sophisticated view that the Third World is causing First World problems is questionable on conceptual grounds and wholly implausible in terms of the data.”

Huh? Did he miss the 1985 Plaza Accord, where the G-7 made a full court press to drive up the yen precisely because Japanese imports were making huge inroads, particularly in automobiles? The fact that Japan had gone awfully quickly from post war devastation, described in Japan as the starving years, to advanced economy powerhouse status was apparently a fluke. Back to Greider:

But what would happen if the low-wage countries also managed to generate large increases in productivity? “These emerging economies would see their wage rates in terms of chips rise—end of story,” he said. “There would be no impact, positive or negative, on real wage rates in other, initially higher-wage countries.”

In any case, Krugman was skeptical that poor countries could become high-tech producers. “A likely outcome is that high-tech goods will be produced only in the North [the advanced industrial economies], low-tech goods only in the South [low-wage developing economies], and both regions will produce at least some medium-tech goods,” he wrote.

But what if capital investment from the US and other advanced economies begins to flow heavily into the low-wage economies? Wouldn’t that undercut US wages as labor unions feared? “The short answer is yes in principle but no in practice,” the professor assured. “As a matter of standard textbook theory, international flows of capital from North to South could lower Northern wages. The actual flows that have taken place since 1990, however, are far too small to have the devastating impacts that many people envision.”

Greider also describes how Krugman later specifically dismissed China as a threat to the US. By contrast, Greider, who had just visited China, saw how American companies were falling all over themselves to get access to its market, and how Chinese officials were demanding technology transfer as the price of entry. Greider thought it was not wise to dismiss the ability of the Chinese to learn. And more generally, Americans suffered from hubris:

The American problem is not trade theory but self-delusion—an overweening confidence that the US as world leader would prevail because it always had. US leaders assumed they would define the architecture of the new global system, much as they had done since World War II, and other nations would sooner or later be compelled to follow—that is, abandon their national strategies of managed trade and accept the American ideology of free markets and free trade. In Washington and Wall Street, American multinationals were given a free hand to design their own strategies, free of government but of course supported by government money.

The problem was, the rest of the world declined to cooperate. If they could, developing nations pursued their own nationalistic strategies not so different from how the US did industrial development in the 19th century. And these newcomers succeeded spectacularly—first Japan, then the Asian tigers, now China and India and many others. Authorities like Krugman whose expectations were so wrong now tell Americans have no other alternative except the ugly protectionism which would be ruinous for all.

That assertion is mistaken too. The most compelling evidence of American self-delusion is not in Asia but in Europe. The best evidence that a nation can both manage its industrial system strategically while participating fully and fairly in global trade is Germany. As an exporting nation with large trade surpluses in advanced technological goods, Germany’s actual experience refutes the lessons taught by orthodox trade theory and macroeconomics in the US. It sets high performance standards for labor relations and for social entitlements. Its goals for the nation’s industrial base accept that some production will be dispersed abroad but the companies must make sure the industrial core—good jobs, high wages and technological invention—remain in Germany.

Now, of course, this view of Europe looks a tad rosy. Even Germany social protections are under attack. But it’s not clear that that was inevitable. One of the triggers was the deflationary impact of the decision to integrate Eastern Germany. That led to pressure on wage rates and later the Hartz reforms. Second has been the disastrous response to the financial crisis. As much as America’s policies have not been great, Europe’s have been worse (well except for not prosecuting bankers, where both have been equally bad). The US did more to clean up its banks and rebuild capital levels. We have more discretionary stimulus. We’ve set lower interest rate targets (while IMHO ZIPR is 1% too low, I was alarmed when the Fed dropped the Fed funds rate below 1%) while the ECB has been hampered by its inflation mandate. And as readers know, the destructive, failing austerity policies being inflicted on the periphery, which are to preserve the solvency of French and German banks, are infecting France and Germany regardless. So if Germany had had been luck and better macroeconomic policies, its labor model would likely still be flourishing.

It’s a shame that the point of view advocated by development economist Dani Rodrik in 2007 doesn’t seem to have a following:

Globalisation’s soft underbelly is the imbalance between the national scope of governments and the global nature of markets. A healthy economic system necessitates a delicate compromise between these two. Go too much in one direction and you have protectionism and autarky. Go too much in the other and you have an unstable world economy with little social and political support from those it is supposed to help.

If there is one lesson from the collapse of the 19th century version of globalisation, it is that we cannot leave national governments powerless to respond to their citizens. The genius of the Bretton Woods system, which lasted for about three decades after the second world war, was that it achieved such a compromise. Some of the most egregious restrictions on trade flows were removed, while allowing governments freedom to run independent macroeconomic policies and erect their own versions of the welfare state. Developing countries were free to pursue their own growth strategies with limited external restraint. The world economy prospered like never before…

It is time, then, to consider a new bargain. When rich and poor nations come together to negotiate the rules of the game they should stop thinking in terms of exchanging market access: “I will open my markets in x if you open yours in y.” They should consider ins-tead exchanging policy space: “I will allow you to protect your national social compact if you allow me to engage in development strategies that conflict with WTO and International Monetary Fund rules of good behaviour.” The challenge is to design procedures that enable the use of policy space for socially desirable purposes while limiting it for beggar-thy-neighbour purposes.

Risky? Yes. There is always the chance that such an approach would slide into protectionism, pure and simple. But the alternative is, if anything, more risky.

Europe, where democracies are being sacrificed on the altar of the bond gods, is a test case of how those risks can play out. We’re seeing rising death rates, deteriorating living standards, and escalating political and social instability. How much and how quickly things get worse is anybody’s guess, but I’d bet with Rodrik: that the downside of protectionism will look pretty compared to what is unfolding.

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  1. fresno dan

    “But what if capital investment from the US and other advanced economies begins to flow heavily into the low-wage economies? Wouldn’t that undercut US wages as labor unions feared? “The short answer is yes in principle but no in practice,” the professor assured. “As a matter of standard textbook theory, international flows of capital from North to South could lower Northern wages. The actual flows that have taken place since 1990, however, are far too small to have the devastating impacts that many people envision.””

    Huh, what is unusual is that most economists just rebut arguements with economic theory – here Krugman dimisses the theory by appealing to reality.

    Well, mea culpa. Maybe in theory the theory is wonderful – reality, not so much.

  2. fresno dan

    apologies for posting twice: -from the actual article
    “How can so many sophisticated people be so wrong?” he (Krugman) asked. He explained that complex feedback relationships distribute incomes, jobs, trade and investment among nations in ways difficult for non-economists to grasp. “I hope to have made clear,” he added, “that the seemingly sophisticated view that the Third World is causing First World problems is questionable on conceptual grounds and wholly implausible in terms of the data.”

    That sounds a lot like the rationalizations about saving the banks (and giving the bonuses to the AIGers, because even though they got us into this mess, they are the ONLY ones who know how to “unwind” – what a craxy word for “screw” – all the bad decisions). Yeah, big banking and free capitcal flows are good for us!

  3. LAS

    Although I like Krugman, I have to agree to much here. Being an industry consultant type provides a picture that Krugman’s academic and gov. experience don’t properly teach perhaps – namely just how much that collusion and gross exploitation motivate corporate business efforts. There is scarcely a single sentiment of welfare in the corporate process anywhere. Globalization was always an attempt to exploit one captive population against another. Each population in a different role, but all for the exploitation of capital.

  4. Petey

    Krugman in the 1990’s was a lot less appealing than the Krugman of today.

    I’m not saying he’s infallible these days, but he was much more fallible in the 1990’s.

    (Krugman today is a sensible centrist economist, which makes him a pretty rare bird. He’s not as left as I’d like, but he’s still pretty valuable to the discourse. Compare and contrast to his peers.)


    “And don’t get me started on how he defends dubious Obama behavior.”

    He’s actually reasonably tough on Obama for a sensible centrist economist. He just seems to bluntly and clearly lay out his criticism on any given Obama outrage, and then throw up his hands and give up on continually pushing it, which isn’t that objectionable for someone in his position.

