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Krugman versus Sanders

from Peter Radford

Paul Krugman seems to be spending an awful lot of his time nowadays trying to  discredit Bernie Sanders. The last two of his blog entries at the New York Times are devoted to explaining why Sander’s extravagant claims are wrong and potentially damaging to the Democratic cause.

I can understand why Krugman is so vexed. What I don’t understand is why he seems so unable to understand why so many people are embracing Sander’s message.

To me it is obvious: the so-called “wonkery” that Krugman loves both to indulge in and to explain to us lesser souls is precisely what has created the world in which we live. So if we are dissatisfied with that world we, to put it mildly, are being consistent if we want to toss overboard that jargon laden, leaden souled, wonkish stuff.

Now, I am equally sure that Krugman will retort that his version of the wonkery is not the cause of our woes. He would, I am sure, point to the right wing economics of that part of the mainstream currently exerting influence, and explain that it’s all the fault of those who advocate the mysticism of markets to be found in that part of the mainstream.

Except, of course, that Krugman is hardly an outsider. He has taken great pains to explain to us all in the past few years that what he calls “textbook” economics is perfectly capable of both diagnosing and curing what ails the economy. It’s just that, according to him, right wing politicians apparently haven’t read the textbook. Krugman is thus more an apologist for a tweaked version of the mainstream than he is an advocate of a more radical revision of it.

In this regard he is hardly alone. Last week’s revelation that four recent so-called left of center economists, all of whom have lead the Council of Economic Advisors to the President [CEA], wrote an open letter to the Sanders campaign decrying the heresy of Sanders with respect to conventional economic thought added fuel to Krugman’s fire. See, he told us, it isn’t just me, these other people are serious economists and they agree with me.

Serious economists.

Krugman is someone who has made quite a reputation debunking the wisdom of what he calls “serious people” who are those advocating policies he disagrees with, but who are seen as expert by the Washington establishment and its media critics. All through the Obama era Krugman has lambasted such serious people – think, for example, of Simpson and Bowles – for proffering advice based upon their accumulated wisdom, but which Krugman disagrees with. And, more often or not, Krugman has opposed that advice based upon what he calls “macro 101” or the “textbook”.

In other words, throughout the recent intellectual and political conflicts over economic policy, Krugman has steadfastly defended what he sees as textbook economics. Which in his case is a much watered down version of Keynes via John Hicks.

Somehow, though, Bernie Sanders has hit upon something. A controversial something. He has energized a whole slew of Democrats with a much more radical version of the Democratic vision, one that harkens back to a pre-Reagan New Deal era.

Let me quote Obama on Reagan:

“I think Ronald Reagan changed the trajectory of America in a way that … Richard Nixon did not and in a way that Bill Clinton did not.”

Obama said this back in 2008 in an interview in Nevada.

It is an indisputable truth. Reagan did change America. Radically. Profoundly. And he eviscerated the Democrats by so doing. His legacy is as much the loss of the New Deal basis for the left in America as it is the modern Republican party. More to the point for us: Reagan’s rise coincided with the dramatic loss of direction in economics. It was the moment that the ascendancy of market magic and all the mysticism associated with it seduced a generation of economists and sent the bulk of the profession off into irrelevancy. Lost in that tide were a few, like Krugman, who clung to a slightly more useful version of economics. And it was these few who then emerged as the core advisory group to the newly neutered and reoriented Democratic party. Hence the letter I mentioned above.

Now the befuddlement of Krugman-like analysts comes into focus: they, like Hillary Clinton, have dedicated their lives to tinkering with the Reagan era and in modest disagreement with its right wing economist enablers. So overwhelmed were they by the radical success of Reaganism and that of its right wing economics, and so difficult has it been for them to mount even a modest counter-attack on them, that they have become unable to conceive of a more radical line of attack. They have become so bogged down in eking out tiny nudges here and there, in endless battles over minor fine details, and in the expenditure of enormous amounts of energy to take back a single yard of lost ground, that they can no longer think in grand terms.

Indeed the very thought of a radical move to the left is anathema to them. They see everything through the lens of their initial epic defeat. They have been absorbed by the very thing they espouse opposition to, and now justify their ineffective opposition by retreating into ultra-pragmatism.

