Paul Krugman's Pop Internationalism

...It works quite well as a book...

...Worse, they dare to write about international economics, a subject about which, if Krugman is correct, they know absolutely nothing...

...Yet it might not be the worst thing that could happen now...

...His deficit-cutting policy, a great concession to economic orthodoxy, was made possible because he diverted (progressives might say hijacked) the political power of competitive internationalism to this objective...

...There is something to WINTER • 1997 • 127 Books be said for this: after 1983 Reagan's economic growth record was better than Clinton's, and if you don't find the spectacle of the rich on a spree repellent, there are worse things than Reaganomics...

...nor have they done so since...

...Let's take, as a starting point, the idea that these literate and reasonable men (and at least one prominent woman, Laura D'Andrea Tyson, to whom Krugman is somewhat more generous in this book) have been trying to work something out...

...Bah...

...I am not sure that Paul Krugman entirely disagrees with this approach (he may doubt its feasibility, a cheap complaint...

...They will stand even less chance of achievement if the Democratic party's economic policy falls back entirely into the hands of the politically incompetent economic mainstream, which is what Paul Krugman apparently proposes should happen now...

...This was despite the fact that the theoretical claim for the social superiority of free-market outcomes falls apart once any of these ideas—imperfect competition, public goods, externalities— is introduced into the argument...

...The leap to "competitive internationalism" (CI) was made...

...That group, which held all the key territory in the late 1970s and early 1980s, would neither fight fairly with the political progressives on domestic policy issues nor admit impotence as a bulwark against the right wing and get out of politics...

...Let the markets work...

...Such views are false...

...Economics therefore failed not only to ally with progressives on traditional aspects of government's role, it also failed to come up with any credible alternative productivity, growth, or employment agenda...

...To accuse them of being "entirely ignorant men" is ridiculous...

...What would be involved...

...That story begins far away from the cloistered arena of international trade theory...

...For unless he goes on skewering himself with his own stiletto, Paul Krugman's authority and influence are not going to disappear...

...The reactionaries ran away with the debate, setting the stage for a decade of high unemployment, upward redistribution, and wholesale attacks on the welfare state...

...Two alternatives remain...

...Clinton, as it turned out, wasn't very serious...

...It is an even better guide to what he thinks about other people...

...This definition, which originated with Tyson's CI colleagues at Berkeley, is hard to distinguish from the mundane idea of "productivity growth...

...Reich's positions are similar, with a strong emphasis on preparing people for "knowledge jobs...

...For Professor Krugman is on the warpath...

...They will not be wrong...

...They were therefore neutralized intellectually and politiWINTER • 1997 • 125 Books cally, and unable on either score to counter the real enemies of economic progress, the cuttaxesfor-the-rich supply-siders and high-interestrate monetarists of that time...

...He quotes Laura Tyson, according to whom competitiveness is "our ability to produce goods and services that meet the test of international competition while our citizens enjoy a standard of living that is both rising and sustainable...

...Thus, they could forge a winning political coalition...

...A real employment policy, including public capital investment and public employment along lines advocated by William Julius Wilson...

...When Clyde Prestowitz (an extrade negotiator whose expertise lies in dealing with Japanese bureaucrats) makes a mistake with some numbers, Krugman pounces: "Prestowitz should report the results of his research to the Department of Commerce, whose staff has obviously incorrectly calculated [in the Annual Survey of Manufactures]," and so forth...

...the internationalist dimension, in many respects, adds pizazz and political appeal more than anything else...

...Lower interest rates around the world, to begin with...

...His send-up of Yale's Paul Kennedy is based on a passage that does reveal that historian's weak grip on the elements of trade theory...

...Fairminded readers will surmise that Krugman must have missed something...

...Global Keynesianism, in two words: a red-meat, pro-labor program for trade and growth in partnership, rather than in competition...

...And unless they achieve this, the milquetoasts and the bond market will be in unchallenged control...

...In other works, he has voiced modest support for bread-and-butter public investments: the liberal supply-sider's holy trinity of investments in education, infrastructure, and research, essentially the same things the competitive internationalists favor but without their political base...

...This was a debacle, and the fault lay squarely with the center-to-liberal academic mainstream...

...The Economic Policy Institute and the Economic Strategy Institute, no favorites of Krugman's, began to make themselves felt...

...What are they up to...

...An international financial program that stresses adjustment upward rather than downward, while disciplining bond and currency speculators around the world—perhaps through a speculation tax, perhaps through a new mechanism of international financial control...

...Progressive causes, to the (arguable) extent they have advanced at all under the competitive internationalist banner, will be set back...

...One hopes for more (and there are other hopeful signs, in the form of several thoughtful essays at the back of this book on growth in Asia, technology, and economic "localization...

...A chief target is Lester Thurow, whose latest book, Head to Head, contains "little or nothing of what economists think they know about international trade...

...Let us assume, just for the purpose of argument, that Thurow, Reich, Kuttner, and others are not charlatans...

...became the cry of respectability...