    1. different clue

      Perhaps that’s Krugman’s secret assignment for Team Obama . . . to serve as a ground-wire gathering and harmlessly grounding out any liberal displeasure at Obama goals and actions.

  5. jake chase

    Krugman’s pompous even handed nonsense obtained it’s logical reward, a Nobel prize in economics. His ideas on trade are so ridiculous there is no reason even to discuss them. He is nothing more than an enabler of the neoliberal game who manages to avoid disagreeable rhetoric. He reminds me a great deal of Greenspan.

    I put him in the class with the guy who found French laws eminently fair, since they prohibited both rich and poor from sleeping under Paris bridges.

      1. Chucky

        “tough on Obama for a sensible centrist economist”…. Other than that, Mrs. Lincoln…”

        Well, a widely read sensible centrist economist repeatedly calling out Obama from the left ain’t chopped liver.

        Again, it doesn’t make Krugman infallible, and doesn’t make his general audience work in the ’90’s any more palatable, but again, compare and contrast what’s he’s been saying since January 2009 against his peers…

        1. jrs

          well but what if the 90s were when the battles over trade actually *mattered*? And it faced a lot of opposition from all sides. Now we’ll just be TPP-ed until we’re completely powerless (funny has Krugman mentioned the TPP?).

    1. Doug Terpstra

      Although Krugman isn’t generally “pompous”, he certainly reveals presumptuous arrogance WRT trade, the blatantly lopsided SHAFTA schemes. And as a persistent Obama apologist, he’s also a more effective neoliberal in disguise.

  6. Jessica

    I have read both Krugman and Greider. Agree with each sometimes. Disagree with each sometimes. I have always respected Greider’s integrity.

    1. okie farmer

      Well, we’ve known Krugman was wrong on his free trade notions from the beginning. I’ve never found anything wrong with Greider. “Secrets of the Temple” was one of the most important books of our time.

      1. MRW

        Rereading Grieder’s long but wonderfully readable Dec 1981 Atlantic article on David Stockmen is instructive in light of Stockman’s Sunday NYT Op-Ed. As Warren Mosler writes in his comments on Stockman’s Op-Ed, “I wonder if he’ll ever discover how wrong he’s been, and for a very long time.”

      2. Klassy!

        His Who Will Tell the People woke me up a bit when I read it in the 90’s. It resonates more with every passing year.
        I think a truth and reconciliation commission is a good idea. It is interesting how little Krugman writes in his column about international trade since that is supposedly his area of expertise.
        His book review was harsh and really seems to discount qualitative research.

      3. washunate

        To offer a different perspective: Greider’s central thesis is wrong.

        “jobs and middle-class wages decimated by the processes of globalizing production”

        “large and permanent trade deficits that translate into huge indebtedness to foreign trading partners in Asia and Europe and that exerts continuing downward pressure on US employment and wages”

        The most important step in problem-solving is understanding the problem, and Greider simply misses the mark here. Wage stagnation and massive inequality are caused by domestic public policy. Foreigners are ignorant distractions at best and more often purposeful deceptions used to shift blame from the American sociopathic criminals using public policy to steal the nation’s wealth for themselves.

        1. from Mexico

          This insular and parochial approach explains little, and is not helpful, because all you end up with are disconnected and unintegrated pieces of the overall picture. It is a sure-fire formula for distortion.

          What it encourages is what is known as “faceted analysis.”

          Faceted analysis is best illustrated by the old Chinese folktale about three blind men who encounter an elephant for the first time and attempt to learn about it by touch alone. One touches only the trunk, another only the tail, and the third only two legs. Then, one of the blind men says:

          “Let’s sit down and have a discussion about this queer animal,” the second blind man said, breaking the silence.

          “A very good idea. Very good.” the other two agreed for they also had this in mind. Without waiting for anyone to be properly seated, the second one blurted out, “This queer animal is like our straw fans swinging back and forth to give us a breeze. However, it’s not so big or well made. The main portion is rather wispy.”

          “No, no!” the first blind man shouted in disagreement. “This queer animal resembles two big trees without any branches.”

          “You’re both wrong.” the third man replied. “This queer animal is similar to a snake; it’s long and round, and very strong.”

          How they argued! Each one insisted that he alone was correct. Of course, there was no conclusion for not one had thoroughly examined the whole elephant. How can anyone describe the whole until he has learned the total of the parts.

          1. different clue

            That story reminds me of a cartoon of some blind old sages
            discussing an elephant.
            ” An elephant is like a spear.”
            ” An elephant is like a tree.”
            ” An elephant is like a wall.”
            ” An elephant is like a sail.”
            ” An elephant is soft and mushy.”

          2. washunate

            nobody, thanks for the link. It’s fun hearing new versions of stories you think you know.

            from Mexico, I’ve been lurking here a while and decided to start commenting this month, so I don’t know how much detail to go into, but it seems you think I’m making a superficial/snarky/incomplete comment rather than a fundamental point.

            So let me offer this tusk of a tidbit. Real US GDP Per Capita during the great quarter century of de-industrialization.

            1980: $25,600
            1985: $28,700
            1990: $32,100
            1995: $34,100
            2000: $39,700
            2005: $42,600


            GDP is inadequate as an absolute number, of course, but the trend to me says that means there’s plenty of wealth to go around, regardless of globalized production or international trade or whatever. And note we did this while adding almost 70 million people to the US population and with cultural demographics far more diverse than China, Germany, Japan, or Russia.

          3. Bill Smith

            “so I don’t know how much detail to go into”

            It’ll take more than Real GDP per Capita

            For starters, try looking at growth in personal and public debt over that period which feeds GDP. Then at actual median household income growth, perhaps with a skeptical eye towards huge growth in income inequality.

            Then take a look at people in sectors not threatened with third world competition (Big Med, Big Pharma, Big Defense, Big Law, Big Ed, Big Civil Servant…) have faired (and inflation) compared with those that are in a global labor market.

            70 million in population growth. I guess they always say they wouldn’t move here unless where they came from really sucked. Haven’t heard much about the War on Poverty lately, but we do need someone to sell our slums to.

        2. Binky Bear

          Because you say so? That’s not how it looks from the street view. But a lovely attempt at a Jedi mind trick.
          -So why did Boeing outsource the 787 even though it proved problematic and didn’t save money, increase efficiency or improve the product, rather the opposite?
          -Why did Boeing threaten its union workers that it was going to move production to slave state South Carolina if they didn’t give in on contract demands? Even though it was illegal, assholish, counterproductive and dumb?
          -WTF happened to the midwest that used to make cars, steel, tires, etc.?

          Outsourced to Asia and slave states to increase profit margins and reward CEOs and officers. Greider was clearly right and Krugman was still in the church of neoliberal post Reaganism until the Bush II years.

          Economics is a religion, not a science.

          1. washunate

            Binky Bear and Bill Smith – what you describe fits very nicely with the perspective I’m offering. Boeing is a quintessential example of “the government”, not “the market”, picking winners and losers. And using an example where they threatened to move work to South Carolina fantastically illustrates my point that trade across arbitrary international lines on a map isn’t the relevant point. Really what the world needs is more JDAMS. OMG the Iranians are coming and we only have 200,000!! At least the F-15s and FA-18s are real combat vehicles – the JSF F-35 is practically a laughingstock. Anyway…

            More broadly, Bill, your comment lists example after example of how domestic public policy, not international trade, has shaped wage stagnation and wealth inequality.

            Legal advice is expensive in this country because law schools exert market power over sitting for state bar examinations. (and more generally, the whole higher education regime is a boondoggle of mis-allocated resources and debt serfdom and faux tax-exempt organizations).

            Pharmaceutical drugs are expensive because drug dealers exert market power over life-saving medications. (this is a great example where free trade would quite directly improve the situation – the government even prohibits itself from negotiating volume discounts).

            Hospital franchises are expensive because the chains exert market power over the delivery of life-saving care. (and many people not familiar with this world are shocked to learn that these are often among the largest employers in their area and have on their Boards the corporate executives of the other large employers in their area).