Their attacks on Sanders are not based on ideological difference so much as on practicality. Bernie Sanders, we are told, cannot execute on his proposals because they will stir up such a reaction on the right that we will lurch along in ever greater gridlock and no progress will be made at all. It is thus better, so they tell us, to nudge around a little more and be content with a few scraps of progress. ‘A half loaf is better than no loaf’ has become their favorite phrase.

Except it isn’t a half loaf. It is more like a single percent of a loaf. It is hopelessly inadequate.

To the shock of the Clinton/Krugman wing of the Democratic party a very large number of people, and especially young people, are saying that the appeasement of the Reaganites and their right wing economist advisors is no longer sufficient. There has to be a more radical way to achieve progress. After all progressives are supposed to, well, progress.

As I see it the Clinton/Krugman generation has spent its energy buried in policy formation and in policy tweaking. It hasn’t spent its energy articulating politics. By which I mean that since the 1980’s the entire left-of-center establishment has devoted itself to making accommodations to Reaganism and not in developing an alternative. The American political economy has been dominated by right wing thinking for over three decades. The results of that domination are clear and are expressed in the form of the economy around us. All the nudging and tweaking have had no noticeable effect. Other, perhaps, than to soften temporarily the steady descent in living standards experienced by an ever increasing percentage of the population.

But we have now reached a moment when enough people have noticed  and and are rejecting that descent. They want a break with the past, not a continuation of it. Such a break cannot be provided by pragmatism. Before the pragmatists get busy installing the new order and making it work in a practical way, someone has to imagine it. Someone has to articulate it.

And that is what Sanders is doing. And that, apparently, is what confuses Krugman.

  1. graccibros
    February 21, 2016 at 4:39 pm

    Thanks for getting this rolling Peter. I’m one or two steps behind in following the debate, but I’m catching up. There are two levels to this, which shouldn’t surprise readers of this blog. One is technical, and the other deeply political, going to the roots of political economy and the dissent between – well, the founders of this blog – and the centrist, neoliberal leaning economic establishment, mirrored in the tensions now between Sanders and the Clinton establishment.

    Are we going to see James Galbraith’s polite but very blunt critique of “the four” and Krugman appear in the NY Times? Haven’t yet the last time I checked. And not mentioned above: So here it is, two direct pages: http://big.assets.huffingtonpost.com/ResponsetoCEA.pdf

    Galbraith says two main things: Krugman and the Four haven’t done their homework as best as he could find, they’re critiquing from their thrones (my characterization), the old credentials, we’re “the adults in the room” dynamic versus Rocky, Professor Gerald Friedman of U of MA, Amherst, who has nowhere near their standing or name recognition. And how many times does one see Galbraith’s name mentioned, despite his two (three) good recent books, “The Predator State” and “The End of Normal” (oh yes, And “Inequality and Instability.” (And his consulting work in Greece and advice to Varouvakis, “The Modest Proposal.”)

    And on the technical side Galbraith makes two main points which I haven’t heard answered. First, the assumptions used by Professor Friedman were mainstream assumptions used by…and he lists them in the letter, CBO included…Second, the results, especially the GDP growth number of over 5% – shocking to anyone following economic trends and the Gordon book discussion, not to mention Piketty’s numbers – are large and surprising because of the boldness of Sander’s proposals.

    So Galbraith is basically saying Friedman is following the conventions of mainstream number crunching, so blame yourself, centrists…the results flow from precisely what Peter is highlighting in this post: large numbers in bold policy proposals.

    And Dean Baker has weighed in, picking up on the rank pulling tactics of the mainstream fire brigade – the four, and Krugman, saying it was a pretty shocking intervention into the debate but he shared their skepticism over the magnitude of the results, and the assumptions behind them, but Dean didn’t really answer Galbraith’s assertions that these were conventional assumptions. Galbraith didn’t mention the productivity growth one, though, and Dean zeroes in on that. I’ll leave it at that for now, for others who crunch numbers to weigh in.

