Paul Krugman’s 1993 stance on free trade very different from 2016 views

What has happened to Paul Krugman? Has his intellectual consistency (if he had any in the first place) been thrown out the window to simply toe the party line? That’s what seems to be the case.

Krugman’s latest New York Times blog post entitled “A Protectionist Moment?” attempts to defend those who argue against free trade.

Since free trade (or government free trade since free trade agreements have nothing to do with free trade) has been one of the main topics of the 2016 presidential election cycle – it has been the facet of the Donald Trump and Bernie Sanders campaigns. Trump wants China to stop manipulating its currency. Sanders doesn’t want Mexicans taking American jobs, blaming corporations of this. Krugman decided to espouse his gospel on the matter.

Here is what Krugman opines:

“Furthermore, as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins — but we now have an ideology utterly opposed to such redistribution in full control of one party, and with blocking power against anything but a minor move in that direction by the other.

“So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking.”

But the traditional case of free trade, as Don Boudreaux of Cafe Hayek writes, stems from the idea that “trade liberalization” benefits the consumer, improves the well-being of all the parties involved: the exporter and importer, the buyer and seller. We’re all better off thanks to free trade (not the government kind).

It seems Krugman understood this very well in 1993 in his “American Economic Review” essay entitled “What Do Undergrads Need to Know about Trade?” in which he writes:

“One of the most popular, enduring misconceptions of practical men is that countries are in competition with each other in the same way that companies in the same business are in competition.  Ricardo already knew better in 1817.  An introductory economics course should drive home to students the point that international trade is not about competition, it is about mutually beneficial exchange.  Even more fundamentally, we should be able to teach students that imports, not exports, are the purpose of trade.  That is, what a country gains from trade is the ability to import things it wants.  Exports are not an objective in and of themselves: the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.”

So, what has occurred to the thought process of Krugman?

This isn’t the first time that Krugman has pretty much contradicted himself in his own writings.

As many of Krugman’s die hard followers know, the Keynesian icon is a firm believer in raising the minimum wage. Here is what he wrote last summer:

“Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.”

What did Krugman think about the minimum wage in 1998? Let’s turn to his review of a book called “Living Wage”:

“So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.

“What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda–for arguing that living wages “can play an important role in reversing the 25-year decline in wages experienced by most working people in America” (as this book’s back cover has it). Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects. This will to believe is obvious in this book: The authors not only take the Card-Krueger results as gospel, but advance a number of other arguments that just do not hold up under examination.”

The 2008 edition of his Econ 1010 textbook  “Macroeconomics” reiterates his 1998 point: “When the minimum wage is above the equilibrium wage rate, some people who are willing to work–that is, sell labor–cannot find buyers–that is, employers–willing to give them jobs.”

Krugman even, clandestinely, showed his opposition to the minimum wage when discussing the economic collapse of Puerto Rico (SEE: Paul Krugman admits high minimum wages hurts economies). He stated that, in referring to the U.S. territory, “the minimum wage is too high…their productivity is about a third of the U.S. average,” he said. “I’m in favor of a higher U.S. minimum, but not tripling it. So the Puerto Rican minimum wage probably is too high. I wouldn’t recommend that level relative to productivity in the U.S.”

When looking back at Krugman’s writings, one thing is clear: he changes his mind a lot. But what has changed? Perhaps political parties. Perhaps he wants to be a major player in the Hillary Clinton administration. Perhaps he finds solace in irking his enemies by embracing contradictions.

In any event, it can become quite embarrassing to read his devout followers gush over any blog post he writes, even suggesting that the U.S. should go as far as legislating all politicians study under Krugman himself!

Whether it’s the minimum wage or free trade, Krugman can’t seem to hold a firm view on any matter of importance. Well, except maybe worshiping John Maynard Keynes.

He is right on one point, though, more free trade agreements isn’t the answer over the next four years.

More free trade and less free trade agreements is the answer.

–AM