            Defense contracting is expensive because the government pays private companies more than it would cost the government to deliver the service itself. Plus that minor little detail that we are literally blowing up (and figuratively pornoscanning away) our wealth.

            I would want to specifically add the criminal justice system to your list, a huge waste of resources that, by definition, is created by the state.

            The financial services crooks, er, companies, not only wouldn’t exist without USFG assistance, they are at the heart of the problem.

            And so on.

            And in each of these industries, the USFG allows the senior administration to be bloated and overpaid and undertaxed (and even commit crimes) while the base of workers are overworked and underpaid and overtaxed. I mean, many of the jobs that pay inadequate wages are literally jobs that can’t be offshored – daycare, home healthcare, housekeeping, custodial, maintenance, food service, office support, etc. – while many of the “high skill” jobs don’t produce anything of value – think the lecture circuit for powerful people or temporary positions given to the politically connected or board directorships with no accompanying actual governance – and could actually be done quite competently by foreigners if competence was what was desired.

        3. from Mexico

          @ washunate

          Getting in here and mixing it up is one of the best ways to learn. After all, putting your ideas and arguments on the table for other people to critique is an important part of the discovery process.

          When you say “Wage stagnation and massive inequality are caused by domestic public policy” that’s entirely too simple. It’s much more complex than that. For besides our domestic public policy, there’s our foreign policy and our foreign trade policy. Then there’s the domestic public policy, foreign policy and foreign trade policy of other nations. Then there’s scientific and technological development. Then on top of that are layered other factors that aren’t even man-made or man-willed, such as resource depletion and global warming.

          I certainly agree that the US oligarchs sit at the top of the food chain, and are thus deserving of all the opprobrium we heap on them. But when you make statements like “Foreigners are ignorant distractions at best and more often purposeful deceptions used to shift blame from the American sociopathic criminals using public policy to steal the nation’s wealth for themselves,” you ignore the role the foreign oligarchs play in the food chain. There is no way the US oligarchs could pull off what they do without, for instance, the collusion of the Mexican oligarchs. You exculpate the Mexican oligarchs, and don’t for a minute think that the Mexican oligarchs don’t run with the ball you’ve handed them. Luis Echeverría Álvarez, for instance, who was Mexico’s president from 1970 to 1976, played the blame-the-gringos card magnificently. While attacking the gringo oligarchs with gleeful Third World enthusiasm, he made its members richer than ever.

          1. Calgacus

            Nope, FM, Washunate’s: Wage stagnation and massive inequality are caused by domestic public policy. Foreigners are ignorant distractions at best and more often purposeful deceptions used to shift blame from the American sociopathic criminals using public policy to steal the nation’s wealth for themselves.

            Is ABSOLUTELY RIGHT. Well Said!

            Wages stagnated in the USA – because the sociopaths decided to make them stagnate. Period. Hell they even announced so a the time, 30 odd years ago. The famous Business Week article. Volcker’s statement that he’d make ordinary Americans accept the lower standard of living. And was just looking at an old book by Josef Steindl. A new preface he wrote in 1972 noted that the decision for stagnation had been made – he saw it already by then, 1972! Victor Quirk has done great work, focussed on Australia, on many other flat statements of elite intents to stagnate.

            Making things more complicated than they really are is a recent plague. Undersimplification, not oversimplification is the omnipresent problem in many disciplines. The pleasure of reading Abba Lerner – who Washunate is channeling perhaps – is the absence of this peculiar postmodern passion. Globalization, foreign trade is just a distraction. The problems it poses are very, very easily solved by a government responsive to an economically competent and aware electorate. The government spends enough for full employment, practices functional finance, has a JG at a decent wage, not a declining one, as we have had. Period.

  7. ContrarianOntarian

    Free Trade is a one-size-fits-all proposition in a world filled with unique economies. It assumes positive outcomes will result for all participants providing ‘all things being equal’ which they clearly aren’t and never ever will be.
    I find Krugman intelligent but smug and simplistic; I prefer Cambridge University economist Ha-Joon Chang whose ideas on emerging/forming economies is much more realistic, arguing that no two economies are equal, sometimes protectionism is necessary and that a nation can never go from point A to point Z by simply signing a piece of paper. One suspects that the reason why so many economists still think this is possible has more to do with making sure they still get invited to all the right cocktail parties and to speak at all of the prestigious conferences than anything else.

    1. Susan the other

      I think our new trade policies and pacts – treaties which have the legal standing of international contracts – are being refined to protect capital, i.e. the banksters. Anything that protects the national commonwealth of any partner is secondary to the interests of bankers, investors and capital. Capital is being given this protection without asking it for anything in return, like complying with environmental laws, or paying proper wages and providing proper health care, etc. So for capital it’s great, but the whole thing lacks mutuality. The protectionism we should be worried about is the one-sided protection of capital. Capital should always be subordinate to societal and environmental welfare. Otherwise it’s just useless money.

      1. from Mexico

        Excellent comment that goes to the heart of the underlying motives that inform neoliberalism, as well as its apologists like Krugman and Greider.

      2. Doug Terpstra

        “Anything that protects the national commonwealth of any partner is [anathema] to the interests of bankers, investors and capital.” The commonwealth is a key target for disaster capitalists, and all commonweal protections are not “secondary”; they are systematically dismantled by unaccountable supranational tribunals.

  8. Rasmus Xera

    What about those who “dared suggest” not just “that opening up more sources of low wage labor might reduce pay levels in the US”, but that (neoliberal) globalization would only further cement into place the pitiful, subservient conditions the vast majority of the world’s people find themselves in?

    Oh, right.

    I’ll be in the corner with the rest of the communists.

  9. mmckinl

    Krugman was wrong then … Greider is wrong now …

    Greider steps back into the past and lives there. The refurbishing of American industry is not going to happen to any great extent, the game of the planned industrial economy as Germany has used is over because economic growth is over. In fact using real inflation rates the US hasn’t grown since 2000.

    Growth is over because the “powers that be” in the US, the EU and Japan have decided to save the oligarchs with zombie economies rather than write off unpayable debt. This has worked well for the 1% as their wealth and income since 2009 has soared. Not so good for the rest of us consumers.

    Growth is over because the world has reached peak energy, (especially oil,) water, soil and the ability of the earth to provide ever increasing commodities while trying to absorb ever increasing amounts of pollution. The price of fuel and climate change are soon going to starve many in the less wealthy countries.

    Greider needs to get up to speed on the realities of the 21st century before he starts recommending any sort of economic plans to be adopted. Greider still thinks the growth party will make a roaring comeback while debt gets piled ever higher, climate change gets even nastier and oil gets ever more expensive and harder to find …

    1. washunate

      Well said! I am intrigued by how much people focus on solutions from decades ago. We are a post-industrial society; that’s a good thing. Most factory and mining jobs have been horrific throughout the history of the industrial revolution. Why would we want that ‘growth’? Good ‘ole 19th century technology like trains and wind power would be preferable to using so much oil and trucking and clogged highway commuting.

      The reason we have a huge class of working poor is because of financialization and the general criminality of zombie economics combined with a lack of minimum wage and overtime law tweaks (for example, a great way to ‘grow’ would be to grow leisure time with a shorter work week and guaratneed paid time off).

      Our situation has nothing to do with not manufacturing enough shoes and buggie whips, nor does it have anything to do with those scary evil cheatin’ ferners.

      1. different clue

        Are shoes an obsolete figure of ridicule like buggy whips? Do people not wear shoes any more?

        1. washunate

          Shoes are a good example of the business of moving jobs around over the past half century. Most people have heard of Nike and the various environmental, human rights, and other aspects, so it makes good shorthand. Substitute pencils if you like, or pinball machines, or iPods, or whatever. My point is about principles, not specific products.

