Sunday, June 13, 2010

Krugman the Hegemon

At Marginal Revolution, Tyler Cowen picks apart Paul Krugmn's vague proposal that the US should "send a message to the Germans: we are not going to let them export the consequences of their obsession with austerity".

Leaving aside the technical issues (which Cowen covers), I want to point out a deeper problem with Krugman's proposal (applying to both China and Germany). Krugman basically wants to use other countries as a scapegoat for the fact that the American economic system is unstable. His solution to the problem of our own instability is to find some way to pressure other countries to adopt policies that complement our own system, or perhaps retreat into isolationism.

I don't see how it is the fault of Germans or Chinese if Americans want to spend all of our money on frivolous shit. If the Germans and Chinese want to sell us stuff at deflated prices, then we should either take advantage of these bargains to build useful infrastructure, or we should not buy their stuff. This is our choice, and it seems disingenuous to blame others for these problems.

Of course, this entire debate is built around the consumerist economic model, where everyone needs to buy silly junk just to make sure that everyone else can have a job. Of course, it skips the obvious question of why each person's ability to make a living is dependent upon these macroeconomic conditions. Aside from the basic issues of the benefits arising from cooperation/trade, why is it that our employment is structured in a manner where some people have much more money than they really need, while others can barely scrounge up a meal.

Aside from these issues of wealth distribution, there is also the problem that our consumerist economy may not be sustainable. We are depleting mineral resources, over-harvesting biological resources, and polluting our environment -- but our lead economists can only offer solutions that involve ever-increasing demand for stuff, no matter how pointless that stuff is in itself.