Nobel Prize-winning economist Paul Krugman slammed Republicans and President Donald Trump in The New York Times on Thursday.
“Tariff man has become deficit man,” Krugman’s column was titled.
“Republicans hate deficits. Or at least that’s what they claim,” he noted. “But over two years of unified G.O.P. control of government, a funny thing happened: Both deficits surged. The budget deficit has hit a level unprecedented except during wars and in the immediate aftermath of major economic crises; the trade deficit in goods has set a record.”
“Let’s be clear: Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy,” he explained. “Yet Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant.”
Krugman explained both the dishonesty and ignorance.
“About the dishonesty: Is there anyone left who believes that Republicans ever really cared about debt and deficits? The truth is that the phoniness of their fiscal posturing should have been obvious all along,” he argued.
“What about the ignorance? As many people have pointed out to no avail, Trump is all wrong about what trade deficits do,” he said.
“True, at times of high unemployment deficits can cost us jobs. But in normal times they don’t reduce overall employment, nor do they make us poorer,” he continued. “On the contrary, other countries are sending us valuable goods and services, which we’re paying for with pieces of paper — paper that pays very low interest rates. Who’s winning, again?”
“In the Trumpian universe, trade deficits happen because we made bad deals — we let foreigners sell their stuff here, but they won’t let us sell our stuff there. So the solution is to throw up barriers to foreign products,” he explained. “The reality, however, is that trade deficits have almost nothing to do with tariffs or other restrictions on trade. The overall trade deficit is always equal to the difference between domestic investment spending and domestic saving (both private and public).”
“That’s just accounting,” he added.
“Sure enough, the Trump tariffs of 2018 did, in fact, lead to a sharp fall in imports of the goods subjected to tariffs. But imports of other goods rose, while exports performed poorly. And the overall trade deficit went up substantially, which is exactly what you should have expected. After all, that big tax cut for the wealthy reduced national savings,” he said.
“And even the Trumpian trade war has probably done only limited economic harm; the main damage is to U.S. credibility,” Krugman explained. “But Trump’s twin deficits show that his party has been lying about its policy priorities, and that he is completely clueless about his signature policy issue.