          Trying to balance specificity with brevity:

          1. International trade makes up a small component of the US economy (much smaller than that evil scary China or that magical model Germany).
          2. Of what we do trade internationally, most is NOT consumer goods products like clothing, electronics, and the cheap crap stocked at Walmart. These are largely distractions and rounding errors. Most of the cost of cell phone service, for example, goes to AT&T and Verizon, not Apple or Samsung, and certainly not to workers making iPhones and Galaxies.
          3. Low wages in the US are not caused by low wage workers oversees. They are caused by high wage workers in the US. It’s a simple zero sum game – more for the higher ups necessitates less for the people doing the work.
          4. The major problems we face are about the fundamental breakdown of the rule of law and public policy that supports workers, infrastructure, and social insurance.
          5. The manufacturing jobs are gone. Long gone, as in decades ago gone. The notion that an oil-based factory boom can be recreated is hilarious. Not only are the environmental impacts unwanted, but there is no need. We already have plenty for everyone in the US – our task today is distribution, not growth.

          In short, if you are concerned about wage stagnation and inequality in the US, the effects of ‘free trade’ or globalized production or competition with China or whatever are so negligible as to be irrelevant. Focus on the big things.

          Further, it is good that we live in a society where the majority of the population does not need to be employed in agriculture, mining, factories, and related pursuits. That frees up human energy and creativity for progressing as a species (education, medicine, art, science, recreation, leisure, exploration, etc.).

          1. LifelongLib

            Low wages for some are caused less by high wages for others than by the huge amounts of money that go to people (rentiers, speculators) who do no work at all.

          2. from Mexico

            I think you’ve drank too much of the Cartesian Kool Aid, such as when he claimed that “the soul can think without the body.”

          3. different clue

            So, what happened to several million mass-disemployed shoemakers, Etch-a-Sketch makers, steelmakers, Aladdin-Stanley Thermos makers, cloth/sheet/pillowcase makers, clothing makers, meatcutters,etc. over the last 30 years? Did they all become artists, scientists, doctors, etc.? I would be happy to look at any specific evidence you have that they did.

            Also, when we had several million high wage unionized workers before the current Free Trade era; whose wages did those high wage workers lower? Whose wages have gone up as
            jobicided workers’ wages have gone down or gone zero?

          4. MB

            “3. Low wages in the US are not caused by low wage workers oversees. They are caused by high wage workers in the US. It’s a simple zero sum game – more for the higher ups necessitates less for the people doing the work.
            4. The major problems we face are about the fundamental breakdown of the rule of law and public policy that supports workers, infrastructure, and social insurance.

            Pertaining to #3:

            Perhaps the zero sum is not just more for higher ups, but the offshoring of profits (not going to all the higher ups, but the highest ups)

            and then #4:

            Offshoring money is the means to the end to construct the facade of patriotism, whilst accomplishing #4, decimating the middle and lower worker (lowering their boats, while lifting elsewhere.

            And while everyone is looking “here” at the changing economy and standard of living gutting, the shrug of non-allegiance to any population, and nobody has the eyes on where the money has really gone, i.e. disappeared (offshore). The true meaning of “liberating capital”!

      2. jonboinAR

        …(for example, a great way to ‘grow’ would be to grow leisure time with a shorter work week and guaratneed paid time off).

        That’s what I been talking about!

    2. Lee

      “Growth is over.” A terrifying proposition given the assumptions about economics and human motivation that now rule the world.

      Perhaps we should begin to consider the virtues of steady-state economics.

      1. Bill Smith

        Ya! Think so! I don’t want to stop living because we don’t have growth?

        Two feet still need two shoes. Only an economist would worry about not growing a third foot.

      1. Chris

        I’m not entirely certain, but I think I heard that it reduces the scope of tariff adjustments that countries can make e.g. if you begin with a 20% rate, it can’t go any higher.
        Where I’m 100% positive is the policy on patents/IP. This restricts countries from copying technology, which is how every developed country today started off(Yes, even the US began by “importing” technologies from Britain).

        1. Klassy!

          Yes, there is always that good for me but not for thee current when the US is telling others what to do.

      2. Bill Smith

        Here are average tariffs charged around the world. Under current WTO rules, punitive tariffs can be applied on an industry case by case basis if “dumping” can be proved.

        But normally, tariffs average 3% in the US. For comparison, tariffs in the BICs (I excluded Russia because the chart was getting crowded.) are 3x-4x higher than the US. We can only wonder why.

    1. Yves Smith Post author

      Big gap between theory and practice.

      In the coated paper industry, for instance, China and Indonesia were pricing good at what clearly would be dumping levels but they formally weren’t dumping because coated paper is super capital intensive and the big subsidies took place in the plant construction. So they have artificially low capital costs, which meant they could look profitable pricing just over their low marginal production costs.

      The US launched a WTO case and then withdrew it. They apparently just wanted to saber rattle a bit, not actually do anything.

  10. seabos84

    “It is the hard condition of military command, that a share in prosperous events is claimed by all, but misfortunes are imputed to one alone.” Tacitus, from Agricola.

    I’m REALLY confused – how the h e double toothpicks is Krugman’s conventional wisdom gossiping any different than the back yard gossiping while hanging out the laundry to dry – Krugman and his boyz got all this fancy math to pretend their conventional wisdom isn’t just conventional wisdom, and they got all these fancy paychecks to make sure their conventional wisdom sounds all erudite, instead of sounding just like rich pig worship.

    Oh yeah – WE HAVE MANAGED TRADE. C’mon people – buried in those deliberately unreadable, purposely incomprehensible laws and regulations which are 100s of pages thick, there are all kinds of market rigging legal schemes to make sure Monsanto, Exxon, AIG … get their advantages, ALL at the expense of us working stiffs.

    This crap is all VERY simple – the more complex some legal process is, the faster I’m getting ripped off.


  11. from Mexico

    Would it be possible to get any more detached from reality than the Alice in Wonderland world that Greider lives in?

    Take this passage for intance:

    The American problem is not trade theory but self-delusion… In Washington and Wall Street, American multinationals were given a free hand to design their own strategies, free of government but of course supported by government money.

    Well, as a side note, they weren’t just supported by government money, but by a $1 trillion a year military machine to boot, something that’s always conveniently left out of mainstream liberal discourse in the US.

    But the main point I want to make is this: Gredier thinks Wall Street is “deluded”? Michael Paenti does such a great takedown of this lie being propagandized by Greider that I will defer to him:

    You know he was a very smart guy. The liberals all rocked back on their heels and chuckled about how stupid Ronald Reagan is and how stupid American foreign policy is. We always get in and we always back the wrong guys. Why are we always backing the wrong guys? Because you’re stupid! But they never stop to ask the question: “What makes you think they’re the wrong guys for the guys up there at the top?” Maybe they’re the right guys. Maybe you should start opening your mind a little bit more critically.

    And if that passage wasn’t enough to reveal Gredider as an unabashed apologist for empire, what he says next removes all doubt. For what does he identify as Wall Street’s “delusion”? :

    US leaders assumed they would define the architecture of the new global system, much as they had done since World War II, and other nations would sooner or later be compelled to follow—that is, abandon their national strategies of managed trade and accept the American ideology of free markets and free trade.

    The problem was, the rest of the world declined to cooperate.

    Phew! Would it be possible to get any more spaced out in lala land than this?

    For those who live outside of Washington’s and Brussel’s US/NATO bubble world, there’s a very different take on things. No one has but it more bluntly than the Egyptian writer Samir Amin:

    The actual target of the US global strategy is not at all to create a global open market as is being claimed by the World Bank but on the opposite to establish a system of plunder through the military control of the planet.


    The United States cannot renounce its option for an asymmetrical practice of liberalism because this is the sole means whereby America can compensate for its own deficiencies. The price of America’s “prosperity” is the stagnation of others.


    There is no doubt that, for the time being, governments of the Southern countries still seem to be fighting for a “true neo-liberalism ” whose Northern partners, like those of the South, would agree “to play the game”. The Southern countries can only realise that this hope is completely illusory.

    And as Amin goes on to point out, the same game of domination and doublespeak that the United States plays with the southern hemisphere is not all that different from the game of domination and doublespeak the European center plays with the European perifery.

    1. jake chase

      I think you overrate US military strategy. I see it as just another rent extraction racket. Bombers or boondoggles, the main idea is to get paid and not have your costs analyzed or even questioned.

