Comments for What Krugman Said, With a Not So Small Addendum at http://www.cepr.net , comment 1 to 28 out of 20 comments http://www.cepr.net Wed, 22 May 2013 08:56:31 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19752 I understand the logic of it, but to say the dollar is too high because there is a trade deficit seems like a tautology. The dollar has dropped a lot since 2002 against other currencies, and yet the trade imbalance has become worse. This suggests to me there are other factors at work besides the value of the currency. How about the possibility that it's gotten worse because we have nothing to sell (as manufacturing has collapsed in the GW Bush era)? Do our trade deals (and trade policy) actually operate to favor imports over exports? - urban legend Mon, 22 Oct 2012 05:28:12 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19749 Urban Legend, sorry if you didn't think I had responded to your question before, but i thought I had written this one a few thousand times. The value of the dollar is what equilibrates trade in a system of floating exchange rates. If we have a large trade deficit, then it implies the value of the dollar is too high. It's sort of like having a huge surplus of wheat on the market. The way you get rid of the surplus is by lowering the price of wheat. That's the story. It also fits the data. We first got large trade deficits in the mid-80s when the dollar soared against other currencies. The deficits fell sharply later in the decade when the Plaza Accords brought down the value of the dollar against the currencies of most of our major trading partners. The trade deficit exploded again following the East Asian financial crisis when the dollar again soared in value. The decline in the dollar since 2002 has helped to reduce the deficit some -- it had risen to 6.0 percent of GDP and no doubt would have gone considerably higher without the drop -- but we still have a long way to go to get near balanced trade. - Dean Mon, 22 Oct 2012 02:02:25 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19747 What is the evidence that the dollar is higher than it should be? It has dropped dramatically since about 2002, with no apparent positive impact on the trade balance. I have been asking Dean to address this disconnect with what looks like the evidence to me, but so far no response. I would be happy to be proved wrong. On the other hand, emphasizing a lower dollar puts our fate in the hands of other countries, who may or may not respond to our moves to protect their exports and their industries against more imports. That seems to make a lower dollar an iffy proposition at best. - urban legend Sun, 21 Oct 2012 15:52:04 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19741 Issue in U.S. is wages are too high to support additional output at current output prices. Lower dollar=increased demand for exports, which puts upward pressure on prices, so firms can hire more workers at the same wage (especially with 20% real unemployment), maybe wage increases will follow, but probably at quite a lag, likely not until the unemployment falls to 6% or so. I.e., inflation lowers real wages...real wages have stagnated since the early 70s, when the inflation rate doubled from a post war average of 2% to 4%. Capital has done fine. - pete Sun, 21 Oct 2012 08:10:12 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19740 RL nailed it. I've been commenting on Krugman's blog tirelessly, trying to get him to talk about the dollar and the trade deficit, yet he has remained silent. Given that his rebuttal to Dean's original argument didn't even really make any sense -- no, we're not talking about just semantics -- it doesn't seem like he's going to talk about the dollar anytime soon. - JSeydl Sun, 21 Oct 2012 04:09:22 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19739 The mortgage situation is a financial matter, and that should have been cleared up long ago, one way or another. Some measures were proposed and even authorized, but the money was not spent. There is still uncertainty about the effects of the remaining foreclosures. Had the big banks been taken over as Dean recommended things probably would have gone very differently with respect to mortgage relief. Those banks and their executives are still around to impede all kinds of reform. This was an important difference between Baker and Krugman (as well as many others who went with the herd), although unfortunately neither had much influence at the time and the bailout was arranged by Paulson, Bernanke and Geithner. - skeptonomist Sun, 21 Oct 2012 03:57:05 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19738 I agree the housing bubble collapse was the primary cause of the deep recession and slow recovery. Not only did the bubble collapse destroy wealth, but it caused the financial crisis - which only made matters worse. On the other hand, Wall Street certainly contributed to the housing bubble. Had Wall Street and the banks been more cautious and less greedy, there would have been a much smaller housing bubble and a much smaller financial crisis. - Chris M. Sun, 21 Oct 2012 03:20:43 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19737 I've been reading Krugman's blog for a long time now, and it seems that he rarely, if ever, mentions the value of the dollar as a means of decreasing the trade deficit and increasing employment. At the very least, there is a major difference in the amount of emphasis and importance that Dean and Krugman put on the value of the dollar. Whether it signals active disagreement between the two I really don't know since Krugman has written so little on the matter. For that matter, virtually no one else seems to write much about the value of the dollar as a possible solution to the trade deficit. I'd love to see a spirited debate on this matter, but it doesn't seem to be forthcoming. Dean's arguments seem convincing to me, but I've never seen a reasoned argument from the other side, only dismissive comments about inflation or the dangers of competitive devaluation. These sort of tossed-off arguments seem weak to me since they fail to address most important fact involved in the matter: the U.S. has had, and continues to have, colossal and unsustainable trade deficits. - RL Sun, 21 Oct 2012 02:59:25 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19736 Wages are stagnant but not profits, hence the accumulation of capital at the top. We need a distribution fairy to come along and adjust the amount of capital being hoovered off the system by fewer and fewer wealthier folks. Shareholders and executives are demanding greater and greater shares of capital. In effect they are raising the cost of capital, said cost reducing its availability for use elsewhere--like for capital investment. Low tax rates for capital gains and dividend incomes discourage capital investment and retained earnings. It's not that labor is too expensive, it isn't. It's that ownership has become too expensive. - chris herbert Sun, 21 Oct 2012 