...They are fools...

...With this concession made, what can be done politically and how can one argue for it with a decent minimum of integrity...

...To have to watch good people eat wellmeant words would be, in some ways, a shame...

...In some cases this is easily done...

...Pop Internationalism is an excellent guide to what Paul Krugman believes...

...Yet the difficulty with the technique, as the foundation of a larger argument, is one Krugman himself identifies: "Everyone makes mistakes...

...Considered strictly, this is a case that Krugman could win...

...This sort of thing is fair game...

...Paul Krugman's Pop Internationalism is a collection of essays, most of which were previously published in Foreign Affairs, Scientific American, the Harvard Business Review, and similar journals...

...Against Lester Thurow, my numbers agree with Krugman's...

...Even Lester Thurow is caught in some apparent sloppiness with a number...

...It begins with the collapse of Keynesian macroeconomics in the United States around 1970, that is to say with the demise of full-employment policy and with the disintegration of macroeconomics into "squabbling factions" (Krugman's accurate phrase...

...At those moments, government intervened to save a collapsing, endangered, or stagnant economic system, raising living standards, equalizing opportunities, relieving suffering and injustice...

...There were theories of imperfect competition, justifying antimonopoly action...

...But, even when taken all together, these ideas would not butter political parsnips...

...Still less could they assemble a political coalition behind them...

...There was a theory of "externalities," justifying some kinds of social and environmental regulation...

...Otherwise respectable and liberal economists, Paul Krugman among them, were reduced to repeating catechistic formulae: that more saving and more investment, achieved (they said) mainly by deficit reduction, would be good things...

...Some "important editors, like James Fallows at the Atlantic or Robert Kuttner at the American Prospect . . . deliberately use their magazines as platforms for what amounts to an anti-intellectual crusade...

...And that is indeed my claim...

...Book sales took off...

...There was a theory of "public goods" to support certain kinds of public investment...

...Eventually, that exercise disintegrated into incoherence, with nothing to show for it...

...Yet if he does, political consequences will follow...

...Krugman rightly points to dangers in a view that sometimes seems to argue that the United States is threatened by economic growth in the third world, that globalization per se is the principal cause of deindustrialization, that the United States is about to be overtaken by the technological dynamism of the emerging nations of Asia...

...To "meet the test of international competition" is in any event the lesser challenge...

...The high trade deficits and decline of high-wage manufacturing at that time boosted the issue...

...To make too much of this would, 124 • DISSENT Books of course, be unfair...

...This group is not only wrong, in Krugman's view...

...The alliance disappeared with it, but not the understanding of history that had motivated progressives in the first place, nor their agendas...

...Ira Magaziner, Robert Reich, Clyde Prestowitz, Paul Kennedy, and others are similarly bludgeoned...

...Many (not all) of the CI arguments would be defensible in an economy with no trade at all...

...Krugman offers little in this book to suggest that he has any policy agenda, apart from deficit reduction— the respectable academician's pop policy...

...This was a defining intellectual event, for it ruptured a quarter-century's alliance between political progressives and liberal economists in the United States...

...media stars were born...

...Essay by essay, the organization is coherent and the writing is crisp and relentless...

...A stillhigher minimum wage...

...Krugman himself worked briefly in the Reagan administration and no doubt remembers all of this painfully well...

...Where trade accounts for less than 15 percent of GDP (Gross Domestic Product), this is necessarily first and foremost a domestic matter—as Krugman argues...

...More important, beginning with Gary Hart and continuing with Bill Clinton, leading Democratic politicians realized that they could sell competitiveness policy to certain branches of industry, notably to aerospace and electronics...

...Much of the writing he attacks is overblown, hyped with martial metaphor, at times confused over the difference between national political status and national economic welfare...

...Lest you think I exaggerate, here is a summary in Krugman's own words: It may seem, then, that I am asserting that the conventional wisdom about international trade is dominated by entirely ignorant men, who have managed to convince themselves and everyone else who matters that they have deep insights, but are in fact unaware of the most basic principles and facts about the world economy...

...This was the same sort of stuff that had gone down in history as the intellectual content of Hoover Republicanism after 1929 (or in Britain, the infamous "Treasury View" of that same year...

...Other things he might approve of— the 1992 program of public investments and "putting people first for a change"—were not achieved despite the efforts of the progressives...

...Kuttner has advocated managed trade in a world where others manage their trade, and Prestowitz's personal experience leads him to believe that only tough negotiations will open Japanese markets to advanced goods, a position perfectly consistent with orthodox views of the gains from expanded trade...

...He is after a coterie of public intellectuals, mostly liberals, who believe that the United States has a "competitiveness crisis" and that something should be done about it...

...Indeed, they returned from the wilderness in an unexpectedly powerful position...

...She or he believes that the New Deal, the civilian administration of the Second World War, the New Frontier, and the Great Society were the great moments of modern times...

...Their application to industrial policy, regional policy, urban policy, economic development policy (the list could go on) was ferociously resisted, most of all by the supposedly liberal establishment often identified with the Brookings Institution...