    I think, however, that this dynamic between the Four, Krugman, Galbraith and Baker goes to the heart of the role of economics in political life, neoliberalism, and the very rationale for this blog. Let the public join in, and maybe, maybe by a miracle, before the primary season is over, someone running for office or among the journalists posing the questions, will mention, and heaven forbid, even point out that we have all been living under a reigning world view, ideology, called neoliberalism and that is the cause of much of the human misery driving the revolts in both parties, despite the “diversions” over on the Republican Right.

    How can it be that what we have all been living under, since 1980 and even through the mid-1970’s, driving the world through globalization, privatization, financialization, austerity, fiscal conservatism, competitive labor markets, burying the memory of the New Deal – all the features we’ve come to know and “love” – can’t even be mentioned in what is turning into a referendum on the “unnamed?” Isn’t that the most remarkable thing of all here? And isn’t it telling where the grand four seem to have taken their stand, good technocrats that they appear to be, and partisan ones at that?

  2. Lyn Eynon
    February 21, 2016 at 4:50 pm

    Much of this could have been written 6 months ago for the situation here in the UK, just replacing Sanders with Corbyn, Reagan with Thatcher, Clinton with Blair and Krugman with ‘most economists’. Like Bernie Sanders, Jeremy Corbyn was opposed by the established leadership of his own party. But he then went on to win the Labour Party leadership by energising both a new generation and older people who had given up on mainstream politics.

    One lesson from the UK is that drawing a political line needs to be followed by specific policies. Early on in Corbyn’s leadership the Labour Party had to decide how to respond to Osborne’s ‘fiscal charter’ putting a straightjacket on public spending. Despite dissent Corbyn convinced 90% of his MPs to oppose this. With a clear anti-austerity position defined, we have since forced a retreat on cuts to tax credits for lower paid workers, denounced a sweetheart deal with Google on tax, placed housing in the centre of political debate and are defending unions and our health service from government attack. The party has united behind each of these policies, despite our continuing difficulties on foreign policy and defence.

    Each country is different but perhaps it would help Sanders to promote vigorously some policies which Hilary Clinton supporters could also endorse, so demonstrating an ability to lead beyond his own supporters.

    • Alan
      February 21, 2016 at 10:59 pm

      Early on in Corbyn’s leadership the Labour Party had to decide how to respond to Osborne’s ‘fiscal charter’ putting a straightjacket on public spending. Despite dissent Corbyn convinced 90% of his MPs to oppose this.

      They didn’t oppose it. The shadow chancellor said he’d match Osborne. Then Labour abstained rather than vote against the charter. And they couldn’t even unite on that as 21 Labour MPs refused the whip and voted in support of the fiscal charter. The only opposition to the charter was from the SNP who rightly mocked Labour for being unreliable and unelectable.

      Labour are still a ‘A half loaf is better than no loaf’ party. And that’s probably putting it kindly. Fully-paid up members of the corrupt Westminster establishment is more accurate. They are taking a hammering for this in Scotland. Corbyn won’t help them there either as he’s clueless about Scottish politics. They were destroyed in Scotland in the May 2015 General Election. In May 2016 they’ll suffer further substantial loses in the Holyrood elections. And then they are going to take another beating in the Scottish local elections in 2017. Roll on Indyref2.

      • Lyn Eynon
        February 22, 2016 at 12:34 pm

        Sorry, but get your facts straight. Labour voted against the fiscal charter with all its MPs following this line except for 21 who abstained. No Labour MP voted in favour of the charter.

        Labour is now developing a set of anti-austerity policies that will be far more comprehensive than the ‘austerity-lite’ peddled by the SNP. These will include a review of the role of Bank of England to make it more democratically accountable, whereas the SNP has not idea of how to tackle monetary policy.

    • Alan
      February 22, 2016 at 3:20 pm

      I stand corrected on the abstention part of my post. That was the shadow chancellor’s original position but he did a U-turn just before the vote to appease his backbenchers and because he was going to get clobbered on the austerity issue by the SNP. The fact remains that Labour is divided and fails to provide any coherent opposition to the Tories. Given that the current government is one of the vilest in many decades that’s quite an accomplishment.

