My previous post got a lot of attention from a series of anonymous commenters (or just one, with nothing better to do than keep missing the point over and over), and a drive-by from Brad DeLong. The post had two purposes: first, to say why I think Krugman and his fellow economic hawks are wrong. I'll try to expand on that point later in this post. Second was to mimic the style of Krugman and his friends in the blogosphere, which goes basically like this: isolate an argument that you disagree with, refer to an old and classic bit of literature that also disagrees, then express shock that the lesson hasn't been absorbed ("we learned these lessons decades ago"). The specific language I used -- saying that not even undergrads should make that mistake, quickly and dismissively summarizing why you think the writer is wrong, being intentionally "shrill" -- was intended to obviously ape the Krugman/DeLong style of addressing one's interlocutors. The commenters missed the reference, which probably means that I didn't make it obvious enough. Mea culpa, I guess.
Thomas captured most of what I meant in his follow-up, and then took more anonymous abuse for bothering to comment on his own blog. What I really wanted to stress can be summed as follows: Krugman seems to think that if the U.S. just exerts a little pressure on China and Germany that they'll capitulate and do whatever we want*. I don't think Krugman's strategy is very likely to work. Perhaps more importantly, I haven't read a single international relations scholar who thinks it will, and there are no clear patterns from history of something like this working. There are no models of politics in which one side make an obviously non-credible threat and the other side backs down. On the other hand, we do have examples of what happens when leading powers pursue nationalistic, beggar-thy-neighbor policies during a global economic slump. The result isn't pretty: worsening economies and political instability, which has often led to conflict. Of course I'm not saying that if the U.S. slaps a "currency tariff" on China it will lead to World War III, but it would certainly make dealing with the Korean peninsula more difficult, as well as maintaining security in the Middle East and Africa. It will also make economic recovery more difficult.
There is a reason I called that post "The World in Decession" and started it with a reference to Kindleberger, an economist. The reason is that Krugman's argument directly contradicts Kindleberger's, using almost mirror-opposite language. It really is uncanny. But I could just as easily have titled it "Krugman Eschews Keynesianism". Keynes certainly understood that economic warfare was not good for economic growth or political stability, and he pushed strongly for multilateralism and cooperation in the post-war settlement. While Keynes might not approve of either Germany's austerity program or China's management of exchange rates (the latter is less clear), he certainly would not have approved of U.S. brinksmanship and unilateralism in the middle of a global downturn, when cooperation is most required. Krugman seems to consider himself Keynes' dauphin, so it is very strange that he has not internalized this lesson.
One anonymous commenter referenced U.S. policy toward Japan and Germany in 1980s as a possible model. But the U.S. was not able to bully Japan very successfully in the 1980s, and the trade imbalance between the two countries persists to this day (and increased in nominal terms since the 1980s before the financial crisis hit). Japan's economic rise was not halted by U.S. intervention (as if that was ever the goal), but by a financial crisis that led to 15 years of negligible growth. Moreover, U.S.-Japanese and U.S.-German relations in the 1980s were rooted in a Cold War context that included U.S. security guarantees. We had much more leverage over Japan in the 1980s than we have over China today, and we still weren't able to force them to cater policy to our wishes. But even if the U.S. was able to successfully play chicken with Japan in the 1980s, the relationship between the U.S. and "Chermany" today is just not analogous.
Another commenter said that I should not criticize a respected academic like Krugman in the way I did. Perhaps, perhaps not. But in the field of international politics Krugman is not an academic; he's a pundit, and in this case he's making amateurish arguments. His comments on international politics carry no special weight just because he is an economist. The same commenter suggested he would stick to reading Marginal Revolution from now on; unfortunately for him/her, Tyler Cowen attacked Krugman along similar lines as me the very next day:
On another front, Germany is finding itself unable to much control the fiscal policies of Greece and they have entered in a common political union with a (supposedly) binding fiscal rule. Germany also has numerous European countries on its side in its struggle with Greece and is much larger, relative to Greece, than the United States is to Germany. If Germany can't control the fiscal policy of Greece, how much can we control Germany?
This is one "get tough" program that is headed nowhere fast.
I planned on writing a post offering my suggestions for how to address macro political and economic problems. This post is getting long, so I'll have to save that for later. But in sum, Krugman really has no leg to stand on here. No theory, no history, no internal logic, nothing.
*I'm not the first one to notice that Krugman sounds amazingly like a Bush-era neocon when he gets going like this, using language like "time to get tough" and "doing nothing is not an acceptable option" and "the United States has to take steps to protect itself" that include pre-emptive, unilateral action.