Latest news with #PaulKrugman
Indian Express
2 days ago
- Business
- Indian Express
What Trump America needs to understand: A country is not a corporation
Several years ago, Nobel-Prize-winning economist Paul Krugman wrote an insightful article, 'A Country is not a Company', in which he argued that business leaders need to understand the difference between economic policy on the national and international scale and business strategy on the organisational scale. In other words, and to put it bluntly, CEOs who do not understand economic policy are ill-suited for the role. Little did many realise, including perhaps Krugman himself, that an article written in 1996 would command such resonance almost three decades on. After all, CEOs of firms that have enjoyed unbridled monopoly power — especially after the emergence of the modern corporation around the turn of the last century — have shown more than a passing tendency to use that market power to their advantage. Examples abound from Standard Oil, Exxon Corporation, IBM, Microsoft, and, more recently, big-tech companies to name a few. Firms engaged in market-based competition play a 'zero-sum game' — one gains at the expense of the other. Disciplining errant firms has been accomplished by a combination of market creativity and intervention of anti-trust authorities, but it has been a hard task. Do nations jostle for competitive advantage on the global stage the same way that firms do locally? Krugman thinks not. International trade, significantly, is not a zero-sum game. According to him, 'If the European economy does well, it need not be at US expense; indeed, if anything a successful European economy is likely to help the US economy by providing it with larger markets and selling it goods of superior quality at lower prices.' Historically, that has been the case for all economic development, and most recently in East Asia. Global interdependence and the emergence of deeply integrated value chains are proof that trade increases the size of the global economic pie. The whole point of modern trade is not to impoverish either partner(s), it is to enrich both; or else why trade at all? Colonists engaged in coercive trade; today's trade is entirely voluntary. A popular phrase attributed to George Mallory, a British mountaineer of the 1920s, captures the core motivation behind mountaineering. Why do people climb mountains? 'Because they are there,' he is famously believed to have retorted. Monopolies exploit their power because it's there; CEOs have the clout along with the capacity to get away with it. Doing the same as a country — that is, flexing muscles on the global economic stage because you have power — is entirely different. Because modern trade is a matter of choice, no one holds a gun to and forces nations to trade. Blaming 'unfair' foreign competition, therefore, for trade deficits as Donald Trump has been relentlessly doing, is politically expedient but economically disingenuous. Are trade deficits the right measure of a country's competitiveness? Krugman ponders that competitiveness cannot simply be measured by staring at trade balances and their changes. If you do that, the implications are quite dangerous — they lead to harmful steps like trade wars to promote so-called competitiveness. Trade wars often make the situation worse. Evidence of the recent madness emanating from the US in the form of tariff impositions on countries that it runs a deficit with shows that contrary to expectations, the tariffs actually weakened the US dollar. It lost nearly 10 per cent of its value since January, with over half the decline in April. The tariffs also disrupted the bond market by triggering a sell-off in the US treasuries, spiking yields and challenging its safe-haven status. This volatility forced a temporary tariff pause, highlighting the bond market's power. Interestingly, on May 28, the US Court of International Trade struck down Trump's 'Liberation Day' tariffs, ruling that they exceeded presidential authority under the International Emergency Economic Powers Act (IEEPA) of 1977. According to the verdict, these tariffs involved significant economic and political issues, requiring explicit congressional authorisation, which was absent. Poignantly, on the same day, Elon Musk officially quit his advisory role in the US administration, concluding his tenure at the Department of Government Efficiency. Even so, looming on the US horizon are inflation, recession and policy unpredictability. The Trump administration has already appealed the decision (it has been stayed by the appellate court) and the case may progress to the US Supreme Court, by which time data on the impact on the US trade deficit will be available. Economists refer to this lag as 'the J-curve effect', reflecting a nuance where financial markets adjust almost instantaneously to shocks, while goods markets adjust with a lag. In all likelihood, with the tariff retaliations we have witnessed from China, Canada, and Mexico among