      The SNP can’t tackle austerity. At best it can try to mitigate some of the effects. This is the case because most of the powers it needs are reserved to Westminster. Labour campaigned with the Tories against independence and worked with the Tories to water down the devolution of further powers to Scotland. No wonder that they have lost the trust of the Scottish electorate. Their dismal performance at the ballot box speaks for itself.

      • Lyn Eynon
        February 23, 2016 at 5:36 pm

        Steering the Labour Party into a consistently anti-austerity direction is a bit like turning round an oil tanker, with the captain and first mate needing time to work out how all the controls work and some of the crew inclined to mutiny. So yes this is taking some effort but Corbyn and McDonnell have a long record of opposing cuts so there’s no doubt where they want to go.

        The point of my original comment was that it is often easier to build support on specific positions on which it is harder for internal opponents to dissent. We have done this successfully on tax credits, corporate tax avoidance, defending the NHS, etc. We’ve achieved more than I would have thought possible a few months back.

        The SNP has it easy because it can always play the card of ‘if only we had the power’. But economic constraints would not dissolve if more power were devolved to Edinburgh and the falling oil price reduces the scope further. A Labour government at Westminster would have more options to pursue anti-austerity policies.

        You did not respond to my point on monetary policy. When Alex Salmond committed to keeping the pound he was surrendering an ‘independent’ Scotland to a Bank of England over which it would have no influence. We know from the Eurozone experience where that takes you.

  3. graccibros
    February 21, 2016 at 5:59 pm

    I see an opening with the movement Yanis Varoufakis is founding – DiEm – and what he is saying in speeches…pointing towards a “New Deal” for Europe, not full bodied socialism, and genuine democracy in policy making and policy presentation…there were an impressive range of speakers at the founding convention in Berlin in early February: heavy on those elected to their own home parliaments, women, ecology minded…this links back to Sanders definition of his democratic socialism as laid out in the Georgetown speech from November…the Second Bill of Rights. The obstacle is all we mean under the term “Neoliberalism” and the confusion Germany sows with its 19th century central banking policies and social democracy for Germans but no “New Deal” with “their” money even as the periphery, Greece, Spain…formerly Ireland…suffer through Great Depression 1930’s unemployment numbers…no CCC or WPA for them…that is what Galbraith and Varoufakis and one Brit not as well known laid out in the “Modest Proposal” well before the famous/infamous “No” vote in 2015.

  4. C-R D
    February 21, 2016 at 6:20 pm

    It is a total waste of time to keep paying heed to what neo-classical economists have to say about the real economy. Instead, one should just look at the evolution of total factor productivity since Reagan to have an idea of what the data say about neo-liberal policy in the US.

  5. February 21, 2016 at 6:40 pm

    I’m an old guy with a teen-age son who went to Bernie’s last rally with a bunch of teenagers who a registering to vote.

    My impression is the young will simply forget about voting if Hillary is the nominee. The lesser of two evils argument does not apply when choosing between Hillary and almost any Republican and one cannot explain this to any democrat who is too blind to see the pain, suffering and anguish Hillary has unmercifully piled on the women of the world.

  6. February 21, 2016 at 11:02 pm

    “Paul Krugman seems to be spending an awful lot of his time…”

    He seems to be burning up quite a bit of his credibility, too. And I welcome that. Krugman has always been a bulwark defending the left side of the status quo. My guess that the flap over G. Friedman’s assumptions probably influenced about .000001% of the caucus vote yesterday in Nevada. But its impact will soon fade from that peak.

    • graccibros
      February 22, 2016 at 1:02 am

      Tom:

      I asked myself the same question: how far did the controversy reach? I think you are right about Nevada voters. I do try to stay up with what economists are saying, and I thought Galbraith’s letter was particularly courageous, going solo. If any one is aware of a rebuttal to Galbraith, please let us know at this site.

