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Krugman writes: "Trump can't run America by yelling at people. Who knew?"

Economist Paul Krugman. (photo: Getty Images)
Economist Paul Krugman. (photo: Getty Images)

When MAGA Fantasy Meets Rust Belt Reality

By Paul Krugman, The New York Times

03 December 18

Trump can’t run America by yelling at people. Who knew?

et’s face it: Make America Great Again was a brilliant political slogan. Why? Because it could mean different things to different people.

For many supporters of Donald Trump, MAGA was basically a promise to return to the good old days of raw racism and sexism. And Trump is delivering on that promise.

But for at least some Trump voters, it was a promise to restore the kind of economy we had 40 or 50 years ago — an economy that still offered lots of manly jobs in manufacturing and mining. Unfortunately for those who trusted Mr. Art of the Deal, Trump never had any idea how to deliver on that promise. And even if he had a clue about policymaking, he couldn’t have changed the long-term trajectory of our economy, which is moving steadily away from making physical stuff and toward providing services.


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+9 # Rodion Raskolnikov 2018-12-03 18:20
Yes, the MAGA delusion is a fantasy. But it is a tragic one. The good paying, stable manufacturing jobs of the 1960s and 60s are never coming back. There will never again be middle class, unionized jobs again in the US. The nation is on a downward wage spiral and it is permanent. Trump played to the desperate hopes of millions of people who have been shut out and down sized by the rise of global corporations and their off-shore work forces.

The American dream is over. Trump is the final act of this death. No democrat has any plan. $15 per hour is still working poor.

Obama ran on Hope and Change. Trump offered Hope and Change too with his MAGA slogan. in 2020 there won't be any Hope and Change. There will only be We are All Fucked and We know it Now -- WAAFAWKIN I can see the hats now. Or just WAAF.
+2 # SusanT136 2018-12-04 06:31
Krugman zips through his point about exchange rates quite quickly, giving no historical context or further explanation. Perhaps I just don’t get it, but I have trouble with that point. How is it that tariffs worked very nicely for encouraging domestic manufacturing from the founding of the US (as Hamilton advised Washington to enact) through Reagan, who began the process of dismantling them, if exchange rates, which fluctuate greatly, are more influential? At the founding of the country I believe we were on the gold standard, changing to the dollar, which was certainly quite strong through the 1950’s and 60’s, yes? Sorry but I still believe tariffs are the biggest driver of domestic manufacturing. The problem with Trump is that he has no overall trade policy, and his tariffs are by executive “ decree” and could go away with the next president, so who’s going to build a new factory here based on that level of insecurity?
-2 # RMF 2018-12-04 11:55
The Gold Standard requires a fixed exchange rate. Thus, a nation with a fixed exchange rate must manage it's economy to support the level of the exchange rate.

Thus, if the nation's consumers are buying too many goods from abroad, thus putting downward pressure on the external exchange rate, the nation must manage it's economy to maintain the established fixed rate of exchange.

For example, consider a world where there are only two nations -- one growing fast and one growing slow. The fast growing country will buy more from the slow growing country than vice versa, thus putting downward pressure on the exchange rate of the fast growing country. As a consequence the fast growing country (lacking flexible exchange rate) must raise interest rates, slow economic growth, create unemployment, and risk recession TO SUPPORT THE EXTERNAL FIXED EXCHANGE RATE.

That a nation, otherwise doing well economically, must risk recession to support an external rate of exchange appears paradoxical if not perverse. This is a chief criticism of the EU economic plan, which forces budgetary constraints on member nations, and operates as a quasi-gold standard, preventing slow growing states from implementing expansionary fiscal policy to spur growth.

The idea/belief behind flexible exchange rates is that inflationary pressure (transmitted by fluctuations in flexible exchange rates) will operate to automatically stabilize trade flows w/o the need to slow growth in the entire economy.
+1 # RMF 2018-12-05 11:46
The bad thing about tariffs is that they reduce overall trade flow -- which in turn reduces national income (GDP.)

Say for example we slap tariffs on aluminum and steel -- but it doesn't end there -- US producers raise their prices in lock step with the new import price plus tariffs. Since in general sales decline as prices rise, this reduces domestic sales, and at same time reduces competitiveness of domestic aluminum and steel producers in international markets.

A good ex of the deleterious effect of tariffs is with Brexit -- estimates indicate that a hard exit (no deal) from the EU would cause an 8 percent decline in UK GDP -- this would translate to an 8 percent drop in national income, to be amortized over the UK population of salaried and hourly. workers.
+5 # yolo 2018-12-04 13:19
"The dollar is strong because foreigners want to buy U.S. assets."

Maybe this is true or maybe the dollar is strong because the dollar is a currency other countries will accept as payment for their own assets, like oil for example. America was never great because of what we produced it is great because of the idea that every citizen was equal, we were a classless society, no matter who you were, what religion you followed, or the color of your skin, you could do what you wanted and go where you wanted. And while the idea may be different than the reality, at least that idea still resonates for many and is still something to strive for even if we don't achieve it in our lifetimes.
+1 # RMF 2018-12-05 11:33
Yes, the US Dollar is a center currency, or "paper gold" if you will. The large Euro-Dollar market (US dollar deposits in non-US banks) helps maintain the US Dollar as an international currency and store of wealth. But foreign investors also want to buy US financial assets, not only seeking speculative gain but also as a safe haven. These capital flows, like international trade, cause fluctuations in the US exchange rate. For ex, in the most recent month, Sept 2018, foreigners bought USD 30.8 billion of long term Treasury and corporate bonds (overall net capital flow was USD 114.5 billion.) In the same month the balance on trade was at a deficit of USD 54 billion, so you can see that capital flows are right up there with trade in terms of volume, and actually exceed it by a wide margin. The deficit on trade is not the same thing as a nation's budget deficit, does not have to be "paid back" (but it does have to be financed.) The obsession over achieving a trade surplus is misplaced -- for example, it's not arithmetically possible for all countries to run a surplus -- and a trade surplus or deficit is not a good measure of a nation's economic well-being.

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