      Perhaps this explains the spectacular unsuccess of our military endeavors since 1950. Moreover, I cannot help wondering how successful they would have proved in 1945, had it not been for the fantastic human sacrifice of the Soviet Union (20 million as I recall) and the one off breakthrough of the atomic bomb.

      A more realistic outcome of military imperialism is provided by WWI. A fascinating account is David Fromkin’s A Peace to End All Peace.

      1. from Mexico

        I think you’re straw-manning a bit there.

        No one ever said the neoliberal-neocon wet dream of full spectrum dominance is achieveable, only that that is the “target” of the BushObamites.

        1. jake chase

          The target is rhetorical. It makes for good sound bites, justifies waste, looting, etc. These guys are not stupid, merely self interested and versatile propagandists. When the music stops, who has the money?

          I have been listening for fifty years to leftist intellectuals who haven’t a clue what is really going on. Have to say that many of them do write beautifully.

      2. Lee

        To paraphrase John le Carre: “The [American] knight is dying inside his armor.” Would an honest cost-benefit analysis of empire indicate when and to what extent we have reached the point of diminishing returns? As for the issue of moral bankruptcy, how deep might that hole be?

      3. LucyLulu

        While Afghanistan presents some unique challenges, it has only been the last four decades or so that the US military has grown to the size of that of the next l0 largest. You forget the quick decimation in Kuwait, and even initially in Iraq before there was stated change in strategy to “capture hearts and minds” (by killing 1,000,000 Iraqis, what could possibly go wrong?). In any case, are you denying that US military presence didn’t help to ensure the continued free flow of cheap Saudi oil to the U.S.?

    2. allcoppedout

      {“Free trade”} – how many scare quotations do we need? Born and bred in the UK I can scarcely believe how much ideological brain-washing I’ve had to bear, though it’s clear now that this situation has been worse for those living in the USA. The current debates resemble those I heard in my teens. With apologies to current Germans, free trade sounds like handing over all arms production to them in 1910 because they had more efficient industry – this lunacy can still be heard by those advocating the outsourcing of all food production to Brazil because they do it cheaper.
      These days we are supposed to retain hi-value, hi-skilled work and let the rest be done abroad. The hi-value jobs and skills appear to be in the financial services sector – this appears little more than a Ponzi scheme in which no real work is done other than theft, either directly through ppi and interest rate swaps, fees from allegedly personalised products that are routine (mortgages etc.) or the creation of asset bubbles, usually in property and looting via asset stripping or the third world and tax via offshore.
      I have lectures I used to give in the mid-80s I still see in current textbooks or being delivered by colleagues. The scheme of free trade in them makes no sense to me and didn’t then.
      If these standard models worked Britain might have a thriving shipbuilding or textiles industry. We might still mine coal, burned as plasma in carbon-sulfur efficient reactors – now going off-line because of wave, solar, wind, geothermal and petrol from air replacements.
      Instead I live in a country with a Tory government cutting benefits, hurting disabled people, and relying on the notion people should be rewarded for hard work – from a Chancellor who looks as though he is unlikely to have ever done any real work. I don’t know whether we are deeply in debt from or ‘thrusting’ financial sector in the same way as Cyprus – because I can’t work out what claimed assets are really worth – that is what side of the zero sum game ‘we’ are on – though the actual game is so predicated on Ponzi it may well not be zero sum at all.
      Paul Krugman delivers little not in ‘my lectures’ – actually cribbed from a friend at the LSE who once told me economics was poor theory but a least worth arguing as opposed to management theories (excellence, kwality) that were only fit for ridicule – and I now believe economics is now a control fraud. It’s real questions concern policing and policing the police entrusted to make the game fair.
      Up in Stockton-on-Tees £12 million is invested in a ‘petrol from air’ machine (carbon dioxide and water vapour are the essential ingredients of hydrocarbon fuels). Imagine (details are short) this machine has satisfactory energy in energy out characteristics. The prototype fits in a couple of shipping containers. Now ask what happens to the economy of Saudi Arabia. What if we make a viable fusion reactor? Do we give it to everyone or use the technology to dominate? With such clean technology do we allow any oil burning or send gunships to save the planet? Would such clean technology be given at fair production-plus cost or licensed out with economic rents?

      The ratio of German to UK people in technical training was 16 : 1 in 1910. I weep thinking of our vocational structure compared with theirs today. We have had the rhetoric of catch-up since I was a boy and lost more and more ground. I drive a Volkswagen (made in Portugal). We “won” two wars against Germany. Before the first one, wages in Germany were much lower than here, now much more. In this failure the rich have done very nicely for themselves in the UK.

      If trade was free one would expect an open and transparent accounting system internationally – not offshore impenetrability. The model is refereed sport where you can’t come up with genius ploys like playing 30 men against 11 or lacing your team’s boots with razor wire. Models of free trade lack both honest referees and action replay.

      The treatment of people in economics is disgusting, making us slaves to its ideology. It’s clear in empirical terms economics is not what it claims to be and is really a power-based control fraud that rationalises its failure with the nightmare threat the sky would collapse without it. We might be able to believe in free trade if we saw the US and all others give up all arms beyond that needed to protect us from banditry – for in free trade we would have no ‘interests to protect’.
      The real questions we avoid concern how we could establish decent living for all and the answers aren’t liberal – we need, for instance, population control. I can’t believe any analysis of the world’s resources would show we have to maintain vast numbers in poverty (we see such in biology where some animal leaders will keep their groups in ‘penury’ even when ample resources are available) – but then one can live in poverty as quite well off in our plastic, reality-tv western world. When Yves was asking the other day whether she’d had an unlucky streak with customer service I found myself thinking I feel better with the television repeat-loop, crass non-news and so on off.
      Economics seems more to do with ‘reasons’ we can’t do the stuff that needs doing than a facilitation of this. The excuse is always that free trade will bring the ‘better’ about whilst stopping direct action to do so.

      1. from Mexico

        We might be able to believe in free trade if we saw the US and all others give up all arms beyond that needed to protect us from banditry – for in free trade we would have no ‘interests to protect’.

        Worth repeating.

  12. Glasshammer

    “a failure to test theory against reality”

    I thoroughly tested the theory against consensus reality.

    Everything is fine.

  13. washunate

    This is a fascinating discussion. Both men have offered thoughtful commentary over the years, which is more than can be said about a significant chunk of leaders in this country.

    But I fundamentally don’t understand Greider’s attack, particularly on these three levels:

    1. How can free trade be the problem when we have the antithesis of free trade?

    2. Trade IS broadly beneficial. Period. But…

    3. Just because it is broadly beneficial doesn’t mean that the gains from trade will necessarily be widely spread amongst society. Rather, that requires a system of political economy concerned with the public good.

    Our problems today have nothing to do with globalization or free trade or foreign competition. Nothing.

    Our problems today have everything to do with our domestic public policy that allocates resources to a highly concentrated, sociopathic group of criminals.

    1. different clue

      So the mass dismantlement of entire industries within the United States ( textile, shoe-making, thing-making of many kinds, etc) and their shipment and rebuilding overseas
      in order to disemploy millions of unionised Americans in order to exterminate the unions by exterminating unionised industries . . . has nothing to do with our mass-jobicide problem today?

      1. Bill Smith

        This is a major argument why people who live and work in Ivory Towers shouldn’t be allowed to have opinions on the economy.

        Also, people didn’t just get de-unionized. The jobs disappeared, period. Along with the white and pink collar jobs. Then immigration and H1B visas to help us out with what’s left.

        1. different clue

          If you had comprehension-read my comment for comprehension instead of speed-reading it for speed, you would have seen where I myself wrote: ” . . . in order to disemploy millions of Americans in order to exterminate the unions . . . ” See? Right there, in that sentence . . . the proof that I myself was complaining about the deliberate elimination of the jobs themselves, and not just the “de-unionizing” of those jobs while leaving the jobs in place. Anyone else can see that I wrote just exactly what you claim I didn’t write if they wish to look.

