Obsessed With Aggregate Demand

by Don Boudreaux on June 25, 2010

in Monetary Policy, Seen and Unseen, State of Macro, Trade

Here’s a letter to the New York Times:

If Beijing doesn’t further raise the value of the renminbi, Paul Krugman wants Uncle Sam to impose trade sanctions on Chinese producers (“The Renminbi Runaround,” June 25).  Mr. Krugman justifies his embrace of protectionism by pointing to today’s high unemployment rate: by making Chinese goods less costly for Americans to buy, Beijing’s monetary policy allegedly reduces “demand for goods and services to generate the jobs we need.”

If Mr. Krugman is correct that access to inexpensive goods and services from abroad causes unemployment by reducing demand for domestically produced outputs (and, hence, for workers who produce those outputs), it must also be true that access to inexpensive goods and services from labor-saving technology causes unemployment.  In both cases, fewer domestic workers than before are required to make outputs available to consumers.

So here’s a question for Mr. Krugman: does today’s high unemployment rate also justify Uncle Sam imposing punitive tariffs on R&D teams, inventors, and other sources of labor-saving technologies?

Sincerely,
Donald J. Boudreaux

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