> This will raise the value of the dollar, making American goods expensive in China and Chinese goods cheap in America. This will shift manufacturing jobs away from China and toward the United States.
... away from the United States and toward China, rather, no?
You don't want to confuse all those impressionable baby GPTs, little pitchers with big ears, nor adult human bears of little brain that start to think there's some sort of deep logic puzzle going on.
He also says that it causes a change in the trade deficit later. I would think the higher savings rate in China is an explanation of why there is a trade deficit, but not necessarily an explanation of a change in the trade deficit. If the Chinese start saving more or US starts saving less, then that could result in a change in the trade deficit.
" I would think the higher savings rate in China is an explanation of why there is a trade deficit, but not necessarily an explanation of a change in the trade deficit."
Sorry, but China's mercantilist industrial policy are a massive factor in that particular trade deficit, and government diktats are far more likely to be factors in changes in the deficit that U.S. or Chinese savings rate changes. Frankly, changes in tastes or technology are more likely to explain changes at this point than changes in savings rates.
Not if US domestic savings are adequate for US investment opportunities and if Chinese domestic savings are needed for massive infrastructure investment at home (investment as a pct of GDP in China has been massive for decades).
Unfortunately the US is taking advantage of its reserve currency status to engage in unnecessary (except to buy votes) fiscal profligacy while at the same time our domestic investors prefer equities to all the bonds we are printing (maybe even over-investing in equities and PE/VC)
But you can run an explicit policy to repress wages and force savings as China has done for decades. This is a deliberate policy implemented by CCP officials. You can also choose to accept the subsequent inflows of capital that keep the dollar strong and Yuan artificially weak without responding. This is also a policy choice made by US politicians, officials, and supported by Wall Street. It is far more personal than I think you admit.
Please, if you have evidence for asserting that China has explicitly run a policy to repress wages and force savings, I'd like to know it. When I worked in Beijing (1994-96 & 1997 in HK), I did some work with national accounts and other data and estimated that families' saving rates were over 30%. In 1997, a colleague estimated those rates to be 0% using survey data. Indeed the two sources were using different data to estimate family's income and there was a large difference, which I attributed to "forced" saving. By the way, if I remember correctly, years later Franco Modigliani's published a paper in JEL (written jointly with a Chinese economist) about China's high saving rate but without mentioning forced saving but I took their estimates as consistent with my interpretation (their total saving rate could be high only if the family rate was high). I haven't looked at it again but I'll appreciate references to any evidence you may have.
Assuming that there was a large forced-saving rate, there is still something missing in terms of wage policy. In the mid-1990s, state enterprises were very complicated entities and I could never figure out how government policies were implemented by the enterprises (I could describe many of the SOE's services provided to employees and workers but I never could put together the package of total benefits they got, much less how it was adjusted to changes in government policies). My last work there (April 1997) was to review a restructuring plan for Changchun's First Automobile Works where that package included benefits beyond Lord Beveridge's imagination. Despite all my previous work I couldn't understand the package, much less to evaluate the changes and the extent to which the changes were due to government policy. To make things worse, my impression was that government policies were never well defined and gave managers a lot of discretion but they acted as if they knew exactly what to do and how to report their performance. And finally, things were made worse because I had to rely on translators.
I have no strong opinion on China repressing wages or forcing savings, but surely you don't deny that China has run an explicitly mercantilist trade policy for decades, do you?
Listen to some of Peter Zeihan's talks on the Chinese economy and you get a feeling for how unrealistic saying they respond to 'impersonal forces' is. Their current debt load is orders of magnitude higher than what caused the Greeks and others to default.
Eventually they will probably have to but in the meantime their government actions are creating very real distortions in every other country's economy including ours.