  7. February 22, 2016 at 4:22 am

    Sanders’ real problem is how to avoid what I’ll call the Reagan trap. Most of Reagan’s policies failed. Even “Reaganomics,” the first shot of the new neoliberalism was an abject failure. Reagan’s success came from being a smiling and affable version of Margaret Thatcher. She was a bully who never smiled and dared anyone to cross her. She spared no anger or insults to put those who did “in their place.” Reagan’s inclinations were the same but he presented an image of reasonableness and good humor to hide his inclinations. His popularity as President never equaled that of Kennedy or Eisenhower, and both GHW Bush and Clinton had higher popularity. But as of 2012 Reagan’s Presidential popularity sat at 73%. Amazing what a lot of money and some smart people in conservative think tanks can do with public opinion. And Reagan’s Alzheimer’s suffering didn’t hurt. Just goes to show that heroes, particularly political ones are manufactured not born. Reagan’s tax cuts pushed the US growth rate to over 5% but like a short-term drug high soon ran out of steam. Plus the side effects of the tax policy (e.g., 10% unemployment, corporations moving off-shore, open and unfair trade, later raising taxes to fill the holes but on those with much less money to pay them) put half the nation into poverty. Also, his defense policies are the direct antecedents of many of the international problems we face today (e.g., overbuilding of nukes, Jihadist terrorism, armed services too large and inflexible to meet strategic threats, and nuclear proliferation). His domestic policies gave new credence to the treatment of the poor and racially different as un-American deadbeats and criminals. All of this is the trap I mean. Sanders’ changes have to be long-term, broadly based, fair, just, and explained so that any person on the street can understand the policies and their purposes. They also have to support and defend both political and economic democracy. And finally they must hold everyone accountable, even the rich, famous, and privileged. Something Reagan was unable to do, and likely did not want to do. This list of needed actions for a President is unprecedented. No President since FDR has set such goals. And no President, including FDR has actually achieved them all. I admire Sanders’s honesty and tenacity, but the road ahead for him is rough and uncertain. And the less said about his policies by economists, the better. No one needs them to interpret economics for them.

    • graccibros
      February 22, 2016 at 12:25 pm

      Some very important insights into Reagan’s administration – and his persona, Ken. Let’s not leave out, in speaking of his economics though, the Volker program to crush inflation via very high interest rates which began, I recall, at the end of Carter’s term and carried over, causing the very severe 1982 recession, which crushed many small businesses and went hand in hand with deindustrialization…see the years 1977-1982 in Youngstown, Ohio recounted by George Packer in “The Unwinding.” It wrecked the type of havoc there that brings K. Polanyi’ famous quotes about markets unchecked to mind.

      I’ve written of Reagan that never has such an affable man delivered such cruel policies to so many who voted for him, especially blue-collar “Reagan Democrats.”

      As to you closing thought about economists and Sanders policies, well, economics and economists are here to stay and the natural inclination in our politics is to turn to them to analyze the other side’s proposals and to have them sitting around Presidential policy tables. The profession, along with physics, has long been the queen of the academy in terms of prestige and influence in the modern world. I’m a Sanders supporter as well, and share your cautions about the road ahead, and I’ve tried in my writing to push him to go deeper and be more of a teacher rather than a policy, prescription reciter. In the matters of this posting, he’s left himself vulnerable to Clinton’s scornful comment “that I don’t know who is advising you” on these matters as she ticks off the prestigious, high profile names of her backers and vetters. I remember that when Michael Harrington, who helped found the Dem. Socialists of America (it was just an organizing committee originally) used to formulate a policy agenda which he took to the old Democratic Party’s policy conventions in the late 1970’s (no longer held largely because of Harrington’s success is persuading delegates against Carter – a young wife of the then Governor of Arkansas, named Hillary Rodham Clinton – was a floor manager for Carter trying to head off labor law reform and other democratic left policies) the last thing he would do before publishing was to have the proposals vetted by friendly professional economists. I know what you are saying, but this is the “scientific” aspect of the field, overblown and overstated in our eyes, pretentious no doubt, but there it is still, the standing in the eyes of professional politicians, and Clinton and Krugman and the four are certainly living up to this “notion” – skating out on what Galbraith has shown to be pretty thin ice – coasting – maybe – let’s see if they have a comeback.