          About ivory towers . . . I work as a pharmacy tecnician in a hospital for $34,600/year. One of my newer co-workers
          used to work in a smallish car-industry parts maker-supplier. He and his co-workforce won various awards for excellent quality industrial production work; one of those awards shortly before the owners shut the plant and outsourced the production to China. That’s whats in my ivory tower. What’s in your ivory tower?

          I have no bussiness having economic opinions? Tough. I have economic opinions anyway. I neither need nor value your permission to have economic opinions.

          Oooh! Oooh! Here’s another of those ivory tower economic opinions I keep having! In my opinion, books and papers written over the decades by Charles Walters Jr. (who became a Masters Degree Economist at College) are worth reading for a history and analysis of the evil intent and destructive effect of Free Trade. For those who might be interested, I would suggest Unforgiven: The American Economic System SOLD For Debt And War.

          I would further suggest Raw Materials Economics.

          And might I further suggest Competition-Constructive and Destructive, by John Culbertson.

          And that’s the economic opinion from MY ivory tower.

          1. Bill Smith

            1) Take a valium and read slower.

            2) Ok, we agree they f*cked everyone, not just unions and the jobs went by-by and a few got replaced by Mexican janitors in multi-national corporate headquarter skyscrapers with heli pads on top.

            3) FYI – Ivory Tower is a reference to a place where college professors work (meaning Krugman). At least it was a popular term back when I went to school.

      2. washunate


        Free trade isn’t the problem. The reason working at Walmart or Whole Foods or Papa Johns is a terrible experience is because the minimum wage is too low and unemployment insurance isn’t universal and health insurance isn’t universal and corporate executives aren’t prosecuted for breaking laws and all the other things that have nothing to do with China. Even that sentiment doesn’t express the full breadth of the problem, because discount retailers and food service and similar outlets are just symptoms.

        The main, core, ultimate problem is that we’ve disconnected productivity from wages. We’ve skimmed off what should have been an increasing standard of living for everyone to give it to a few sociopathic criminals in financial services and defense/security/etc. and so forth. This has nothing to do with manufacturing. It’s about FLSA wording and tax codes and social insurance and infrastructure and war spending and prisons and TBTF…

        1. Ben Johannson

          “Free” trade is the method by which wages are suppressed. The entire point is to create a large pool of unemployed persons, weakening the power of labor to negotiate for better conditions. The more desperate people are looking for work, the more power capital has to dictate wages. So exporting jobs does in fact harm American workers.

        2. Yves Smith Post author

          You still have the causality completely wrong.

          How was management able to keep productivity gains for itself? By creating a pool of unemployed, so that people would accept crappy working conditions because they needed a job.

          And how did management get that leverage? By sending jobs overseas! It stated with buying more foreign components and using Mexican maquilodoro. That goes back to the 1980s.

          1. washunate

            Yves, thanks for responding to my first post on the site! That’s really appreciated.

            I know my opinion is at odds with the generally accepted liberal perspective of the past few decades on trade, so that’s why I advocate this particular issue more strongly than my natural inclination to make sure it doesn’t come off as something casual that hasn’t been thought through.

            Greider wrote a lengthy piece, but I don’t see how he offers anything meaningfully different. I mean, he can’t honestly believe that Germany’s trade model is good rather than destabilizing, can he?

            Just to throw out some food for future thought (no specific responses sought):

            1. If unemployment is the cause of the political system devaluing labor, what is the cause of unemployment?
            2. If manufacturing jobs are inherently decent jobs, what were authors like Dickens and Sinclair writing about? (and if manufacturing isn’t inherently good, what’s all the fuss about?)
            3. If free trade is not a good alternative to current US trade policy, what is?
            4. Why is it that countries we are told to be afraid of competing with us are generally non-white countries? (like Japan, China, and India)
            5. How is it that trade is remotely as important as war spending and healthcare and financial fraud and education and housing and the prison system and all the other major parts of the US economy that are directly driven by USFG?
            6. How does unemployment explain specific actions of the government, like the vast disparity in pay for different positions that are directly funded by taxpayer dollars or the gutting of progressive income taxation?
            7. What’s the fundamental difference between importing something from Seattle and importing it from Shanghai?

  14. Andrew Watts

    As noted more politely in the article, there was plenty of self-serving academics who advocated free trade in the 1990s. Krugman hardly stands out in the regard. Though he has devoted much of his mind to solving the intricacy of world trade he has seemed utterly lost at times. By ignoring or being baffled by such simple concepts like incentives and/or cheating. In other words; currency rate manipulation. It has only been quite recently and in a limited sphere of understanding (ie: China) that he has discovered the concept.

    Since the Plaza Accords, laissez-faire capitalists have stymied efforts to retaliate against and impose massive sanctions on currency rate cheaters like Japan. Instead favoring the continuation of their failed trade policies. While intellectuals like Krugman have provided the shroud of legitimacy for the very same failed policies.

    1. Andrew Watts

      I could almost forgive Krugman as a leading practitioner of the dismal science if that was it. Except for the fact he smeared John K. Galbraith as being nothing more than a media personality who propagated unscientific theories in the introduction of one of his books.

      At that particular point in time during the mid-90s, Galbraith was attempting to warn the public about the risks of financial speculation. Even writing a book about the inherent nature of a speculative bubble.

      Because nobody could’ve possibly seen our current experience coming.

      1. Banger

        Galbraith had a giant intellect and a giant frame he was so much more than an economist–Krugman is no so bad but he is no match for JKG.

      2. Banger

        The problem with Krugman is that he’s an economist first a political analyst second. Free trade could have worked better but it was rigged by political forces to benefit the powerful. Greedier had a better understanding of that than Krugman. Because society believes that economics is the Queen of the sciences people think economists possess some kind of transcendent wisdom. My father was an economist who knew enough to realize how little wisdom economists possessed. He learned at Chicago from Hans Morgenthau that “all relations are power relations” which he would repeat ad nausiam to me. I now agree with that notion up to a point but certainly it is true of almost anything we talk about here. Economics does not really exist a separate from politics. The free market is a model and has not ANC can never exist. All markets require control and all vey lucrative markets involve powerful forces of coercion. You can call your system anything you want but economics’ main dynamic is physical force. Workers were f’d over because they allowed themselves to be deceived over the culture wars to abandon the union movement and thus lost the ability to use force to impose a say in the matter of free trade. Unions had power because they could bring business to its knees. Workers now have no power because they voluntarily surrendered to the corporate oligarchs who are always ready to loot the country any chance they get.

        1. from Mexico

          Banger says:

          Unions had power because they could bring business to its knees. Workers now have no power because they voluntarily surrendered to the corporate oligarchs who are always ready to loot the country any chance they get.

          One little quibble. Unions were slow on the uptake when it came to seeing the devastating consequences that global labor arbitrage would have on them, so in a way they did “voluntarily surrender to the corporate oligarchs.”

          But I believe this was an error of omission, not comission.

          And the oliarchs had some very intelligent and prominent liberal apologists in their employ — folks like Krugman — who assured them everything would be alright. So even though the unions did this to themselves by not taking a more strident stand against free trade and free capital flows, thus killing global labor arbitrage in its tracks, there was quite a successful propaganda campaign conducted agaisnt them by the oligarchs.

          1. banger

            I take your point there. The problem didn’t start in the 90s but happened as a result of the Civil Rights movement and then the anti-war movement. Rank and file labor members were seduced by the culture wars and racism to support their worst enemies. Black people and hippies were thought to be more dangerous than the bosses who appeared, at that time, fairly supine. Part of the fault also lay with the tone-deaf left of the time (including me) which didn’t appreciate the crucial importance of labor in the progressive movement, i.e., no labor, no movement which turned out to be true.

            We should have been much more circumspect in flaunting our hedonistic lifestyles and spend more time nurturing alliances rather than making fun of traditional values. Instead we my generation of the upper-middle class, including members of the anti-war left migrated to being predatory capitalists and dilettantes (just as many in labor, at the time, criticized us for). The old labor and old leftist types could rightly smell the lack of class-consciousness on our part. Now, it’s too late. Our potential allies have moved to the extreme right and the left is finished.

          2. Andrew Watts

            That recrimination is useless at this point. The past mistakes made should serve only to guide our future decisions. In the hope that we shall not repeat the mistakes of the past.

