How Consistent Is Mr. Krugman?

by Don Boudreaux on March 28, 2016

in Economics, Myths and Fallacies, Stimulus, Trade

Here’s an e-mail sent to me earlier today by my former GMU Econ student Chris Mufarrige.  (By the way, Chris also earned a J.D. from GMU Law.)  I share Chris’s e-mail here with his kind permission.  (Link added)

Krugman, et al. have recently been criticizing free trade on distributional grounds.

Here’s a thought experiment: what would Krugman, et al. say if Keynesian spending resulted in the same exact distributional consequences as the distributional consequences of free trade? Would they cease to advocate Keynesian spending? I suspect, given my far better understanding of rent seeking than Krugman, et al, that Keynesian spending results in a far more unequal distribution of income than does free trade.

Chris’s thought experiment is pertinent and revealing.  Any change in government policy, as is true of any change in the pattern of economic activities, has distributional consequences.  There will be “winners” and “losers,” at least in the short run.  (In the long run it’s possible, depending upon the policy, for there to be only winners or only losers.  But this possibility is not germane to the point of this post.)  And so even if it’s true that Keynesian stimulus spending in both the short-run and the long-run creates gains for the “winners” that exceed the losses of the “losers” – that is, even if in principle the government “could” compensate the losers from the winners’ gains – one now wonders, given Krugman’s recent flirtation with protectionism, why he so cavalierly supports Keynesian stimulus without asking if government will actually compensate the losers by transferring to them some of the gains of the winners.

Indeed, one wonders why Mr. Krugman supports any policy change today given Uncle Sam’s alleged refusal to ‘redistribute’ income.  How, for example, can we be sure that carbon taxes and other regulations aimed at reducing greenhouse-gas emissions are worthwhile if government does not today compensate the losers from the gains enjoyed by the winners?  Ditto for other environmental regulations.  And ditto, too, for financial regulations, for food-safety regulations, for more government spending on infrastructure, and, again, for nearly all of the regulations and other policy changes that Mr. Krugman champions.

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