Home > Uncategorized > Self-Protectionist Moment: Paul Krugman protects himself and the establishment

Self-Protectionist Moment: Paul Krugman protects himself and the establishment

from Thomas Palley

Paul Krugman has a new op-ed (“A Protectionist Moment?”) in which he tries to walk away from his own contribution to the damage done by globalization, while also lending his political support to Hillary Clinton and the neoliberal globalization wing of the Democratic Party.

His article inadvertently spotlights all that is wrong with the economics profession through the lens of the trade debate.

On one hand, Krugman writes “So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking. On the other hand, he writes “In this, as in many other things, Sanders currently benefits from the luxury of irresponsibility: he’s never been anywhere close to the levers of power, so he could take principled-sounding but arguably feckless stances in a way that Clinton couldn’t and can’t.”

Krugman has been a booster of trade and globalization for thirty years: marginally more restrained than other elite economists, but still a booster.

Now, the political establishment has what it wanted and the effects have been disastrous for those not in the top 20 percent of the income distribution.

At this stage, as exemplified by Krugman, the economics elite is moving to reinvent itself with a combination of minor backpedaling and its own studies that belatedly acknowledge the damage wrought by globalization.

There is no professional cost to be paid for the grievous injuries it has helped inflict; no mention is made of the fact that outsider critical economists have long predicted and written about these injuries; and the policy recommendation is we must stay the course because we are now locked-in and have few options.

The elite’s analytical record can be compared with critical economists, like Robert Scott of the Economic Policy Institute who has accurately and persistently tallied the economic costs of globalization to the US economy for over two decades.

As regards my own work, here are links to two 1994 articles, “The Free Trade Debate: A Left Keynesian Gaze” and Capital Mobility and the Threat to American Prosperity, which I think got the analytical and policy issues substantially right.

Krugman’s self-protectionist moment is another example of gattopardo economics, whereby the mainstream economics profession changes to keep things the same. Even as he tries to slip in to a new skin, the politics remains unchanged. Senator Sanders, the longtime opponent of neoliberalism, is described as irresponsible and feckless: Hillary Clinton, the longtime advocate of neoliberalism, is portrayed as a model of trade policy responsibility.

  1. C-R D
    March 11, 2016 at 2:52 pm

    Mainstream economists are like the war lords of the 14th century selling their service to Prince most able to pay. They therefore have a blind spot. Economists with freer minds saw very early that globalization was more a political rather than economic project. I am arguing that point since 1999.
    https://www.amazon.ca/s/ref=nb_sb_noss?url=node%3D15307131&field-keywords=unfettered+globalization+by+C-R+Dominique&rh=n%3A15307131%2Ck%3Aunfettered+globalization+by+C-R+Dominique

  2. blocke
    March 11, 2016 at 4:49 pm

    Globalization has been with us in an intensive way since the 18th century. The problem is not globalization but the refusal of US economic elites to compete, especially in manufacturing; rather they have shifted their emphasis and their wealth gathering skills to global financialization at the expense of domestic industry.

  3. originalsandwichman
    March 11, 2016 at 6:34 pm

    Paul Krugman” “baaaa… baaaa… aooooooo!”

  4. March 12, 2016 at 7:27 am

    Blocke is correct. Globalization has been with us since the 18th century. The most spectacular global economic empire was the British Empire. The British Empire was a coherent inter-territorial trading zone. The Empire was a single global economy that operated (some say controlled) the international economy. But the British are smarter than we Americans. They allowed, even encouraged trade, so long as it benefited the British Empire. Americans encourage trade in every instance, even when it clearly harms Americans and the US economy. It’s illogical and morally questionable to promote the construction of an international economy in which US interests always prevail. But it’s equally illogical and morally questionable to support an international economy in which the US as a nation loses more often than wins, but in which corporations (US and otherwise) always win. But Maggie Thatcher and her progeny stomped British common sense into the ground so that today even the British help China and Germany dominate the UK. Talk about “brainwashing!”

    • March 24, 2016 at 8:07 pm

      “But the British are smarter than we Americans. They allowed, even encouraged trade, so long as it benefited the British Empire.”

      Not always. They drank the Smith-Ricardo Kool-aide in the middle of the 1800s while the US had the highest tariff rates in the industrial world and by the 1920s the average British factory worker only made 2/3rds of what his counterpart in America did.

