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Source link: http://archive.mises.org/12231/krugman-mercantilism-works/

Krugman: “Mercantilism Works”

March 17, 2010 by

Lest anyone think that Paul Krugman is a real economist (instead of a Keynesian political operative), read his blog post about Mercantilism and the “liquidity trap.” Read on:

As I’ve written many times in various contexts since the crisis began, being in a liquidity trap reverses many of the usual rules of economic policy. Virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run. Prudence becomes folly: a stern determination to balance budgets and avoid any risk of inflation is the road to disaster. Mercantilism works: countries that subsidize exports and restrict imports actually do gain at their trading partners’ expense. For the moment — or more likely for the next several years — we’re living in a world in which none of what you learned in Econ 101 applies. (Emphasis mine)

If someone sees the repeat of Bernard Mandeville’s “The Fable of the Bees,” well, that is correct.

I have a response to this post on my own blog, Krugman-in-Wonderland.


LM March 17, 2010 at 10:37 am

Krugman-in-Wonderland is up there with LewRockwell.com and Mises.org as one of the best and most exciting economic blogs. It’s too bad it hasn’t been around for years. The day-by-day controvert of Lord Krugman’s epistles is an invaluable resource.

billwald March 17, 2010 at 11:13 am

HA-JOON CHANG in “Bad Samaritans” makes the same argument as Krugman and debunks the myth of free trade.

Inquisitor March 17, 2010 at 11:55 am

Billwald, week by week, day by day, you spew more and more garbage on this blog. Do you refer to the same proof-by-correlation-failing-to-prove-causation claptrap Murphy refuted a while ago? Oh? Please don’t try extend economic ignorance on a site where it’s easily laid to death.

billwald March 18, 2010 at 3:06 pm

It is entertaining.

Bruce Koerber March 17, 2010 at 1:21 pm

According to the interpretation of Krugman everything is the reverse of what it should be (“virtue becomes vice: attempts to save more actually make us poorer”).

Krugman, the Nobel Prize winner for Wackonomics, is a poster child for ego-driven interpreters!

Artisan March 17, 2010 at 3:09 pm

Last summer, I’ve met a 50 years old socialist lawyer (with party card) telling me: – “This Krugman, … it’s bullshit isn’t it?”

Dennis Sperduto March 17, 2010 at 3:19 pm

In the foolishness that is Keynesian economics, according to the national income equation, exports are an addition to national income while imports are a subtraction. Also according to this equation, spending is an addition to, and savings a withdrawal from national income. When Paul Krugman writes, he is being a good doctrinaire Keynesian, but the system he so heartedly supports is a collection of fallacies. Among other things, Krugman seems not to understand: (1) Ricardo’s Law of Comparative Advantage/Mises’s Law of Association; (2) Hayek’s essay “The Paradox of Savings;” (3) The fundamental importance of price flexibility in clearing markets; (4) The required interrelatedness and proper meshing of the myriad of components that constitute an efficient capital structure; and, (5) The difference between the demand for money and savings.

Structuring Finance September 4, 2010 at 8:25 pm

Interesting comment. For those who are new to the basics of structuring finance, Here’s a great page with more information about capital structure.

Mitchell Powell March 17, 2010 at 3:59 pm

Mercantilism works? One trading partner can win at expense of the other by means of tarriffs?

How did this man ever get a Nobel Prize?

Eric M. Staib March 17, 2010 at 10:36 pm

He just bashed the socialist with (R-TX) after his name week in and week out for 8 years, and the Swedes and Norwegians swooned.

Joshua March 17, 2010 at 4:24 pm

I think Krugman should live out the logical conclusion of his arguments by making everyone who wishes to sell him an item pay him (tariff) for the privilege.

Ivan March 17, 2010 at 9:15 pm

We’ve officially come full circle. It’s 1775 all over again.

Havvy March 17, 2010 at 9:39 pm

How does one get a peace prize for advocating policies that hurt other nations?

Eric M. Staib March 17, 2010 at 10:40 pm

He got the Economics Prize, not the Peace Prize. There are prizes for Peace, Econ, Chemistry, Physics, Literature, and Medicine. (This still doesn’t explain how Economic Reason’s #1 enemy got the Econ prize though!)

Ironically enough, the state’s biggest cheerleader received a medal containing 175 grams of good ole’ Gold. Can we trust that Krugman quickly disposed of the worthless medal in favor of valuable Fed notes?

Caley McKibbin March 17, 2010 at 11:58 pm

One has to wonder whether Krugman is really as stupid as he demonstrates or perhaps it is all some kind of sick joke.

Dick Fox March 18, 2010 at 8:10 am

Does anyone find it interesting that everyone of the countries Krugman mentions engaged in QE? Krugman doesn’t even see that his own statements prove that it is mercantile policies that create the liquidity trap. He also doesn’t understand that a liquidity trap is meaningless in that all it does is blunt Keynesian QE that doesn’t work anyway.

But what the liquidity trap has done is cause the credit meltdown that we experienced in 2008. Banks could not price credit because no one would borrow or purchase financial instruments that could not be valued. That is the real tragedy.

Of course anyone who promoted the real estate “bubble” that created the 2008 economic contraction would be blind to other problems his policies cause.

PK March 18, 2010 at 8:49 am

How does the US deal when countries that we trade with practice Mercantilism, ie China, and to a lesser extent Europe?

J. Murray March 18, 2010 at 9:31 am

Mercantilistic nations collapse in on their own weight. The primary reason there’s a trade distortion with China is due to the fact that the USA is also mercantilistic. Mercantilistic nations simply are incapable of competing with free market societies, which is why the mercantilistic thought has been dying.

PK March 18, 2010 at 12:27 pm

How is the US mercantilistic? The main objective for a government who practices mercantilism is to have exports greater than imports and have an uneven balance of trade. The US is far from that, do not confuse isolationism/protectionism with mercantilism though they can relate.

Bruce Koerber March 18, 2010 at 9:38 am

This is a perfect example of the destruction of civilization: an ego-driven interventionist (Krugman) enabling ego-driven interventionists (politicians of all sorts) to ignorantly destroy the economic foundation.

Troy Camplin March 19, 2010 at 6:38 am

A good person knows what the good is and does what is good.
A bad person does not know what the good is and so does bad out of ignorance.
An evil person knows what the good is and chooses what is bad.

I have read some early Krugman. Krugman is a good economist. Yet, his policy recommendations since he got the NYT gig have more often than not been bad.

I’ll let you come to what conclusions you may about Krugman’s ethical standing.

Troy Camplin November 18, 2011 at 9:52 am

I mention mercantilism here:


It’s a primitive form of economic thinking.

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