...Yet the link between the only-sometimes-desir126 • DISSENT Books able policy and the stated goal is often less than clear...

...Stick to scruples when nobody else was doing so...

...Now, a progressive in the United States is a person who, for the most part, reasons from history...

...The difference was that progressives seeking support from economic theory could now point only to an odd assortment of small ideas...

...Krugman's basic method is to use small errors to illuminate large disagreements...

...The big thing is to get a "standard of living that is both rising and sustainable...

...What was the point of it all, in the first place...

...In effect, most of Krugman's own feeble political goals have already been achieved, partly on the strength of the political energies mobilized by the competitive internationalists he despises...

...Such a return must combine a flat commitment to full employment on the domestic front, and a popular mobilization to achieve that goal, with a complementary commitment to support more rapid growth among our largest trading partners...

...But on macroeconomics, he has trapped himself into alliance with a dying doctrine of the natural rate of unemployment—the idea that inflation accelerates without limit once unemployment falls below a critical barrier—and its corollary that economic growth cannot exceed 2.5 percent per year...

...Progressives will be forced to find another way to justify their agenda...

...Suddenly, progressives found themselves reborn politically...

...Yet it is still a mistake to underrate Thurow, or Kuttner, or Reich, or the Berkeley professors Steven S. Cohen and John Zysman...

...The respectable academic economists of the late 1970s could not support their new, antiKeynesian propositions with evidence...

...The crude nationalism to which CI progressives have allied themselves is ugly...

...It was the search for an out—any way out at all—that drove political progressives such as Reich, Magaziner, Kuttner, and Thurow into the trade arena...

...And Krugman does a service by saying so (though he goes beyond the academic evidence, in my judgment, in pronouncing trade an unimportant source of rising inequality in the wage structure...

...For the first time, they could harness the latent forces of crude nationalism to their cause...

...Krugman also correctly reports that the ubiquitous word "competitiveness" has no very distinctive meaning...

...He is out for blood...

...But of course the spectacle is repellent...

...How did their "competitiveness obsession" get started...

...We would be much better off, all of us, to agree that the more growth and the more trade, generally speaking, the better...

...This was how the West, and in 1992 the Presidency, was won...

...Pro-union laws together with a return to incomes policy in some newly designed form...

...Krugman concludes that the notion of competitiveness is a "dangerous obsession," adding nothing of substance to the debate...

...One is to go back to Reaganomics, with a new witches' brew of tax cuts and tight money...

...Zysman and Cohen are known for an "externalities" argument—that there are technological linkages from manufacturing to services, so that there is a case for government attention to the prosperity specifically of the manufacturing sector...

...and that the disdained academic economists are at least by comparison fonts of wisdom and common sense...

...We would also be well freed of the defeatist delusion that the global economy has somehow stolen our destiny and eliminated our options...

...When Keynesianism collapsed under assault from Milton Friedman's monetarists and the hard facts of Vietnam War inflation, this justification disappeared...

...Pop Internationalism contains hints that Krugman would prefer a policy of lower interest rates from the Federal Reserve...

...The actual political agenda of the competitive internationalists was in fact, for the most part, quite tame...

...These positions are contradictory, because the fiscal and monetary restraint aimed at keeping growth below the 2.5 percent speed limit basically rules out a strong public investment program...

...His allegiance to natural rate unemployment theory is not connected to his trade economics (he does not mention it at all in this book), and is perhaps not deeply held...

...The only other way is to go back to Keynesian economics, a program for growth and justice...

...What else could they do...

...In liberal Keynesianism, economics had a theory that made sense of these historical facts...

...That's a start—the first real sign of a break with orthodoxy on any point of policy (as distinct from theory) in Krugman's work...

...If we do this, I confess to a sympathy, on the substance but not the tone, with parts of Krugman's critique...

...And so, political progressives and liberal economists could form an alliance and did so...

...At one point in Krugman's own previous book, Peddling Prosperity, he strays into macroeconomics and betrays an elementary confusion between the Federal Reserve's Board of Governors and its policy-making arm, the Federal Open Market Committee...

...Can we talk about the merits of competitive internationalism, acknowledging, perhaps, that winning adherents and making a splash is a legitimate part of political debate...

...Faced with the choice, Krugman basically opts to do nothing, except cut the deficit and hope for the best...

...The principal objectives of the competitive internationalists themselves, which were to create programs of investment in education, training, and research, were the victims of this early Clinton switch...

...Lester Thurow is an advocate of many things, but above all he favors increased investment in education...

...Below the level of Reich, Thurow, and some others, the field is clogged with people, including aggressive businesspeople, rather crudely pursuing political agendas—among them industrial subsidies, trade protection, subsidies for training, industrial infrastructure and research, tax breaks and tax reform, even deficit reduction—under the guise of a strategy for "competitiveness...

...Meanwhile, academic economists tackled the mysterious slowdown of productivity growth after 1973, and made a hopeless mess out of that research endeavor...