Just as tariff protection is not a macroeconomic problem in deflationary, liquidity-trap-like conditions, freer trade, the economist’s familiar nostrum, is not a solution.
Pointer from Mark Thoma.
This illustrates the difference between thinking about the economy as a GDP factory and thinking about it in terms of Specialization and Trade. For those, like Eichengreen, who think in therms of ae GDP factory, there is no heterogeneity of goods or labor, and hence no benefits from trade of any kind. The key question is whether or not there is enough spending to keep the factory going at full capacity.
In contrast, the way I look at the economy, the key question is how well the economy is creating patterns of sustainable specialization and trade. Entrepreneurs must attempt, through trial and error, to find ways to utilize the available work force as tastes and technology evolve. From this perspective, Eichengreen’s ideas about the supposed costs of free trade and the supposed benefits of restrictions make no sense.
Well, I’m just a layman, an yes there is such a thing, but it seems to me that you took that quote out of context and then paraphrased it inaccurately. He didn’t say that freer trade has no benefits, just that it isn’t a (short-term) solution to inadequate demand. I mean it would clarify things if people like you and people like him could somehow have two-way discussions in situations like this.
He also said tariffs are inflationary.
This borders too much on demand never being a problem, recessions never exist, and we are always at full employment, the neoclassical fantasy.
How do you prove demand is a problem?
What is “full employment”?
All these Keynesian fantasies.
Is it just me, or is the whole argument wrong on even Keynesian terms? The recession was caused by a leftward shift in the AD curve. Increasing tariffs shifts the AS curve left. This reduces quantity traded even further.
Increases in GDP (price * qty) would be a consequence of fewer people trading more expensive goods. How is that supposed to increase employment?
Also, any cash flow argument is insufficient. The increase in cash flow through domestic import competitors may be washed out by a decrease in cash flow through domestic exporters.
Huh, that seems like a good point. Sounds similar to the effects of the oil crisis in the ’70s, yeah? Both inflationary and recessionary?
It is about not decreasing tariffs, not increasing them, but in Keynesian terms we are at the lower bound so supply is flapping in the wind.