November 12, 2001

Is Paul Krugman "Partisan"?

Krugman the Partisan

Paul Krugman: An Equal Opportunity Critic of Government (November 27, 2001):

Every once in a while I read something about how Paul Krugman is the most partisan Democrat alive: someone who would rip the throat out of any Republican, while cuddling up to any Democrat, regardless of the merits of the case. The first thing I do is wonder how short people's memories are. The second thing I do is wonder why people don't make better use of Lexis-Nexis to research what Paul has written. For Paul's animus is not directed against Republicans, it is directed against people in government who--in Krugman's eyes--do stupid things and then play fast and loose with the truth in order to try to fuzz the issue.

In fact, I remember well when Paul Krugman's fangs-bared attacks were launched against... Democrats... me, in fact... or, rather, against my bosses in the Clinton Treasury--for I was just a spear-carrier, qualified to conduct analyses of what the likely effects of alternative policies would be, but not a maker of High Policy myself.

Paul Krugman (1994), Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (New York: Norton: 0393312925).

p. 289: "Imagine the following scenario.... The strategic traders in the Clinton administration nonetheless present their demands at an economic summit--and the Japanese reject them... there is no real policy option other than to close U.S. markets to Japanese goods. And so protectionism it is.... Within two years the results of four decades of negotiations to open world markets are reversed. An unlikely scenario? At the time of writing, much of it had already happened. The Treasury Department is usually a bastion of free trade thinking, but in May 1993 Lawrence Summers... Undersecretary of the Treasury for International Affairs, asserted... 'Japan's surplus is the major asymmetry in the global economy' and that this surplus was a 'significant drag on global growth'.... [Thus] '[t]he United States will focus less on process and more on results, and results have to be measurable.' Everyone knew what he meant: the U.S. Trade Representative had for weeks been telling reporters that the United States was likely to demand that Japan impose a ceiling on its trade surplus..."

This claim that the U.S. executive branch's policy toward Japan was one of global protectionist mercantilism, of quotas and barriers is overstated: it is Paul Krugman in attack mode, concerned not so much with being completely fair to his target as with trying to push his target in the right direction, or to undermine his target's influence in the long run. Sometimes Krugman in attack mode is fully justified--consider the Bush II tax cut, or the Bush II outbreak of protectionism. But it doesn't seem to me to be fully justified in this case.

How do I know that Paul's claim is overstated, and not fully justified? I have in my files a Treasury memo from June 22, 1993, in which the desired direction of U.S. international economic policy is set out in preparation for Lawrence Summers's Article IV meeting with the IMF staff that took place on June 23, 1993. The U.S. government's policy was to "seek removal of structural barriers that impede imports to Japan," but to avoid any recourse to quotas: "statistical goals should be used as indicators of [the] success [of policy changes to reduce structural barriers], not as ends in themselves." There was definitely daylight between a policy of outright protectionism and the Clinton administration's policy--to try to redivide the surplus from U.S.-Japan trade through pressuring Japan to remove structural barriers to imports.

But on a deeper level, even though Paul Krugman's claim that there was no daylight between Clinton policy and out-and-out Japan-bashing protectionism was overstated (for in our minds then and in my view now that daylight was definitely there), his influence on the overall policy process was constructive. There was much less daylight between the two than Paul Krugman (or I) would have wished. There was a danger that that daylight would vanish. It was, after all, an administration in which the President could decide to put Ira Magaziner--a man whose liking for administrative controls appeared boundless--in charge of an inter-agency task force to shrink the U.S. trade deficit.

Krugman asserted identity where there was only similarity (albeit enough similarity to at the time make me nervous), and his fears and arguments helped prevent the identity and lessen the similarity.

Excerpts from DeLong memo of June 22, 1993, reporting Treasury OASIA talking points for the June 23, 1993 Under Secretary Summers-IMF staff Article IV meeting:

  • The current account deficit is largely a cyclical story, but we are very discouraged by slow growth in major export markets.
  • U.S. concern over the current account would rise if there were:
    • continued growth disparities with Japan and Europe that fueled a persistent widening of the deficit.
    • exchange market pressures that threatened to force the U.S. to raise interest rates.
  • The President has demonstrated his commitment to the Uruguay Round by seeking Fast Track authority that would mean the conclusion of negotiations by December 15.
  • We are working hard to complete negotiations on NAFTA supplemental agreements to ensure its implementation on January 1, 1994.
  • We seek removal of structural barriers that impede imports into Japan.
  • We have suggested that as far as Japan’s openness to imports is concerned, statistical goals should be used as indicators of success, not as ends unto themselves.
  • U.S. monetary authorities have bought dollars against yen on five recent occasions to dispel volatility and market misperception of exchange rate policy.
  • The U.S. is not pursuing a dollar depreciation policy.
  • Successful G-7 policy coordination requires that:
    • Japan sustain fiscal stimulus.
    • Europe reduce interest rates.
    • The United States implement the President’s deficit-reduction program.
  • With respect to overseas development assistance, the United States faces serious budget constraints, is placing increased emphasis on the quality and effectiveness of our developmental assistance, and will increasingly target development assistance to support poverty reduction, human rights, democracy, environmental protection, and access to social services

Posted by DeLong at November 12, 2001 12:09 PM | TrackBack

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