Protectionism and recessions

The Donald and the Veg-O-Matic, by Paul Krugman (9 April):

But too many anti-Trump critics seem to have settled on one critique that happens not to be right: the claim that a turn to protectionism would cause vast job losses. Sorry, that’s just not a claim justified by either theory or history.  

Protectionism reduces world exports, but it also reduces world imports, so that the effect on overall demand is a wash; textbook economic models just don’t say what conventional wisdom is asserting here.

Robber Baron Recessions, by Paul Krugman (18 April):

In recent years many economists, including people like Larry Summers and yours truly, have come to the conclusion that growing monopoly power is a big problem for the U.S. economy — and not just because it raises profits at the expense of wages. Verizon-type stories, in which lack of competition reduces the incentive to invest, may contribute to persistent economic weakness. 

The argument begins with a seeming paradox about overall corporate behavior. You see, profits are at near-record highs, thanks to a substantial decline in the percentage of G.D.P. going to workers. You might think that these high profits imply high rates of return to investment. But corporations themselves clearly don’t see it that way: their investment in plant, equipment, and technology (as opposed to mergers and acquisitions) hasn’t taken off, even though they can raise money, whether by issuing bonds or by selling stocks, more cheaply than ever before. 

How can this paradox be resolved? Well, suppose that those high corporate profits don’t represent returns on investment, but instead mainly reflect growing monopoly power. In that case many corporations would be in the position I just described: able to milk their businesses for cash, but with little reason to spend money on expanding capacity or improving service. The result would be what we see: an economy with high profits but low investment, even in the face of very low interest rates and high stock prices. 

And such an economy wouldn’t just be one in which workers don’t share the benefits of rising productivity; it would also tend to have trouble achieving or sustaining full employment. Why? Because when investment is weak despite low interest rates, the Federal Reserve will too often find its efforts to fight recessions coming up short. So lack of competition can contribute to “secular stagnation” — that awkwardly-named but serious condition in which an economy tends to be depressed much or even most of the time, feeling prosperous only when spending is boosted by unsustainable asset or credit bubbles.

And I think that, in his column from 18 April, Krugman (involuntary, I suppose) refutes his post from 9 April - after all, if growing "monopoly power" contributes to recessions, then protectionism (increasing the monopoly power of the corporations of each country, who becomes less affected by competition from similar corporations from other countries) could create recessions and unemployment.

"Social capital"

According to some theories, the development (or not) of a society depends much if its "social capital", the tendency for people to trust each other and being capable of join with others for collective activities. Some objections can be made about these theory, but is not about these point that I want to talk about in these post. It is about an idea that I had - perhaps we can make a prediction about the "social capital" of a given society looking to the cultural stereotypes about that society. More in detail: a) If in a society the people has the reputation of being cold, distant and aloof, much probably it is a society with high "social capital", with much civic participation and many voluntary associations b) If in a society the people has the reputation of being warm, talkative and sociable, much probably will be a society with low "social capital", where people have munch difficulty in joining together to do anything.

Economists and conservatism

Chris House writes that economists are more conservatives than the academics in other fields (via Noah Smith and Antonio Fatas):

It is not obvious why American college faculty members have such strong liberal political views. Many conservatives argue that it is due to discrimination in hiring and that the students receive a sharply biased education as a consequence. I don’t think that the intellectual capacities of conservatives are below that of liberals but I suppose it could be a possible explanation. My own guess is that it is due to selection on attitudes towards accepting received wisdom as truth. As I mentioned in a previous post, academics are encouraged to break new ground or even to overturn established ideas. Einstein is an excellent example of such a thinker. So are Stephen Hawking, John Maynard Keynes, Alfred Blalock, etc.* Deliberately setting out to tear down established parts of your field requires a certain mindset and this mindset might be more common with people who have liberal political views.

(...)

The 2005 study presented results on political views by department. As a field, economics ranks as one of the least stereotypically liberal, and most conservative, fields on campus. While I cannot think of a single Republican in my own department (and no, I’m not a Republican), it is quite common to hear faculty members emphasizing the benefits of limited regulation, the gains from trade, and the harm caused by market intrusions like minimum wages, capital taxation and import tariffs. I am quite sure that many of the economists in my department would be viewed as radical right-wing conservatives by members of other departments at Michigan.

I suspect that, in a north-american context, to compare the number of "conservatives" in a Social Sciences Department and in a Economics Department is a bit of comparing apples with oranges - a conservative sociologist (someone like James Q. Wilson or Robert Nisbet) usually is really a conservative; but I suspect that most of the economists classified (or even self-classified) as "conservatives" are not true conservatives - they are classic liberals, who only are classified as "conservatives" because of the bizarre north-american political terminology; this is relevant because a libertarian / classic liberal economist (even if he calls himself "conservative") does not need to have none of the beliefs and attitudes (caution, preference for experience over reason, distrust in abstract theories, etc.) that "true" conservatives are supposed to have (perahps much the opposite. at least neo-classical microeconomics and rational expectations macro - associated with classical liberalism, that in USA is considered "conservatism" - are more in abstract rationalism than keynesians), then the problems of intellectual style that in other fields could make academics uncofortable with conservatism don't occur in Economics.

Sirocco

This blog will be an English-language version of the portuguese blog Vento Sueste.