others, the US trade deficit could become worse. Own goal, anyone? Besides, the Triffin thesis suggests that the US must run trade deficits to provide the necessary dollars for global liquidity. So, if the US wishes to remain the hegemon and continue to enjoy the exorbitant privilege of printing dollars and importing goods and services for a song, it will need to run deficits. In fact, since 1971 when the US dollar was brusquely decoupled from gold by President Richard Nixon (the so-called 'Nixon shock'), effectively ending the gold standard and the Bretton Woods system, the US dollar has continued to meet the bulk of the global demand for liquidity. In only two years since 1973 has the US trade balance been positive. In this half-century, the US has been a most productive nation, innovation-intensive, 'competitive' and creative, enterprising and illustrious, all achieved in the presence of growing trade deficits. Blaming trade deficits for unemployment and low wages is therefore ineffective and, in many cases, unequivocally wrong, especially when they are caused by domestic factors. The US is a services-based economy — education, insurance, healthcare, banking, real estate, information technology, among other sectors contributing almost 80 per cent of GDP. Getting manufacturing back by erecting tariff walls is a futile scheme, destined to fail. The CEO of a country running economic policy must, therefore, distinguish between politically expedient rhetoric and the harms of making policy decisions based on careless arithmetic. The existence of trade deficits (or surpluses) reflects a complex interaction of many factors, especially for a country that provides global liquidity. These need to be understood clearly. Krugman's warning and the embedded advice, therefore, must be taken seriously, above all by the country that nurtured his clarity of thought. (The writer is dean, School of Humanities and Social Sciences at Shiv Nadar University, and professor of Economics. Views are personal)
Yahoo
2 days ago
- Business
- Yahoo
Trump tariff deals: Here is the one 'real problem'
President Trump's tariffs have been roiling markets, with investors reacting quickly to any news on deals. Paul Krugman, Nobel Laureate in economics and author of his self-titled Substack, says there is one "real problem" with Trump's tariff plans. Find out what it is in the video above. To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. Yeah, so that it's a real problem, which is that there are in fact no genuine deals to be had. The whole presumption of the Trump trade war is that other countries are treating us very unfairly as he says, uh, which is basically not true, and we can have, so we can talk a little bit about China, but the European Union has a tariff of less than 2% on average against US products. What are they supposed to concede? What's the deal? Uh, so the real question is not what genuine deals, but whether other countries can and will devise face saving stuff, stuff that, um, Trump can call a victory and lead him to basically call off the dogs. Uh, and I have real doubts about that, because I suspect that, uh, in a way, I think all the people talking about Taco are are are in a way making, uh, making and the off ramp harder, be harder for Trump to, uh, to claim victory while actually admitting defeat. And, um, it's going to be really hard to see how this plays out. It it certainly is hard, but it seems like investors are taking the path of ignoring it, at least for now. Chris Harvey of Wells Fargo, this morning saying tariff risks are already priced in if not overstated. What do you think investors are are banking on? I mean, in environment where a Nobel laureate economist is telling me that it's hard to game out where this is all heading. Well, one of the interesting things here is that the, uh, there are three markets to look at. There's the stock market, the bond market, and the currency market. The stock market seems to say, "Well, all right, no big deal. We'll we'll just ride this out." Uh, the bond market and the currency market are both basically saying, "Oh my god," right? Uh, uh, we're slightly off the highs, but 30 year interest rates are extremely high, uh, by, you know, any recent historical standard. Uh, the dollar has weakened even as interest rates have gone way up, which is totally not something we normally see in the United States. Uh, we look like an emerging market. And this morning's Substack, I did a comparison. I said, "You know, the US data kind of look like Mexico during the peso crisis of 1994-95." Obviously the numbers are a lot smaller, not not a comparable plunge in the currency, not a comparable rise in interest rates, but the direction rising interest rates on a falling dollar is something you expect to see in a developing country, not in the United States of America. So what are the longer term implications of that, Paul? Well, the world seems to be losing faith in us. I mean, as it, it's hard to read this stuff without saying that international investors don't consider America a safe haven anymore. That they're not at all sure that the United States can be trusted to, uh, to make good on its payments that it's a a place to park your your money during a store. I mean, over the weekend, uh, Scott Besant, the Treasury Secretary, said, uh, there is no way America will ever default on its debt. Yeah, when you're say for the Treasury Secretary to even feel that he needs to say that is an extremely alarming sign. Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
