Paul Krugman: Trump Is Weighing Two Calamitous Economic Policies
The GOP hasn’t had many original economic proposals over the last 40 years, preferring instead to resurrect the zombie policies that have decimated the country. One of its favorites is supply-side economics, which as Paul Krugman writes in his Tuesday column, is the “insistence that cutting taxes on the rich reliably produces economic miracles, and conversely that raising taxes on the rich is a recipe for disaster.”
Donald Trump loves few things more than a tax cut, and his appointment of Larry Kudlow to head the National Economic Council shows that’s not changing anytime soon. More recently, he’s shifted his obsession to international trade. Trump, Krugman observes, is enamored of “the supposed evils of trade deficits. And that’s where things get interesting.”
There are two main camps in what is shaping up to be a “zombie civil war.” On one side are the mercantilists, people like Trump’s trade czar Peter Navarro, who, Krugman explains, “see world trade as a tale of winners and losers: Countries with trade surpluses win; those with trade deficits lose.” This is nonsense according to Krugman, who writes that “Trade surpluses are often a sign of weakness, trade deficits sometimes a sign of strength (as a matter of arithmetic, a country that attracts more inward investment from foreigners than it invests abroad must run a trade deficit).”
They may be dead wrong, but for Trump, “their errors play to his gut instincts, and when it comes to policy, he don’t need no education,” Krugman bitterly observes.
On the other side are people like former Bear Stearns head David Malpass, who Krugman calls a "neo-goldbug": “people who think that a nation’s strength can be measured by the strength of its currency, and refuse to see any downside in a strong dollar, never see any reason a weaker dollar might be needed.”
In 2011, Malpass wrote an op-ed claiming that “what America needed to fix its economic ills was a stronger dollar (and higher interest rates),” never mind that the U.S.’s unemployment rate was 9 percent. Krugman continues:
It would have made U.S. products less competitive, increasing the trade deficit—and a situation of persistently high unemployment is the one situation in which trade deficits really are an unambiguously bad thing, reducing the demand for domestic goods and services.
Why, Krugman asks, would Trump invite a war between two groups of terrible ideas? In this case, it’s probably because “both sides in this dispute share...a general propensity for invincible ignorance, which makes them Trump’s kind of people.”
The rest of us should buckle up for “a battle of the zombies—a fight between two sets of bad ideas that refuse to die. Pass the popcorn.”
Read the entire column here.