The Electric Commentary

Monday, June 27, 2005

Krugman a Mercantilist?

Both Tyler and Don think that the answer is "yes" in light of his most recent column.

Mercantilism is the belief that trade is a zero-sum game, that is, in every trade there is a winner and a loser. To the best of my knowledge, there are no modern economists who take mercantilism seriously, which is why this observation is even worth making.

This is a strange column by Krugman and I'm confused by it. Not only does it run afoul of modern economics in general, it also is in direct contradiction with Krugman's own theories and writings. I suspect that he intended to make a point about China eclipsing the US as a superpower and got carried away, but I'm just not sure.

While I'm used to disagreeing with the good Professor, I am not used to disagreeing with him over this. Make sure you read all of Tyler's post at Marginal Revolution, and all of Don's post at Cafe Hayek.

Update: If anyone has a non-mercantilist interpretation of this column, please leave a comment.

2 Comments:

  • It reads to me like Krugman thinks in the specific case of China acquiring Unocal, China wins and the U.S. loses. That doesn't mean that in every trade or even most trades there's a winner and a loser; I'm sure Krugman believes that in most exchanges both sides come out ahead.

    I do think there's something to be said for the idea that the U.S. is too reliant on foreign sources of energy, and that if a large American energy company becomes a subsidiary of the Chinese government the U.S. becomes more reliant on foreign sources of energy.

    By Blogger MDS, at 10:52 AM  

  • But then why mention Maytag? And why compare these acquisitions to the Japanese acquisistions of the mid to late 80s?

    I must confess I either do not know or have forgotten anything that Krugman has written on oil, oil shocks, and the like, but most economists don't view our reliance on foreign oil as a big problem (or at least they do not view it as one that can be solved by creating more domestic oil).

    The reason is that oil is a very liquid commodity. If China acquires oil producing entities specifically to hoard, that will simply replace demand in China that would have needed to be met in the open market anyway, leaving the market as a whole largely untouched.

    This article is closer to what you would expect from Krugman:

    http://www.washingtonpost.com/wp-dyn/content/article/2005/06/26/AR2005062601033.html

    By Blogger PaulNoonan, at 1:16 PM  

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