Now Krugman Wants to Repeat Smoot-Hawley Too
In his quest to rationalize repeating the exact policies followed by Hoover and FDR, Paul Krugman has now endorsed protectionism. That’s right, the Krugman who won his Nobel (Memorial) Prize for his work on trade theory now says:
The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.
But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.
As usual, the insanity relies on an externality argument:
And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.
And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.
I don’t see why we’re handling this particular externality differently from all the other ones spawned on a free market. Why doesn’t the government just subsidize subsidies?
