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Tariffs and the Trade Balance -- In which Paul Krugman tells us that "capital flows do depend on the potential for trade in goods and services." Hm, so no possibility of capital flows associated to purely financial gain or security? Nobody holds US treasuries just because it's the safe asset in global markets?

Kansas and the myth of trickle-down tax cuts -- Jared Bernstein on Kansas experiment with supply side economics. A bit old, but worth reading

A Socialist Market Economy With Chinese Contradictions -- Lord Turner on the risk of a Chinese crisis, not caused by financial collapse (he correctly points out that: "Most of the debt is owed within the state system... and the government could simply write off bad debts and recapitalize banks, financing the operation with either borrowed or printed money"), but by capital flight

Comments

  1. To be fair to Krugman, I don't think he is saying that there is no possibility of capital flows for financial gain, merely that trade potential is one of a number of factors behind such flows. It seems to me that this must be the case, but I do not think that his suggestion that tariffs necessarily lead to reduced inbound capital flows is at all straightforward. I can see arguments that would point the other way.

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    1. He is quite clear actually. He says: "when investors put funds into a country, they do so in the expectation that somebody will eventually extract real goods and services from that country and send them abroad. Put another way, trade deficits are always a temporary phenomenon, to be followed eventually by surpluses, and vice versa." The whole point of extraterrestrial trade is to say that while in the short run you may have financial flows for other reasons, in the long run capital flows respond to real (trade) opportunities. Read carefully.

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    2. Yeah - maybe I'm giving him too much credit. That bit about trade deficits eventually requiring surpluses is certainly wrong.

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    3. You have to give him credit for saying explicitly something that is sort of at the core of the mainstream analysis, but it's often not discussed.

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