      • February 23, 2016 at 4:33 am

        Packer does a great job of describing what happens to democracy and people when markets don’t work (or maybe it’s that markets never really work). Let’s remember what markets are. They are devices invented to set a price between buyer(s) and seller(s). To do this a commodity is created, buyers/sellers are set out, and the only reasoning permitted is calculative. Anyone who has actually worked in a market knows these arrangements never cover everything, often break down, and allow all sorts of non-calculative things to enter into the process. Almost seems markets were intended to fail. You’ll notice one of the things not involved in markets is democracy. Another is morality. Although I’ve heard many economists attempt to re-insert morality into markets, and democracy too. None were successful.

        As to our need for economists. It was once “medical” truth that women could not run. In fact, would destroy their ovaries if they did run. It was also once the norm that slaves were slaves because they deserved it – God created them to be slaves. Humans have latched onto lots of BS ideas over their history. My apologies if you are an economist, but I put economics and policy makers reliance on economists into the BS category. You contend that certain parts of economics is a science. You’ll need to point those parts out to me. I’ve never seen them. The AEA spent much time and resources after WW2 to move economists up the policy advisers ladder. And some economists did provide some reasonable suggestions during the 50s and 60s. After 1970 their advice was so mired in jargon and the nonsense called theories that it completely lost touch with the workers, businesses, and scientists who were actually constructing post-war ways of life. One of the economists making some reasonable comments, John Kenneth Galbraith says this about economics, “Economics is extremely useful as a form of employment for economists.” And not for much else. Mark it up to experience and dump the whole experiment.

      • February 23, 2016 at 7:27 am

        Ken: Bravo. Economics never was a science. It is a stupid and dangerous reductionist discipline. Any survivor makes decisions in a mode of self-preservation: needs of safety first, wishes after that. Economics starts with wishes and abandons safeguards. They see no uncertainty. Their BS led to the present state of the planet.

        I am the only leading economist who left the USSR after seeing the vain attempts
        of its economic and political system – but after that lived in the USA for 42 years,
        observing the vain attempts of the modern capitalism. (In the USSR, I was a star of its mathematical economics.)

        In both countries, I have been an insurgent, finding ways of creative destruction of their
        respective economic disciplines.

        Of course, I am not a socialist. Very far from it. But equally far from the free market idiots.

        I consider as the best idea created by an economist the requirement of JK Galbraith of the necessary balance between the “countervailing powers” of labor, capital, and government. That balance was approximately achieved after WW2 and destroyed by bright economists, by Reagan and others.

        The 2015 paper I am referring to in the previous blog outlines the proposed Kuhn’s paradigm shift in all reductionist disciplines related to decision-making, including economics, OR/MS, and Decision Analysis. Its first major component is a fundamentally novel, both conceptually and technically, computational and mathematical toolkit, based on multiscenario multicriterial stochastic optimization models, dealing with radical uncertainty. The second component is CFT. That’s as far as I got presently. You can get the full text of the paper at rcosoftware.com.

        So we started with Krugman, proceeded to the BS of economists and politicians. A reasonable generalization.

        Ken, yours and everybody else’s comments would be highly appreciated.

      • February 23, 2016 at 12:15 pm

        Thanks for your comments. I am not an insurgent either. My only cause is democracy, and it has no ideological leanings. I find science interesting but don’t see it as our salvation. And economics and the world it has wrought is a disaster. We seem enclosed in ideologies today. They have replaced human reasoning. And that’s a dangerous situation. Makes it hard to recognize, let alone deal with the concerns around us that we must address for human survival. Economics is just one of these.

  8. February 23, 2016 at 2:50 am

    Here is the 4.1 Section of my 2015 paper, outlining CFT.
    (In the World Journal of Social Sciences. The whole paper can be provided.)
    In his speech after the New Hampshire primary, Trump has said that both he and
    Sanders intend to stop ripping off America by our trade partners.
    That is the essence of both campaigns – but all such policies would violate either the
    WTO rules or our agreements with China etc. EXCEPT CFT.
    Remember the proposal of JMK about taxing the surplus countries to help the deficit counries?
    That needed international cooperation. Wishful thinking. CFT is unilateral.