Trump tariff deals: Here is the one 'real problem'
President Trump's tariffs have been roiling markets, with investors reacting quickly to any news on deals. Paul Krugman, Nobel Laureate in economics and author of his self-titled Substack, says there is one "real problem" with Trump's tariff plans. Find out what it is in the video above. To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
Trump's attack on intl. students is 'catastrophic': Paul Krugman
US President Trump has taken aim at universities, like Harvard, freezing federal funding and calling for caps on the number of international students. Paul Krugman, Nobel Laureate in economics and author of his self-titled Substack, joins Morning Brief with Madison Mills and Brad Smith to discuss the economic impact of Trump's attack on international students studying in the US. To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CBS News
3 days ago
- Business
- CBS News
Budget bill would add trillions to U.S. debt and increase inequality, Nobel laureate economists say
Trump "one, big beautiful bill" holdout Sen. Rand Paul says "the math doesn't really add up" Six Nobel laureate economists said a massive budget bill passed by House lawmakers last month and backed by President Trump would weaken key safety-net programs while greatly lifting the federal debt. The tax and spending package, which Republicans have dubbed the "one big beautiful bill," would hurt millions of Americans by slashing Medicaid and food stamps, the economists wrote in a June 2 letter on behalf of the Economic Policy Institute, a left-leaning think tank. "Even with the safety net cuts, the House bill leads to public debt rising by over $3 trillion in coming years (and over $5 trillion over the next decade if provisions are made permanent rather than phasing out)," the economists state. "The higher debt and deficits will put noticeable upward pressure on both inflation and interest rates in coming years." The authors of the letter are Daron Acemoglu, Peter Diamond and Simon Johnson of MIT; Oliver Hart of Harvard University; Joseph Stiglitz of Columbia University; and Paul Krugman of City University of New York. Including interest, the House bill would boost the nation's debt by $3.1 trillion, according to the Committee for a Responsible Federal Budget, an advocacy group focused on fiscal policy. The nation's rising deficit — the gap between annual government spending and revenue — and growing federal debt have sounded alarms on Wall Street, roiling financial markets and raising questions about the country's long-term financial stability. The Trump administration describes the budget package as a "once-in-a-generation opportunity" to cut government spending and drive economic growth. Senate hurdles The Senate is expected to take up the bill this week, and its fate is uncertain amid strong opposition from Democrats and concerns by some Republicans. "One of the things this 'big and beautiful bill' is, is, it's a vehicle for increasing spending for the military and for the border," Sen. Rand Paul, a Republican from Kentucky, said Sunday on "Face the Nation with Margaret Brennan." Paul is among a small group of Senate Republicans who have expressed opposition to the bill. "It's about $320 billion in new spending. To put that in perspective, that's more than all the DOGE cuts that we have found so far," he added, referring to reductions in government spending advanced by Elon Musk's Department of Government Efficiency. "So, the increase in spending put into this bill exceeds the DOGE cuts." Raising inequality? The six economists who penned the letter criticizing the Republican bill also said that large tax cuts under the legislation, combined with the hits to Medicaid and food stamps, would increase inequality. "The combination of cuts to key safety net programs like Medicaid and SNAP and tax cuts disproportionately benefiting higher-income households means that the House budget constitutes an extremely large upward redistribution of income," they said. Mr. Trump has said the proposed tax cuts, which would extend reductions passed under his 2017 Tax Cuts and Jobs Act, would boost workers and incentivize investment in domestic manufacturing. The White House Council of Economic Advisers claims that the Trump administration's policies, which include steep import tariffs on major U.S. trading partners, will supercharge growth and shrink the deficit. contributed to this report.
