Paul Krugman holds his Nobel lecture in Stockholm, December 8, 2008. (AP Photo/Fredrik Persson, Scanpix Sweden)
Paul Krugman, the popular columnist and Nobel economist, recently likened himself to heroic dissenters who stood up to the war whoops and opposed the invasion of Iraq. The go-to-war consensus among policy elites overwhelmed skeptics and tragedy ensued. Professor Krugman evidently sees himself playing a similar role on important economic controversies.
“What we should have learned from the Iraq debacle was that you should always be skeptical and that you should never rely on supposed authority,” Krugman wrote in his New York Times column. “If you hear that ‘everyone’ supports a policy, whether it’s a war of choice or fiscal austerity, you should ask whether ‘everyone’ has been defined to exclude anyone expressing a different opinion.”
Good advice and good for Krugman. But there's a peculiar snag in his declaration: Paul Krugman was himself a “supposed authority” who gravely misled the American public on how to think about free-trade globalization. As threatening losses and dislocations accumulated for the US, the celebrated economist was like Voltaire’s Dr. Pangloss, assuring everyone not to worry. Pay no attention to those critics dwelling on the dark side of globalization, he said. Economic theory confirms that free trade is the best of all possible policies in this best of all possible worlds.
A good many Americans did not believe him, mainly working people who saw their jobs and middle-class wages decimated by the processes of globalizing production. Krugman said they didn’t see the big picture. Educated professionals whose own livelihoods were not threatened by globalization were more likely to embrace Krugman’s perspective. While he never won the debate with the broad public, his argument prevailed where it counts – among the political elites who influence government policy-making. Both political parties, every president from Reagan to Obama, embraced the same free-trade strategy: support US multinational corporations in global competition, as their success is bound to lift the rest of the country.
Roughly speaking, the opposite occurred, not only for the working class but for the broad US economy. The multinationals did fine, but the nation is now mired in large and permanent trade deficits that translate into huge indebtedness to foreign trading partners in Asia and Europe and that exerts continuing downward pressure on US employment and wages. Yet the Obama government is seeking still more free-trade agreements as the answer. The current fiscal debates in Congress do not even recognize that free trade globalization is a core source of America’s diminished prosperity.