Friday, May 25, 2018

Let's Get Ready to Rumble: Paul Krugman vs Joan Robinson on Trade

Joan Robinson was a Cambridge economist who helped develop post-Keynesian econ. We first mentioned her in 2007 in relation to her coinage of the word "monopsony".
As a female economist she went straight up against the male hierarchy, eventually becoming the first female fellow of Kings College.

To set the mood: 'Y'all ready for this?'

From the Case for Concerted Action blog:

Contrasting Joan Robinson And Paul Krugman’s Views On The Global Rules Of Trade
Paul Krugman has a new articleWhy A Trade War With China Isn’t ‘Easy To Win’ (Slightly Wonkish), in The New York Times, in which he rightly points out Donald Trump’s switching positions on trade with China. Krugman however has a generic point about international trade as some kind of mercantilism:
Admittedly, the political economy of trade is kind of mercantilist, because it’s driven largely by producer interests. Long ago I wrote about “GATT-think”, the view of trade, enshrined in international negotiations, that sees exports as good, imports as bad, so that letting someone sell us stuff, even if it’s better and cheaper than we could make ourselves, is a “concession.” The genius of the postwar international trading system was that it harnessed this special-interest reality, using the ambitions of exporters to offset the protectionism of those competing with imports, to engineer a kind of enlightened mercantilism that vastly expanded world trade.
[italics: mine]
So Krugman is admitting that it is in the interest of big producers, but claiming that his interests aren’t aligned with them and that the rules of trading were made such that it somehow offset them.
The reality is of course different. More successful countries do not need protection at home. At least we can say that they’re are willing to forgo protectionism as the advantage from selling more easily in markets abroad is immense. As Joan Robinson pointed out in a 1977 article (and even before), What Are The Questions?
From a long-run point of view, export-led growth is the basis of success. A country that has a competitive advantage in industrial production can maintain a high level of home investment, without fear of being checked by a balance-of-payments crisis. Capital accumulation and technical improvements then progressively enhance its competitive advantage. Employment is high and real-wage rates rising so that “labour trouble” is kept at bay. Its financial position is strong. If it prefers an extra rise of home consumption to acquiring foreign assets, it can allow its exchange rate to appreciate and turn the terms of trade in its own favor. In all these respects, a country in a weak competitive position suffers the corresponding disadvantages.

When Ricardo set out the case against protection, he was supporting British economic interests. Free trade ruined Portuguese industry. Free trade for others is in the interests of the strongest competitor in world markets, and a sufficiently strong competitor has no need for protection at home. Free trade doctrine, in practice, is a more subtle form of Mercantilism....

Previously on the pump up the music channel:

UPDATED--Cliff Asness vs. Paul Krugman: Let's Get Ready To Rumble
Let's Get Ready To Rumble II: Paul Krugman Responds to Cliff Asness
Let's Get Ready to Rumble: "Gross Vs. Gundlach: Who Has More Skill?"
An Old Fashioned Newspaper War! WaPo vs. NYT!
Let's Get Ready To Rumble: Amazon Vs. Uber In the Delivery Wars
Let's Get Ready to Rumble: Harvard Management Co. vs. Yale Investments Office