      3. Klassy!

        The picture emerging to me is that Krugman can be pretty petty. That is really lazy to pick apart the individual rather than the argument.

    2. from Mexico

      You are still lacking some of the important pieces of the puzzle.

      In a paper authored by Marshall Auerback and Chris P. Dialynas titled “Renegade Economics: The Bretton Woods II Fiction,” here’s what they have to say about the free-trade/free-capital-flows phenomenon:

      The U.S. has been perfectly happy to accede to the current state of affairs in spite of the immense economic damage it has inflicted on its domestic manufacturing sector (and the concomitant evisceration of its middle class) because it has provided the country with a cheap form of war finance, a particularly important consideration as it has gradually militarized its energy policy….

      …Von Clausewitz once said, “War is diplomacy by other means.” Under recent U.S. administrations, however, war has become an extensions, not of diplomacy, but of energy policy.


      Does the “currency” of global military might make the U.S. immune to debt trap dynamics?….

      A successful military option enables the victorious country to reap the spoils of the loser. Military victories allow for the confiscation of foreign assets…

      The war solution, as seductive as it appears, has tremendous costs, which will be borne most fully by future generations, as the current Iraq war demonstrates. Beyond the tremendous human costs, the burden assoicated with a loss in war renders resolution even more problematic and severe.

      1. allcoppedout

        Real history tells us to avoid the ‘war option’. We all all brought up on national versions of (in my UK case) the glorious defeat of the Spanish Armada. Good Queen Bess is shown urging our troops to battle in the inspiring ‘frail body of a woman, strong heart of a man’ as the lads set off to slay the Spanish Goliath. In fact, this speech was made some 6 days after the Spaniards were in full flight north of Scotland. Most Brits taking part died of disease because of dismal on-board conditions and didn’t get paid – some dying of starvation. We don’t get films or Oxbridge based television ‘factuals’ on such.
        The economic model underlying these brutal collisions (the Spaniards suffered similar fates – but were paid) was control of silver, gold and other resources through plunder – much of the silver ending up in China where it was money.

        I was taught about the Boer War with no mention of gold standard and the mines of Witwatersrand. I was not told slavery ended with vast compensation schemes not jail for slavers – pace today’s banksters.

        Instead of teaching the truth (along with abilities to find it yourself and reasonably doubt it) we get imperialist propaganda and why women drool over Mr. Darcy in low cut dresses to keep my sex interested. I can switch my television on in the morning and ‘welcome’ gossip I go to some lengths to avoid to my living room, where I’m told this is news.

        We now have the technology to include critical history, argument and science in how we govern ourselves – and this could render economics, other than book-keeping, redundant. Questions as to what the Catch 22s of this are.

      2. Bill Smith

        We don’t do old fashioned Imperialism anymore. Foreign policy wonks say to be a proper imperialist nowadays, you use your military as the cop to make the world safe for your multinational bankers and industrialists.

        Then, you can let them gut your First World economy, drive consumption thru accumulation of debt, and let them say they shouldn’t be taxed excessively, because……

        Imperialism, as defined by the People of Human Geography, is “the creation and/or maintenance of a country’s power and influence through military force.”[2] It is often considered in a negative light, as merely the exploitation of native people in order to enrich a small handful.[3] Lewis Samuel Feuer identifies two major subtypes of imperialism; the first is the “regressive imperialism” identified with pure conquest, unequivocal exploitation, extermination or reductions of undesired peoples, and settlement of desired peoples into those territories, an example being Nazi Germany.[4] The second type identified by Feuer is “progressive imperialism” that is founded upon a cosmopolitan view of humanity, that promotes the spread of civilization to allegedly “backward” societies to elevate living standards and culture in conquered territories, and allowance of a conquered people to assimilate into the imperial society, examples being the Roman Empire and British Empire.[4]

        Imperialism always involves the massive export of capital to foreign countries for the purpose of exploiting and dominating both their labor forces and their markets. Imperialism, the highest stage of capitalism, represents the stage at which a country’s consumers cannot buy all the products that have been produced, and additional markets must be sought after. The dominant feature of imperialism is the repatriation of invested capital. {{[5] |[6] |class=noprint Template-Fact |title=This claim needs references to reliable sources }}

        The term as such primarily has been applied to Western political and economic dominance in the 19th and 20th centuries. Some writers, such as Edward Said, use the term more broadly to describe any system of domination and subordination organized with an imperial center and a periphery.[citation needed] According to the Marxist historian, Walter Rodney, imperialism meant capitalist expansion. It meant that European (and American and Japanese) capitalists were forced by the internal logic of their competitive system to seek abroad in less developed countries opportunities to control raw material, to find markets, and to find profitable fields of investment.

      3. Andrew Watts

        Actually it’s a piece of the puzzle which that informs much of my thinking regarding the rise and fall of the American empire. While the cheap financing came as a short term boom for military enterprises, it served to expedite the internal hollowing out of the American economy. Due to this dynamic commercial bank profitability began to decline rapidly in the late ’60s and early 70’s. Which began the lifting of the financial constraints that lead us to our present predicament.

        All Great Powers suffer a descent into decline due to the looting of their citizenry. Which is the real source of power in any given country. As an old Byzantine Emperor named John Cantacuzenus reminiscently waxed about the course his empire had taken he wrote:

        “There is nothing more conducive to the destruction of a nation, whether it be a republic or monarchy, than the lack of men of wisdom or intellect. When a republic has many citizens, or a monarchy many ministers, of high quality it quickly recovers from losses that are brought about by misfortune. When such men are lacking, it falls into the very depths of disgrace.”

        The lack of vision and wisdom is not just the product of our technocratic class. Nor solely the domain of the oligarchs. As Banger pointed out the middle and working classes were far from immune.

  15. Abe, NYC

    Krugman often points out how no-one ever admits they were wrong, while he himself has admitted to past errors. I don’t see how he can maintain he was right in 1990s, since his own positions back then seem incompatible with his positions now. The only thing he can claim is he couldn’t foresee China’s manipulation of exchange rate, but as Yves pointed out Plaza accords weren’t automatic and were concluded before the end of Cold War, when the USA had far stronger negotiating power than now.

    So, will Krugman admit he was wrong?

  16. sherparick

    I don’t know if Krugman has ever apologized to Greider (or for that matter thinks he owes him one because he may still think Greider made bad arguments even if for a good cause – see Dean Baker who is also left-wing economist who generally favors liberal trade, just not how it is done currently, with its emphasis on protecting “intellecual property rights” and elite professions is a managed trade for the 1%.). However, Krugman has for the past five years acknowledge that he was mistaken in underestimating the effect of free trade on middle class wages.

  17. Paul Walker

    “A likely outcome is that high-tech goods will be produced only in the North [the advanced industrial economies], low-tech goods only in the South [low-wage developing economies], and both regions will produce at least some medium-tech goods,” – Paul Krugman

    Sure Paul isn’t on the payroll at the BuBa/EMU/IMF?

  18. Gil Gamesh

    Protectionism: better jobs, higher prices, less consumption. Bad for investors. What’s not too like?

  19. Michael Hudson

    It gets worse. In his last NYT column, Krugman said not to worry about debt (especially government debt) because “we owe it to ourselves.”
    His trad etheory has NO role for the debt overhead as adding to costs. Hence, he misses the major cost factor pricing US exports out of world markets.
    This has led him to anti-Keynesian, pro-bank attitudes. (They were at the worse when he went to Iceland to lobby for the vulture banks who have immense holdings of debt service they want to transfer abroad. But that’s another story.)

