I Told You Guys That Krugman Was Misleading the Children
Jeff Tucker passed along a very critical comment from reddit on my recent article accusing Krugman of making a basic mistake on trade theory. Here’s the opening salvo:
Has this author ever even taken macroeconomics in college? This crap was on my freakin midterm; Krugman is 100% right. Increasing or decreasing the amount of trade we do via protectionism or trade liberalization only changes the volume of trade, but not the balance of trade, ergo it doesn’t affect short run GDP. That’s what Krugman is saying, and it’s extremely obvious to anyone who knows that NX = Savings – Investment. Maybe if the author actually went over NX = S – I, he’d realize why what he’s saying is wrong.
OK, criticizing Krugman on general economics is one thing, but you’d have to be a damned fool to criticize him on trade theory. That’s all Krugman does, academically speaking. The author of this piece is WAY out of his own league. To say that “Krugman is wrong even within the Keynesian framework” is completely laughable; take it from someone who just studied most of this junk.
If you are interested in using Keynesian macro variables to express sound economics, I think you will enjoy clicking the link and watching this guy (?) and me debate. For example here is part of his follow-up:
You’re 100% right; trade barriers adversely affect C and I. But it’s more of a long run effect than a short run effect.
Trade in itself does not contribute to output, it just turns your output into something else that you want. If I’m making 40 bushels of corn and trading them with China for 40 teddy bears (backwards, I know), and all of a sudden a barrier is put up so I can’t trade for teddy bears anymore, if I’m still producing 40 bushels then my output hasn’t changed; it is and always has been 40 bushels. So GDP remains the same.
This is–I believe–totally totally wrong, but it’s a very interesting mistake that I’ve never encountered before. So if you want to see me pick it apart, follow the link.
Last point: I’m almost glad that this guy (?) made this confident comment about my article. Kevin Donoghue and some others had me doubting myself, and thinking that Krugman wasn’t misleading his readers. Well, he certainly fooled this person.
