The Electric Commentary

Tuesday, June 28, 2005

Tabarrok fisks Krugman

I love it when economists argue. You should read the whole thing of course, but here's a taste:

It's hard to over-estimate how awful Krugman's column is. Consider this:

"China, unlike Japan, really does seem to be emerging as America's strategic rival and a competitor for scarce resources..."

'Strategic rival' is the kind of term that would-be Metternichs throw about to impress their girlfriends but what does it mean? Everyone is a competitor for scarce resources. Even those nice Canadians compete with Americans for scarce resources. Are Canadians a strategic rival to be feared?

The real question is how do rivals compete? Do they compete with war or by trade? China is moving from the former to the latter but shockingly Krugman prefers the former. Exaggeration? Consider this statement:

"...the Chinese government might want to control [Unocal] if it envisions a sort of "great game" in which major economic powers scramble for access to far-flung oil and natural gas reserves. (Buying a company is a lot cheaper, in lives and money, than invading an oil-producing country."

So what does Krugman recommend? Blocking the bid for Unocal. In other words, support China's fear that they may be cut off from oil and encourage the invasion of an oil-producing country.

He draws further support from Brad DeLong as well as the first liberal economist.


  • The Marginal Revolution makes a good counter argument to Krugman's counter argument. I noticed Krugman's article also seemed incredibly stereotypical, in fact, it bordered on racist. He seemed to imply that the Japanese are foolish investors, easily distracted by fancy and flashy baubles and gadgets. What was his reasoning? He didn't come out and say it, but it was almost like, "well japaense tourists like fancy video cameras, so of course Japanese companies will invest, foolishly, in movie studios."

    Meanwhile, he painted the Chinese as an evil looming menace. Nevermind that China is still very impoverished and dependant on the U.S. as a buyer for its exports. He described China as planning to take over America. How? Well, step one: Buy up all the oil.
    step two: Buy a company that makes washers and dryers.
    Maybe he also thinks the recent lottery numbers that were in the fortune cookies was also a plot. Just think how the dollar will be devalued if everyone wins the lottery! In fact, I bet China is using its government bonds to buy lottery tickets, in an attempt to destroy the U.S. (Hey Paul, could this actually work, or would it hurt China more because it decreases their investment in govt bonds?)

    I suppose we could always place an oil embargo on any Asian country which is growing stronger and more powerful. Although I think Pearl Harbor was a result of that the last time, and here, China hasn't invaded anyone, at least not recently anyway.

    Marginal Revolution is right on the Money in my estimation, by pointing out the consequences to Krugman's proposed solution.

    By Anonymous Phil, at 3:31 PM  

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