      • March 25, 2016 at 6:12 am

        You are quite correct. But this should be considered historically. Following the French Revolution and the Napoleonic wars the British trusted nothing from Europe, including the economics. In that setting Smith’s notions and those of laissez-faire seemed British and acceptable. Add to this the industrial revolution was ongoing, displacing millions to the cities and factories. These factories, along with towns, railways, and just about every other aspect of what today we call “infrastructure” was unplanned. The waste in terms of resources was staggering, and the costs in terms of human lives cut short or destroyed still has not been measured. There was no national education system, or organized health care system. Churches and charities mostly providing both. There were no rules for the use or exchange of capital. And no protective tariffs. After 1846 international trade was unrestricted (until 1931). Not until WWI did the folly of this official policy become apparent. There the UK’s lack of planning and of national collective policies came near to destroying the nation. And cost the UK a big bundle of money. And thereon laissez-faire ends. Until Thatcher comes on the scene. But I have to admit that the welfare policies that followed after laissez-faire had their own problems. Although not nearly so severe as those resulting from unrestricted laissez-faire.

  5. March 12, 2016 at 3:28 pm

    Low-IQ economics: the beginner’s guide
    Comment on Thomas Palley on ‘Self-Protectionist Moment: Paul Krugman protects himself and the establishment’

    Economics is a failed science, but the fatal flaw is not obvious, just the contrary. It holds in general that a false theory is in good accordance with common sense and naive empiricism, and vague enough so as to be almost irrefutable. Because of this, false theories can survive for centuries. A case in point is the geo-centric theory which is intuitively convincing. In marked contrast, the very characteristic of the helio-centric theory is that it is counter-intuitive. This paradigmatic case tells us that common sense and naive empiricism are the most obstinate hindrances to science. This is why J. S. Mill cursed them.

    “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcilable with the theory they held and with a totally different one. It seems strange that such an instance as this, … , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill, 2006, p. 783)

    While common sense/naive empiricism are a nuisance for all sciences they are less so in fields which are remote from ‘the ordinary business of life’ (Marshall) and more so in economics, sociology, psychology, etc. Everybody has something heartfelt to say about wealth, or class struggle, or greed, or sociopaths, or the good society, but only few about quantum entanglement.

    Because of this, the inflow of common sense and naive empiricism has always been disproportionally high in economics. This proved to be the intellectual deadweight that prevented the rise of economics above the proto-scientific level of storytelling until this very day.

    Walrasianism, Keynesianism, Marxism, and Austrianism contradict another. Logic tells us that only one can be true or, more probable, that all are false. The latter is actually the case. The common defect of the familiar approaches is that neither ever came to grips with profit (Desai, 2008, p. 10).

    From the fact that the representative economist does not understand the pivotal economic concept follows that economic policy discussions have no scientifically valid foundation whatever. Arguments are hanging in the air because of scientific incompetence on all sides.

    Lack of scientific knowledge does not hinder participation in political debate. Rather the opposite. The prerequisites of political debate are opinion and rhetoric, and not knowledge and proof.

    Political economics (= non-science, opinion) and theoretical economics (= science, knowledge) are based on different modes of thinking: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)

    The pseudo-inquirers of political economics use economic theory as a means to push an agenda. Thus, theoretical economics is hijacked and abused. Needless to emphasize that political economics has produced nothing of scientific value since Adam Smith. What we have are various narratives but not the formally and materially consistent economic theory.

    What Thomas Palley calls gattopardo economics is good old political economics only a bit more specified in order to characterize the pseudo-inquirers of Orthodoxy. The characterization is spot on, but now we have a problem.

    The situation is this: Krugman’s approach is provably false (2014). So far, Heterodoxy is on the safe side. But unfortunately, Post-Keynesianism is also provably false (2011). So, both Orthodoxy and Heterodoxy is good old political economics.

    The general public can know by now that political economics is the domain of low-IQ agenda pushers.* The scientific content of every economic policy debate is zero. What students of econ101 have to clearly understand is that their choice is not between Walrasianism/Keynesianism/Marxism/Austrianism or Orthodoxy/Heterodoxy but between political economics and theoretical economics.

    The task of theoretical economics is to figure out how the actual monetary economy works — not less, not more. Political economists of all colors have failed at this task. Krugman is but one of the many low-IQ economists who can well be an agenda pushing member of a party but never ever of the scientific community. The same holds, of course, for Keynes, Hayek, Friedman, Varoufakis, and all the other political economists.

