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Krugman on the trade deficit/jobs connection

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From Paul Krugman:

But then the question is, why do we find it so hard to achieve full employment even with saving somewhat low by historical standards. And the answer seems clear: it’s the trade deficit. America in the 70s and 80s could have high savings, not hugely strong investment, but still have full employment because trade deficits weren’t as large compared with the economy as they are now. …

Do you sort of see why I’m a hawk on China policy?

8 Responses to “Krugman on the trade deficit/jobs connection”

  1. Bob Hall says:

    “By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending.”

    — Paul Krugman, The New York Times, 12/22/08

    It would appear that economics has since merged with the entertainment industry.

    Paul Volcker had the temerity to suggest the 2008 collapse was rooted in our trade deficit. They shut him up. And fast.

    • Steve says:

      Professor Krugman has simply changed his mind as mounting evidence has shown that “free trade” agreements have actually hurt America by destroying jobs and driving up inequality. The problem is all the other economists who continue to worship at the alter of “free trade” despite the evidence.

  2. Ken Davis says:

    A very timely posting by Trade Reform and comment by Bob
    Hall. What’s been widely overlooked is the impact of massive imports with our resulting huge trade deficit and the loss of tens of thousands of domestic manufacturers and million sf good jobs.
    There’s one very direct way to fix all of these problems –
    enact and enforce balanced trade legislation that requires that
    our imports each year don’t exceed our total exports. The corrupt
    relationship between Wall Street, big busines and government is
    what’s stopping any corrctive action. Though still just a fringe
    presidential hopefull, Buddy Roemer, is the only candidate
    who’s brought this huge issue into the campaign. Go, Buddy!
    K.N.Davis, Jr. Former U.S. Ass’t Secretary of Commerce

  3. GOPNYC says:

    Krugman has been disagreeing with himself for at least 20 years, so it is not surprise that pundit one author called “The High Priest of Free Trade” now sees — finally — Free Trade as practiced by mercantilist states like China actually hurt us.

    This author in the American Conservative pointed out Krugman’s two-faced commentary years ago and how Krugman saw “Free Trade” as another element of the Foreign Aid budget. Its worth the read as it explains why Krugman was wrong and what the ultimate outcome of unrestricted “Free Trade” will be.

    • Hugh Campbell says:

      Why do the U.S. Chamber of Commerce and Americans for Tax Reform (ATR) adamantly continue to protect the “Sacred Cow” of unrestricted “Free Trade”, even though free trade isn’t what it used to be.

      There’s really no excuse for running our trade system on the principles of 1800s.

      • Tom says:

        Hugh, it is simple. It is because our “best” retailers have insisted on being able to undercut their suppliers with products from anywhere—especially a communist government. Bill Clinton supported this policy and so it became part of the establishment. It didn’t matter that the long run implications of extracting that much demand would help devastate our economy. Most people can not grasp that so it is easy for politicians to sell out domestic suppliers for their personal benefit.

        Suppliers in an economy make up at least half of the consumers (in a balanced economy). Consumers made up for this slipping demand with more and more leverage due to China “reinvesting” their earnings in T-bills instead of allowing it to transfer to their citizens and create demand. The housing frauds were soon to make a financial mess of it all and bring down the foundations of this fake economy. Retailers should figure out that when they mess with the fundamentals of supply and demand that they are shooting themselves in the foot. Of course that would mean that they actually looked further than their immediate interests, something the incentives in our financial system have distorted. We need structural change and that means we need bright and competent people in government, not people who will cater to money and power’s demands because some politician sees it in their best interest to ignore the principles for the power of the principals.


        • Hugh Campbell says:

          Thank you, especially for “some politician sees it in their best interest to ignore the principles for the power of the principals.”

          Now that the wealth gap (tip-of-the-iceberg) has surfaced, the power gap (iceberg) fueled by money, begs questioning.

    • Bob Hall says:

      Good article by J.G. Collins. Thanks.


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