Ep. 143 Here’s What Krugman Did to Win the Nobel Prize

16 June 2018     |     Tom Woods     |     21

We get this question all the time: what did Krugman win it for, and can you explain it in an episode? It involves trade, and we’re discussing it today.

Related Articles

Alex Tabarrok explains New Trade Theory:
What is New Trade Theory?,” by Alex Tabarrok

Krugman explains new trade theory and the case for free trade:
Is Free Trade Passé?,” by Paul Krugman

Example of US/Canadian petroleum trade patterns:
Canada/ U.S. trade: refining sector and product movement important to both countries

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  • Robert

    From Bob’s description, it sounds like PhD-level economics requires people to go through years of mathematical training and agonize over obtuse journal articles. The result is that they learn how to create complicated mathematical models to prove fairly mundane observations that could be just as easily explained in a couple of plain-text paragraphs.

    If you read online critics of Austrians, they really disparage the fact that so many people think we understand economics, even though we only “learn about it in our spare time.” I like this episode because it gives a concrete example as to why we aren’t really missing out on much by choosing to do more interesting things with our days than engaging with the academic literature in economics.

    • Tasos Obscure

      Mathematics has to necessarily start from a few axioms and proceed through what we call a formal system, if one accepts the assumptions to be true then the results and necessarily true. The problem begins when you start to consider that human action is not easily described by a few very precise axioms, not 5 euclidean or 11 hilbert axioms as geometry but instead a very complicated biological process that is more complicated than physics, chemistry or biology and builds on top of them.
      Some ad hoc mathematical results like the time value of money happen to be found and are undeniably great models. Biology and genetics also proves the economic assumption that people are generally self interested because of the huge variety of human genetics. Utility theory on the other hand is outrageous on many levels, one in particular which I find devastating yet haven’t heard from austrians.
      We should not assume that mathematics and statistics are useless in economics, but instead concede that they are inappropriate because of the lack of stationarity of causes present in economic matters yet sometimes may present brilliant insight into economics.

      • Intersnooze

        Maybe much of what is today sold as “economics” should be instead labeled “econometrics”, to distinguish foundational causal-realist theory from the endless make-work of finding correlations between things.

        • Tasos Obscure

          Maybe empirical economics to include history and in recognition that statistics are subjective in nature, I do agree with you though.

  • BobMurphy9

    The model in that part of the episode was very simple: it just assumed China and US could produce 2 types of goods with certain amounts of labor. It didn’t ask why the numbers were what they were. Even so, whatever the numbers are, even if China is lower in both, Americans on net get richer by trading than with not trading. It’s possible the Chinese and Americans would be even richer still if the Chinese gov’t changed some of its policies, but trade per se–given what the Chinese gov’t is doing–still makes Americans richer per capita.

    If conveying that truth to you made you laugh, great. We aim for education and entertainment on Contra Krugman.

    • Sergio Marron

      The model’s “truth“ assumes that the countries are collaborating for mutual benefit…
      Maybe you, Bob and others should get a clue about Chinese style of business and warfare…


      • Tasos Obscure

        The chinese are completely criminal in their practices, there is no hypocrisy of mutual benefit.
        The segway scandal is one of many yet absolutely mind blowing.
        The fact that potentially all chinese students in the US might be spies because they offer information in exchange for scholarships.
        The outrageous south china sea practices. The annexation of tibet and the cultural destruction of the chinese. Their influence in hong kong to the extent the chinese ban people from entering the foreign nation of hong kong. The absolutely falsified public financial information, to the extent the finance officials don’t even look at gdp for growth but electricity bills(they are at a 30 year low). The subjugation of all religions under the banner and control of an atheist entity. The use of the freaking pope to drive out secret christian churches. An OH the 100000 protests in china annually that nobody hears about. The stock market that is manipulated to extort simplistic foreign investors.

        Let’s not kid ourselves about the nature of china. Also there is truth in the argument that the US has been criminally supporting the CCP by trading with them.

        • Tasos Obscure

          Also I’d rather the US was temporarily 5% poorer in GDP per capita for the freedom of 1.4 billion people. Such freedom of a large population with an average IQ of 105 would undeniably increase the US gdp per capita much more.

          • Galgus

            Are you arguing that if e US government banned its citizens from trading with China, the Chinese government would magically become less authoritarian?