    Egmont Kakarot-Handtke

    References
    Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL http://www.dictionaryofeconomics.com/article?id=pde2008_P000213
    Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_
    scientism_and_anti-science_in_the_age_of_preposterism
    Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL http://ssrn.com/abstract=1966438
    Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of
    Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856.
    Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.

    * See the post ‘How the intelligent non-economist can refute every economist hands
    down’
    http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.html

    • March 14, 2016 at 5:35 am

      Like most of his other positions J.S. Mill is incorrect here as well. Common sense and native (not naive) empiricism are not hindrances to science (obstinate or otherwise). They are rather the essential beginnings of science. It is up to the scientist to make the best use of them and expand them. So far economists have done little to even grasp what’s directly before them. They are not so much mired in native empiricism and common sense, as these alone would warn them that what they’re doing and saying have little to do with the collective life called “economic” and the actors that create this life. Economists aren’t even stuck in fiction, since almost any good fiction writer (even science fiction ones) base their writing on what they see being created around them and the sense people make of this creation work. In economic science the scientists must follow economic actors, some of them human, just as physicists follow planets, stars, etc. Both processes are thoroughly political since politics is simply making decisions about areas of concern. Concerns such as the distribution of resources or the support for planetary sciences. Science, all science is inherently heterodox, in both subjects and methods. So it’s quite an accomplishment for economists to fight this. And therein is economists’ major mistake. They really don’t want to be scientists. They want to have power and respect, to be “important.” And they work very hard to align the politics, the making decisions about what to be concerned about to support this ambition and to submerge the question asking and re-experiencing that is the basis of science.

    • David Chester
      March 14, 2016 at 5:01 pm

      The flaw was deliberately introduced when John Bates Clerk claimed the land values are a part of capitalism. Land values behave in an entirely different way to other kinds of man-made durable capital. As a result and in direct opposition to the land theory economists (like Henry George), the subject is so badly confused that it is impossible to separate the various entities activities and our student have ceased searching for true knowledge and worry only about passing their exams. When will there be a genuine into how our social system works?

    • blocke
      March 25, 2016 at 3:24 pm

      “The common defect of the familiar approaches is that neither ever came to grips with profit (Desai, 2008, p. 10).”

      German economist have been arguing about profit and for whom for a long time. Before WWI Wilhelm Rieger defined the firm as a Geldfabrik, in which capital was invested with the goal to take out more money at the end of the production and marketing process. Others argued that the firm was not a Geldfabrik but an enterprise that served the community, profit had to be measure accordingly. In other words the idea of profit is political not scientific.

      • March 26, 2016 at 2:14 am

        Actually profit is both political and scientific. Profit is an historical process that is created as part of scientific research and political negotiations.

  6. Alan
    March 17, 2016 at 5:20 pm

    I agree with the points made above about globalization being with us since at least the 18th C. I don’t think I agree with Ken, however, about the British Empire. Large global companies like the East India Company were the tail wagging the British dog. It was for this reason that companies such as the EIC were one of the main targets of Smith’s The Wealth of Nations. For discussion see: Muthu, Sankar. Adam Smith’s Critique of International Trading Companies Theorizing ‘Globalization’ in the Age of Enlightenment. Political Theory 36, no. 2 (April 1, 2008): 185–212.

    • March 17, 2016 at 7:36 pm

      I can see your concerns. But let me point out that 3 of the 6 “companies” that virtually ruled and globalized trade from 1600 to 1900 were British. All operated under Royal Charters. Did these companies always take direction from the British government or monarchy? No. But did they mostly advance the expansion of the size and wealth of the British Empire? Yes. My point being Great Britain, the Dutch, and Russia did not globalize the world for altruistic reasons. They did it for wealth and power! There was no “theory” of fair or beneficial trade involved. Ironically, it was this, plus the anti-colonial movements that eventually destroyed the British as well as the Dutch trading companies. In terms of abuse of land and people the trading companies were many times more brutal than anything around today. Although their “exploits” have been romanticized in books and movies (but only after their demise).

      • Alan
        March 18, 2016 at 2:50 am

        I agree that companies such as the EIC expanded the British Empire but isn’t the issue to whose advantage? Their activities benefited themselves and the political elites they bought. Smith’s point is that their activities didn’t benefit the economic “wealth of the nation” as a whole, in fact the opposite. And isn’t that exactly the situation we are still in: the collusion of big corporations with political elites against the public interest?

