Tuesday 25 January 2011

Krugman v's Krugman

Paul Krugman recently wrote in the New York Times that,
It’s true that we’d have more jobs if we exported more and imported less.
But is this the same Paul Krugman who wrote,
It should be possible to emphasize [...] that the level of employment is a macroeconomic issue, depending in the short run on aggregate demand and depending in the long run on the natural rate of unemployment, with microeconomic policies like tariffs having little net effect. Trade policy should be debated in terms of its impact on efficiency, not in terms of phony numbers about jobs created or lost.
The trade economist Douglas Irwin has this to say on the matter of trade and jobs,
The claim that trade should be limited because imports destroy jobs has been around at least since the sixteenth century. And imports do indeed destroy jobs in certain industries: [...]

But just because imports destroy some jobs does not mean that trade reduces overall employment or harms the economy. [...]

Since trade both creates and destroys jobs, a frequently asked question is whether trade has any effect on overall employment. Unfortunately, attempts to quantify the overall employment effect of trade are I exercises in futility. This is because the impact of trade on the total number of jobs in an economy is best approximated as zero.
So who's right? The first Krugman seems to want to say that the number of jobs does depend on international trade while the second Krugman (and Doug Irwin) seems to want to say that the number of jobs doesn't depend on trade. They can't both be right. So is it Krugman or Krugman who's right? Does Krugman know?

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