Calling Dr. Krugman….

by Don Boudreaux on May 20, 2011

in Balance of Payments, Myths and Fallacies, Trade

Here’s another letter to the New York Times on Paul Krugman’s especially, appallingly, and excruciatingly bad column today:

Paul Krugman writes that “Crucially, the manufacturing trade deficit seems to be coming down” (“Making Things in America,” May 20).

Why is this fact “crucial”?  A dollar’s worth of exported services buys just as many imports – one dollar’s worth – as does a dollar’s worth of exported manufactured goods.  Mr. Krugman, a trade specialist, should recognize this reality.

Suppose that for decades the annual value of American exports of things-bigger-than-a-breadbox exceeded the annual value of American imports of things-bigger-than-a-breadbox.  Suppose also that a recent technological advance prompts Americans to specialize much more heavily in the production of things smaller than a breadbox.  It’s likely that, as a result, the number of Americans employed building things bigger than a breadbox falls and America starts to run annual bigger-than-a-breadbox-things trade deficits.  Would Mr. Krugman worry?  And would he applaud when some subsequent economic or policy change causes America’s bigger-than-a-breadbox-things trade deficit to ‘come down’?

Surely not.  So why does this Nobel laureate economist lend credence to the popular myth that there’s something economically special and worthwhile about value exported in the form of manufactured goods as opposed to value exported in some form – such as services – other than manufactured goods?

Donald J. Boudreaux

It’s a shame that a Nobel laureate economist has contorted his economics so badly that it now sounds very much like the nonsense bellowed by the likes of Donald Trump and Charles Schumer.  (If only Mr. Krugman would read a book by Dr. Krugman entitled Pop Internationalism; he’d learn much.)


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