          • Tasos Obscure

            They would be starved from two critical items with which they rule, one is that the population enjoys some limited material growth with the years and that the CCP gets huge amounts of money to practice it’s authority.

            The CCP reformed it’s practices because of the pressure that had built up from it’s then primitive economy. Now because of trade they got some big guns to keep everyone in line. It’s not magic, money is what funds the whole ordeal.

          • Galgus

            I’m extremely skeptical that their regime would be forced to make changes if we cut off trade.

          • Tasos Obscure

            I posted a reply hours ago but doesn’t seem to be here.
            North america gets 24% of all chinese exports, along with europe and australia it gets to more than 60%.

            From a military standpoint it makes absolute sense to embargo china since it has weaponized its subjugated population and resulting economy. They are primarily making asymmetric warfare moves like stealing terabytes of military info. The people’s republic of china is NOT a economy of civilians but an economy of subjects, the massive prison labor camps is just one portion of it.

            Another major issue is the fact that chinese imports have resulted in social stress for government intervention because of the massive gaps in sectors like manufacturing. This is something that inevitably leads of countries away from libertarianism.

          • Galgus

            What do you mean by “massive gaps in sectors like manufacturing”?

            Trade still helps China’s civilians, even if their government is awful and robs them.

            From a military standpoint trade helps secure peace between nations, and moving away from free trade is a move away from libertarianism.

          • Tasos Obscure

            Hilariously enough china unsensored answered this question in the outro q&a on the last episode

            Some data the check: https://tradingeconomics.com/united-states/manufacturing-payrolls

            I also have this on my files that I haven’t really checked to any great extent and it has some modelling I haven’t even read but you may find interesting if you have the time:THE CHINA SHOCK:LEARNING FROM LABOR MARKET ADJUSTMENT TO LARGE CHANGES IN TRADE by David H. Autor et al 2016

            You can skip this to 6:42 for the q&a

            It’s more like feeding the local mafioso gang when we do trade with china, it funds the subjugators.

            “…and moving away from free trade is a move away from libertarianism.”
            I completely disagree, it might ensure peace but at what cost? Having 1.5 billion enslaved people overseas. This is insane to advocate for, involunarily enslaving people by a few intermediaries is NOT libertarian in my book.

          • Intersnooze

            You are claiming that the chinese govt can subsidize specific industries and thereby reap profits.

            Where do those subsidies come from? From other chinese industries.

            This is thus equivalent to the fallacy that you can fill a bathtub by scooping water from one end and pouring it into the other.

          • Tasos Obscure

            I don’t quite know what exactly you’re referring to, could you specify the specifics of my claim?

          • Intersnooze

            My reply has disappeared.

  • FryDaddy

    I must admit that I was at first, very pleased to hear about the new book and all the other economic activity generated in response to this broken “Krugman.” The more I think about it though, I’m not so sure that it’s a good thing. All these products are easily seen (and heard), but what of what could have been? What investments will never be made, what costs have already been paid, simply because two guys have to fix this Krugman? Every. Single. Week. The world will never know.

    What’s worse – Someone else will figure out that all they need to do is to find their own broken Krugman and then they can stop doing productive work and just fix their own Krugman. What would happen if everybody did that?

    It’s a matter of the seen and the unseen. It is easy to see the seen. Much harder to see the unseen. By stopping your analysis at the products (which are seen), you omit the entirety of the alternative argument. I’m actually pretty shocked. I thought you guys were smarter than that.

    • Intersnooze

      In comparison to what?

      Is having Krugman + CK better than only Krugman? Yes. The mental malware Krugman spreads causes economic harms, and refuting it both reduces those harms, and serves as a springboard to educate about real economics.

      Your point seems to be that the system of No_Krugman + No_Contra_Krugman would be preferable on net. I’m not sure this is the case, since the combined system does such a good job of debunking common economic fallacies.

  • ProfessorBernardoDeLaPaz

    Give me a bunk in steerage and I’ll give anyone on board who wants one a Contra Crew Cut. (If you’re actually rash enough to take me up on this I’ll have to figure out what that means…)

  • Tasos Obscure

    Since we’re on the topic of self interested countries, what if the US destroyed the CCP and established a country in one way or another. Then 1.5bil people with an average IQ of 105 would properly enter the global division of labor and everyone would be better off.