        I agree about the brutality of the companies. In Book IV Smith catalogs the EIC’s mass starvation of hundreds of thousands of people in Bengal. We now know that the figure was closer to ten million. But were they really any more brutal that what we have today? Private companies made billions out of the Iraq war, hundreds of thousands of Iraqis died and we haven’t seen the end of it yet. This is the nature of big institutions (also one of Smith’s key points, now selectively interpreted).

        Speaking of the British Empire and famine: The British government recently made a big deal out of celebrating the anniversary of Waterloo. It’s going to be interesting to see how the up-coming anniversary of Peterloo is celebrated. It seems unlikely that the current government will want any type of Peterloo commemoration.

        For an unromanticized take on the EIC see The East India Company: The original corporate raiders. For an Indian perspective see Britain Does Owe Reparations.

      • March 18, 2016 at 9:48 am

        Several interesting points about the EIC and Great Britain. First, the EIC did not become successful in making money until the early part of the 18th century. But the brutality was still extreme, along with the ineptitude. But the company definitely was pursuing its own self-interests. And failing to achieve them. And you point out EIC was giving much back to Great Britain. Should’ve Smith’s “invisible hand” have worked here? Even it the EIC was failing. But the EIC’s earnings increased in the mid part of the 18th century when, contrary to Smith’s formula the Crown and Parliament began to oversee the EIC more strongly. To regulate it. Sounds like government intervention to me. And it worked. The regulation even mitigated the cruelty and stupid political plays of the EIC a bit. Lesson: government regulation of trading companies can be beneficial.

      • Alan
        March 22, 2016 at 2:46 pm

        “Smith’s formula”? What formula? If you mean Smith’s Invisible hand, he used the term “invisible hand” once in Wealth of Nations. It’s a metaphor; not a formula, principle, theory, etc. All he’s saying is that in the context of his time most individuals prefer domestic investment because it is less risky for them and a by-product of this choice is local economic development.  

        The modern economists’ notion of the “invisible hand of the market” isn’t to be found in any of Smith’s writings. The idea was popularized by Paul Samuelson so I think “Samuelson’s invisible hand” might be more appropriate. If economists actually bothered to read Smith rather than get their history of economics from poorly researched textbooks, they’d know better.

        For some reason you seem to be under the impression that Smith didn’t believe in government regulation. Where it’s warranted, he supports it. There are numerous places in Wealth where he supports regulation or government intervention because there are numerous cases that he documents in which the pursuit of self-interest is either ineffective or functions against the broader social interest. The issue isn’t  regulation or no regulation. There’s always regulation of some sort. The issue is regulation for what purpose? A key point of Book IV concerns the problems of large and powerful corporations, like the EIC, that bend government regulation and laws to their own purposes. The point isn’t that government and regulation and action is inherently bad. The point is that government and regulation is often bad when it’s done on behalf of powerful factional interests against the broad public interest.

        There’s are places in Book IV where he expresses a high degree of skepticism that we’ll ever escape the collusion of government and factional interests. His argument is really that it’s a matter of degree.

      • March 22, 2016 at 6:53 pm

        Alan, I should have placed the entire section of the comments you mention in quotation marks. I was attempting and failing apparently to be satirical. I agree with your comments about Smith’s nuanced approach to the subjects of trade, national wealth, and regulation. But when I hear economists testifying, and I’ve heard hundreds of them do so they always put these issues in “black and white” terms. In summary they say – Markets can handle anything. It’s just a matter of letting them go and letting the prices rise high enough. Of course that’s difficult for me to accept, since my job was making certain markets didn’t blow up and take a good part of the population with them and that prices were “affordable” for the average citizen. Strange thing about the testimony of the economists – they often mention Adam Smith by name. None mention Paul Samuelson.

      • Alan
        March 24, 2016 at 12:51 am

        Yes, went over my head. Mention of the “invisible hand” tends provoke me. Apologies.

        Of course they don’t mention Samuelson. I think they get it from Samuelson (or worse someone who got from someone who got it Samuelson) who claims to have gotten it from Smith. And you can go through a long list of people with ‘Nobel Prizes’ in economics who are guilty. One has to ask: Are they liars and propagandists or merely illiterate? Or maybe both?

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