    4.1 Compensated Free Trade™
    International free trade is replaced by its fundamentally novel “Compensated Free Trade”™ (CFT) version, also developed by the author (Masch 2004b, 2007, 2008, 2009b, 2010, Masch & Perlman 2005). This version is a “balanced capitalism” compromise
    between free trade and protectionism – the fifth type of capitalism, to add to the four types defined in (Baumol & Litan 2007).
    What is regulated here is a common good – the overall trade balance of a country A or a block A of countries. To avoid a “tragedy of the commons,” a fee or a tax or a constraint should be imposed on its free use (Harding 1958). However, this would create a burden for the domestic economy of a deficit country A. Instead CFT shifts this burden onto the country A‟s trading partners by imposing constraints on A‟s individual trade deficits with these trading partners. The sum of these constraints should equal at least the desired overall trade deficit of A. “Punishing limits” may be imposed on misbehaving partners, while the limits for friendly and well-behaving partners may be raised.
    A partner may exceed its trade balance limit if its government pays the government of country A the stipulated percentage, up to the full amount of the excess deficit. Both the number and zeal of customs inspectors dedicated to accepting goods imported from a partner would depend directly on that partner‟s relevant behavior. For instance, if a partner does not pony up, all imports from it could have to pass through a single customs inspector. France did that in the last century to control the import of Japanese cars.
    For country A, CFT would become its powerful, versatile economic and geopolitical tool that would kill quite a surprising number of plump birds with just one stone. It would restore proper work of a now dysfunctional and out-of-balance global economy. CFT strictly follows GATT and thus cannot be forbidden by the WTO. For a trading partner of country A, CFT involves the difference between the costs of exports and imports of A to that partner. Therefore the partner cannot start a trade war by increasing tariffs on A‟s exports. Numerous CFT advantages, as well as its faults, have been analyzed in the author‟s papers referred to above.
    Country A can succeed in imposing such a policy unilaterally if its market is sufficiently attractive for its trading partners. The USA, the engine, and the last resort sap of the global economy, may be the only country to meet this requirement. And it needs CTF badly: “Between 2000 and 2010, 55,000 U.S. factories closed and 5 million to 6 million jobs disappeared. … since 1979, the year of maximum manufacturing employment, the number of jobs in manufacturing has declined by 7,231,000 – or 37 percent.” (Buchanan 2015) “There are now more than 100 million Americans over the age of 16 that are not working. … the largest reduction in the workforce has been among the millennials. Today the labor force participation rate for the 16 to 24 age group is 55.1 percent, down from 60.8 percent a decade ago and more than 66 percent back in the late 1990s. We’re headed toward becoming Greece, where half the young people don’t work. … We have 10 percent of the workforce unemployed, in part-time work or dropped out of the workforce at a time when businesses say they can’t find willing workers.” (Moore 2015)
    Despite the current change in the global economy and the crisis in emerging markets, these issues do not lose actuality. The USA trade deficit for the past 12 months, as of the beginning of September, 2015, equals $410 billion. (Economic 2015) “Since Bill Clinton took office, the U.S. trade deficits have totaled 11.2 trillion.” (Buchanan 2015)
    Blinder guesstimated the maximum number of “potentially offshorable” American jobs. He considers that “… sixty million is more than enough to create something akin to a new industrial revolution.” (Bhagwati & Blinder 2009, p. 35). Gomory and Baumol expressed
    similar and other concerns for a world where technological predomination of countries quickly changes (Gomory & Baumol 2001).
    All these issues are tremendously important. Offshoring and globalization had destroyed the delicate balance between the three “countervailing powers” of labor, capital, and government (Galbraith 1950), created in the USA with enormous difficulties by the 1950s. Unbridled globalization undermines societies and is incompatible with democracy.
    If country A were indeed the USA, CFT would deal with the labor problem outlined above and with many other difficult problems plaguing the American society. However, here the author would like to emphasize just one most important issue. CFT can be used for containment, a la Kennan, of geopolitical adversaries of the democratic world order. And in the current situation, territorial containment is impossible (Browne 2015; Mearsheimer 2014, p. 383-85) while financial containment might be very effective. The current slump of China‟ economy does not change the situation: it still has a 12-months trade surplus of $291 billion – 77 percent more than a year ago and sufficient for increasing its military budget (Economist 2015).