01:41:28 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19735 Brian, The high dollar makes American workers less competitive with foreign workers so that we export jobs. The trade deficit can lead to higher budget deficits and since deficit hawks run Washington we may face higher unemployment and increased threats to Social Security and Medicare. There is also the question of sustainability of the trade deficit if China reverses its high savings policy. I don't think workers will get higher wages with no jobs or high unemployment. (Alternatively the trade deficit may increase private debt levels which can create instability (I think) and a higher frequency of economic crises.) (So the the high dollar may cause higher unemployment unless we're prepared to run higher deficits.) - anon Sat, 20 Oct 2012 20:40:25 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19734 I have said this on the Krugman blog, and I wish I were wrong. Please prove me wrong and I will be happy as a clam. If I am right, I think we should all promote Neo-Keynesian stimulus packages for years to come. The banks have traditionally makrketed money. When they needed to they have gone to considerable lengths to promote borrowing. Ot they have purchased Brazillian Bonds etc. They agressively marketed loans to Agribusiness at one point. For four years we have languised in a liquidity trap, and banks have not marketed money, they have hoarded it. Is this not true? if it is true, how does their failure to market ther product square with your ideas. Is the financial stress index based on balancesheet data that is realistic. The short sellers who sank Lehman flagrantly claimed that the big banks balance sheets were fraudulent. The made a lot of money by destroying Lehman, and by all accounts Goldman Sachs et al. were next. CDSs covering 68 trillion dollars in potential losses were outstaning in early 2008. That number is now down to 13 trillion dollars. Somehow, this seems to show that serious people still doubt the banks numbers and think the Financial Stress Test data is based on mark to market funny money. - R Baesemann Sat, 20 Oct 2012 20:06:09 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19733 Does the savings rate include payments of mortgage principal? - Lee A. Arnold Sat, 20 Oct 2012 19:12:42 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19731 We're so busy making the lower-income people do the hurting while the Top 5% claims credit for the "self-sacrifice." And then we're surprised, and grope for explanations, when the life of the lower classes gets worse. - Rachel Sat, 20 Oct 2012 16:14:14 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19729 Dean has mentioned the use of Prizes as a way to develop intellectual property. I saw the following challenge: "The Federal Trade Commission (FTC) is challenging innovators to create solutions that will block illegal robocalls. These solutions should block robocalls on landlines and mobile phones and can operate on a proprietary or non-proprietary device or platform. Entries can be proposed technical solutions or functional solutions and proofs of concept. The vast majority of telephone calls that deliver a prerecorded message trying to sell something to the recipient are illegal.? As technology has advanced over the years, so have the number of illegal robocalls. The winning solution will win $50,000 in cash, as well as opportunities for promotion, exposure, and recognition by the FTC." It seems to me the simple way to handle this problem is a 2 cent tax on each telephone call. Perhaps there are other ways? [url]http://robocall.challenge.gov/ [/url] (Sorry to be offtopic) - AndrewDover Sat, 20 Oct 2012 13:33:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19727 Thank you to this post, Dr. Baker, it is extremely lucid and helpful. - GP Sat, 20 Oct 2012 11:33:33 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19726 A "financial crisis" is a second order result of a "credit bubble" the former occurring when lenders suddenly realize they've been unknowingly promoting a Ponzi scheme -- that is, much of their recent extension of credit will never be repaid. Lenders become cautious; credit becomes tight; demand falls; recession/depression follows. Still, economists must distinguish recessions caused by actions of the central bank from those caused by actions of bankers. And accurately defining/identifying a "financial crisis" is the best way of doing that. [i]Pace [/i]DB. - ellen1910 Sat, 20 Oct 2012 10:23:27 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19725 Well, pete, when I earlier asked what a lower dollar would do for ordinary people at the cashier's till, Dean was of the view that the higher nominal wages resulting from greater exports would benefit most of the country. I continue to wonder, though, if the benefit flowing to the businesses who enjoy greater sales to overseas customers will trickle down to people on a hourly wage, never mind the 36% and rising who are not in the labor force. And the hair salon across the street isn't going to see more sales from a lower dollar (aside from a foreign tourist or two) such that there would be no trickle down to the staff even if the owner was inclined to flow that through. - Brian Dell Sat, 20 Oct 2012 10:18:55 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19724 Or we could repeal Taft Hartley and allow workers to share in productivity gains. - uncle bruno Sat, 20 Oct 2012 09:16:16 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19723 I'm going to pitch my own view of the Housing Bubble...which is confined to me. When I bought my house in CA in 1991 it was near the bottom of a Housing Bubble. Then all the talk was about Demography. I sold my house in 2008. During this Bubble all the talk was about Retirement. People believed that SS wouldn't be enough for them...and they were having trouble Saving. So they tried to substitute a Mortgage for Rent. They were told that it they didn't buy now they would never be able to because House Prices were never going down. This created the kind of Anxiety that Fraud...Collusion..etc. thrive on. That Anxiety needs to be addressed. I too believe attacking Medical Costs is the Main Solution to this problem. - Donald Pretari Sat, 20 Oct 2012 08:37:48 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/what-krugman-said-with-a-not-so-small-addendum#comment-19722 Brian Dell kind of nails it. The Euro is at 1.30. It was 1 12 year ago. Thats a 30% dollar devaluation. How much lower should it go? Oh wait, that's the solution for Europe too! Oops, are there first mover advantages here? Trying to out inflate another country is really a dangerous game, with likely unintended consequences. The goal is to drive down our real wages through a drop in the dollar (inflation). Real wages are already too low, have not changed in what, 40 years. A lot of these macroeconomists are extremely antilabor. They want GDP growth but care little about the distribution. - pete Sat, 20 Oct 2012 08:23:04 +0100