  20. Susan the other

    We are not including China in the TPP. After decades of opening up trade with China and being the buyer of last resort; after decades of fostering totally synthetic economies of “free trade” that have no organic basis in reality – we have given up. No wonder we went off to confiscate oil before we admitted to all this horrendous miscalculation. Now a petro-dollar is redundant. It’s just petro. And China can go its own way, along with Russia who is such a reluctant partner for China it will be fun to watch. Russia has always been repulsed by China because Russia fears the “use it or lose it” rule of life – and there sits Siberia, rich beyond belief, and nobody to really police the border. Ha. Then there is the other Big Uneasy – Japan, who recently reported on the Shanghai River as if it were a normal event for 7000 pigs and as many ducks to be dumped in it , and Oh by the way a new strain of the flu has killed 3 people and the WHO is dutifully monitoring the new strain: H7N9, which so far has not spread from person to person… and etc. Gosh, will Free Trade fix all this? How long will it take will to fix shit like this indirectly through monopoly-fixed-trade-trickle-down voodoo?

  21. colinjames

    I’m not as sophisticated in my knowledge of economics as many of the readers, but this does seem a bit like sour grapes, no matter how right the author is. Bottom line, PK is an important voice, especially when it comes to the anti-austerity message. That said, i wanna know how the hell we’re gonna get out of this mess of an economy, get living wages, get off oil, get accountability for Wall St, prevent the disaster that’s coming from the natural gas bubble bursting orsome other MOTU-caused disaster- not rehash who was right in the 90’s. Unless you have a time machine.

  22. HS

    Krugman isn’t incompetent, he’s just another shill for the Corporatocracy. He was well aware of the disasterous ramifications of “Free Trade” for blue collar Americans, he just didn’t care. It got his ticket punched and that’s all that matters to him.

  23. Hugh

    Globalization is another one of those terms that never meant what most thought it did. I think most of us thought that globalization meant taking some of our excess wealth and using it to gradually raise living standards in developing countries through grants, investment, and buying their goods. What globalization really was was the globalization and integration of kleptocracies. Free trade/offshoring jobs along with Fed policy and anti-unionism were all part of a three pronged war on labor. This war resulted in stagnant wages and massive transfers of wealth away from the middle class to the rich who converted them into bubbles both here and in hot money (greased by the globalization of banking) bubbles abroad.

    It is not just that Krugman misread the effects of globalization on the middle class. It is that he ignored, and continues to ignore, the criminality of the process.

    I have said this so many times, but Krugman is an Establishment liberal. His allegiance is and remains to the very class which has granted him his fame and privileges, and which loots us. We should never make the mistake of thinking just because Krugman makes sporadic, half-hearted criticisms of certain aspects of the system that he is on our side. He is not. Much like the astroturfed Tea partiers on the right, his function is to distract and steer the discontent of one part of the 99%into politically safe dead ends, to make sure that no real opposition to his class ever forms.

  24. bobh

    I am coming around to the idea that Krugman does more harm than good. His largely ad hominem putdown of Stockman’s NYT piece is revealing. He basically argues that Stockman is just a cranky eccentric with no credentials and nothing new or important to say and that, really, the data he cites aren’t that worriesome to real economists.

    Krugman steadfastly ignores the main contentions of Stockman’s piece: 1) that the money creation and zero interest rate policies of the central banks are doing little besides taking money away from savers and people on fixed incomes so that insolvent financial entities can stay in business and make risk-free profits for the people who run them, 2) that political systems across the planet are dominated by financial interests and are irredeemably corrupt, and 3) that this is probably going to end very badly for those of us who are not in on the game.

    Those are serious contentions to ignore. Each, I think, is true, but Krugman doesn’t want to go there. He never does. His history with free trade suggests that he knows better than to get in the way of the powerful interests who are running the game. He likes to pretend that we have a small, correctable problem: the wrong school of mainstream economists is giving bad advice to our sadly misguided politicians who won’t embrace accelerated deficit spending to get our economy back on track.

    Stockman is damaged goods, but he finds himself in the odd position of being a pariah with no power and no chance of gaining power, so that, by some fluke, he is able to speak simple truths in a public setting at a time when more exalted (and favored) public intellectuals have little interest in doing so.

    1. JTFaraday

      “He likes to pretend that we have a small, correctable problem: the wrong school of mainstream economists is giving bad advice to our sadly misguided politicians who won’t embrace accelerated deficit spending to get our economy back on track.”

      I think the entire post-crisis discussion was very skillfully narrowed down to little more than this.

      This is pretty much in line with former IMF Chief Simon Johnson’s 2009 Atlantic article on the “Quiet Coup,” where he predicted that the nation’s oligarchs would effectively change the subject:

      Regardless of which “side” of the permissible debate topic they enlist on, very few people have successfully eluded the trap of allowing the oligarchs to set the limited terms of discussion in the first place.

  25. JimZ

    Both Dani Rodrick’s “Globalization Paradox” and Ian Fletcher’s “Free Trade Doesn’t Work” provide invaluable insights into the real world of international trade. I recommend them both –

  26. casino implosion

    It’s a sign of the times that Krugman, a bog standard neoliberal, is viewed as a hero of the left.

  27. mac

    Krugman writes what he writes so as to be controversial which draws readers to his writings and thence he makes money. His Nobel is just another device to sell his stuff.

  28. bluntobj

    All these comments and no one mentioned the completely false example of success that germany is held up to be?

    Germany is a success because they have created a mercantilist (sp?) paradise for themselves. A common currency to lend and create debt in, a manufacturing powerhouse that, while it has social insurance, has not destroyed the employment and productive nature of its youth, and actually has reasonably priced wages. It exports to the pheriphery, lends them the money needed to purchase the goods, and rakes in the cash. Without the euro, Germany would be in much the same position as the US.

    In any case, Krugman and his Keynsian ilk share the same principles as any mercantilist nation in the 19th century. Suck the mud hut dwellers dry, lend them the money they want to buy the stuff they don’t need, and then pass off the liability to the next sucker.

  29. allis

    Paul Krugman once wrote about how wonderful low prices on imports are. I was reminded of the story about pelicans in Florida. For several generations they had a life of ease eating the waste from shrimp boats. But when the shrimp boats went away, the pelicans starved.

  30. H. Alexander Ivey

    What the Hell are you guys talking about? Krugman offers nothing, NOTHING at all in ways of figures, facts, and analysis. He just dismisses everything Greider says. But Greider offers figures, facts, and analysis.

    Now who are you gonna believe? So snippy, proven wrong many times, sycophant (Krugman), or someone who travels around, seen with his own eyes, and is not paid by the Establishment (Greider)?

    Just remember, this isn’t rocket science, this is your paycheck, your neighborhood, your city, your country. Don’t *$%# it up!

  31. greg

    You have to read Krugman like you should also read everyone else. What he says has to stand on its own merits, not just because he, or some other authority, says it’s so.

    Some of what he says stands on its merits, other stuff does not. Much of what he says on Austerity has merit. I disagree with his rather neutral position on the economic effects of inequality. I think he’s missed the boat on trade: See:

    And, gee, wouldn’t it be nice if we could have somebody we could listen to uncritically, and not have to think…

  32. allcoppedout

    I take note of Hugh’s comment that Krugman funnels discontent into safe dead ends. In some ways this is true even of critique like Critical Theory. One can get to feel cosy chattering away in its terms with friends over a beer or two. Even critique operates in a niche. There are immense problems with argument – another academic niche – with applications in translating natural language into something more logical (computer programs etc.)
    In my experience as an academic, figures, facts and analysis ain’t usually any such thing unless I’m reading hard science. The complexities of philosophy on argument are intriguing (I like puzzles), but at base I think I see nearly all argument on economics as class-based, though not in the marxist sense.
    In a simple sense I would like to see policy makers prepared to live the dreams they condemn others to. I used to take my students down mines, into foundries and along production lines. Most were shocked and even frightened. They wee as far from understanding the term ‘work’ as Einstein’s field equations refined to account for dark matter and energy.

    I suspect the world could run better than now on much less “work” and a lot more respect for the people doing it. Facts, figures and analysis seem sorely lacking.

  33. ScottB

    What’s interesting is that Krugman’s theoretical work on trade (for which he was Nobelized) showed that the outcomes of trade were ambiguous if there were increasing economies of scale (if there were large corporations with monopoly power). He showed in some conditions it could lead to win-win outcomes for rich and poor countries, and in other cases could lead to rich countries getting richer and poor countries getting poorer. None of that work has made its way into his textbook.

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