  9. graccibros
    February 23, 2016 at 12:27 pm

    Hey Ken, thanks. Just a few bio notes: I’m not an economist, but even during my decade long environmental career in Trenton, NJ and Wash. DC as a green writer and lobbyist, every major issue I worked on, including land-use, my specialty, involved refuting the other side’s economic analysis, or at least deeply grappling with it. Beginning in the late 1990’s-2004, I realized there was something deeply wrong, deceptive about the nightly economic news and day-to-day life. That’s when I began relearning political economy, and sharing what I was learning as I went along., writing for a general public and opinion leaders resting comfortably with neoliberalist assumptions – or for many, no sense of political economy at all, just an entirely “assumed world.” I guess the effort is up to four or five volumes by now, mostly in long essays, approaching 2,000 pages or more, I’ve lost track.

    I guess I didn’t sound sarcastic or skeptical enough by allowing the science pretensions of economics to get their minimum due; it’s a chapter, a long one, in the intellectual history of the West, if not the world. Actually, I’m very sympathetic to Lord Skidelsky’s, Keynes’ biographer, work and perspective, where he wants graduate students in economics to learn economic history first, then get their immersion in the mathematics. And just to clarify a bit further, some of the best “teaching” I’ve seen about where the many different “contributing” fields come together in modern economic works came from Mark C. Taylor’s “Confidence Games: Money and Markets in a World without Redemption” – he was, and may still be the Chairman of the Religion Department at Columbia Univ. Has a great chart on how mortgage deriviatives were going to implode – book came out 2004, just 2 years behind Dean Baker, and I’ll close with what I remember best from his discussions of the many fields coming together to give us modern economic tools: that the financial world was driving towards a new version of the perpetual motion machine or alchemy, a vision of infinite leverage built on zero collateral, maybe all virtual in multiple meanings of that word. I’ve met one person in my life who has read it. I’ll leave it at that but I think a lot of contributors here would like it.

    And Vlad, your comments and work look fascinating and I’ll plunge in – just as soon as I finish my income taxes.

    • February 23, 2016 at 12:55 pm

      Your history and mine are similar. I’ve worked in utility regulation for about 30 years. And before that as House Staff. On one of these threads I commented that during that entire period I can count on one hand the number of times the economists I faced provided useful and competent studies. But I do worry a great deal about the impacts of these studies by economists. They are ideologically encased studies that leave little room for debate or compromise. Most utility Commissioners have formed strategies for using what they can from these studies and rejecting the rest. That’s often a 10%/90% split. But most Commissioners are also devoted to the basics of capitalism and do not stray far from relying on economic competition, marginal pricing, and cost/benefit analysis to make their decisions. Luckily only about 1 in 10 Commissioners are actually economists. Mostly they are lawyers, business persons, or professional politicians. My stance when testifying is always the same. First concern is always making utility regulation the “people’s business,” and then removing unnecessary profit from the utility cost structure. I’ve always favored public ownership of utilities. Why add some middle men (investors) who don’t actually help provide utility services but still expect to be paid? Seems not smart to me and certainly not democratic. The fact that economics and economists undermine democracy is my primary concern with them.

  10. Kevin Meyer
    February 26, 2016 at 7:47 pm

    The Romer & Romer critique of Friedman’s analysis is ignorant of/blind to/ silent on Verdoorn’s Law-type effects. There are other points on which Romer & Romer’s analysis can be rebutted or at least argued about, but this in itself seems to account for much of what they hang their ‘implausibility’ conclusions upon.

    Is it any surprise that conventional methodologists such as Romer & Romer eschew Kaldorian or Kaleckian stylized facts?

    Rather than acknowledging & debating this point of contention between their ‘conventional’ model and Friedman’s apparently more post-Keynesian one, they instead dive immediately into making presumptuous guesses as to how Friedman made silly mistakes. Alternative methodologies are summarily dismissed on doctrinal grounds – never mind the fatal flaws in the conventional doctrine…

    Imre Lakatos rolls over in his grave once again.

    Sadly, this leaves the great unwashed mass of non-economists with the impression that Friedman’s analysis is devoid of any merit whatsoever, when the only unarguable error that Friedman has really made is to claim that his model was entirely conventional methodology.

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