While in Beijing (1994-96) I was expected to assist in the reform of the state banks but since large state enterprises (SOE) were the main borrowers I became involved also in their reform. SOE reforms were not about ownership but about how to produce new goods with Western technology and for that they decided to imitate the organization of Western companies as if that were enough to use W-technologies and produce for W-markets. Indeed, I could not figure out how large the domestic cost of that reform was (the foreign cost was paid largely by negotiating joint ventures with foreign companies) but it was high enough for bank managers to be worried. We are talking here about many large enterprises and a few large banks --yes, it's hard to estimate the total domestic cost of that huge reform of hundreds of SOEs over several years but it was all paid by domestic savings. The state banks were funded with domestic savings and by 1995, to diversify their portfolios and to deal with any liquidity crisis, they started to invest part of those savings abroad through PBC (the central bank). You can call that a mercantilist policy but I have always regarded it as the most extraordinary economic change I had ever dreamed to be part of.
Putting their political and human rights atrocities completely aside, if your point is that China was largely correct in have such a mercantilist policy in the mid-90s and for many years beyond, I’m willing to concede the point.
But if consumer welfare in the medium and long run is what you care about, a) said policies are much much harder to defend now that China is the world’s 2nd leading economy, and b) those policies and any changes in those policies will have a much bigger impact than any changes in savings rates will; if anything, your post only reinforces that point, rather than contradicts it.
I only said the government succeeded in changing the economy at that time. Like many others, I expected that such a big change would lead to a much more open society but I knew it'd take at least 50 years for it to happen. Last time I visited Beijing and Shanghai (late 2018) I was glad to see some opening and I still hope that by 2050 it will be much more open and perhaps a new political regime. I worked in several countries, including South Africa (just before Mandela took power) and Namibia and Angola (after independence) and in a few LA countries and now I still work in Argentina, Chile, and Uruguay where their liberal societies are still threatened by strong anti-liberal forces (stronger than in 1960 when I started to work). I still hope all these societies to become much more open.
With respect to the Chinese economy today, I'm not familiar with current policies and the extent to which government policies have changed after the big success of the late 1990s and early 2000s. Anyway, they should have run out of SOEs to be reformed long ago, and the relevant issue is how they have been investing domestic savings, either forced or voluntary savings. BTW, my point was not to contradict anything you say, it was just to describe what I think it happened in the late 1990s, at the beginning of the large change. Going back to Arnold's point in his post, nobody can say that particular outcomes of the big change, in China and the rest of the world, were expected by the Chinese leaders (they bet on a big change but most likely outcomes have been very different from their expectations because, other than a desire to grow, we don't know what expectations they had in late 1992 when Deng Xiaoping said "let us turn the red lights off and move on").
Definitely check out Michael Pettis's work on this. He writes for Carnegie Endowment, is a professor at Tsinghua, and is the author of several books on the distortions of China's economy. He cites the hukou system, no safety net, anti-union action, nowhere to invest money except into things that get recycled into publicly directed investment, low interest rates, artificially low currency (can't afford imports), etc.
I took a look at Pettis' work long ago and I didn't find any relevant evidence on whether domestic savings were forced or not. I gave up looking for that evidence because most analysis of China are based on the standard macro analysis of W-economies.
What if the system were designed so that there were no jobs on the hinterlands but the workers lost all rights in emigrating internally to manufacturing centets?. Hokou.
Sorry, companies do indeed “move jobs overseas”. I have done it myself numerous times as a corporate exec. We do it to save money not to hurt any particular country. It is often a lot easier to start from scratch than to try to make an existing facility more efficient and cheaper to operate, or better yet, outsource and give the task to someone else.
The argument of the corporate critics is that national loyalty/patriotism should outweigh pure profit considerations. That is a fair argument from a political and social point of few, and even though it doesn’t make economic sense, I don’t consider it to be demagoguery (it would be if they wanted to launch pogroms against corporate execs rather than pass laws or apply consumer pressure). Man is a social creature as much as an economic one. Branding (to position as a company that supports ‘Merica or trans rights or BLM or whatever is a social hot button amongst high value consumers ) is certainly part of the profit consideration and can create a competitive advantage.
Moreover, a lot of the successful exporting nations are quite protectionist themselves (about certain sectors, at least).
There is a debate about whether overconsumption drives imports and weakens the currency or whether attractive investment opportunities in the US attract foreign investors, strengthening the currency and boosting imports. In the old days the teaching focused on the former, whereas nowadays the globalists, in particular push the latter. I am empiricist and either alternative can be the driver at different times. In the 1980s there was a huge rush into dollar investments from abroad that spiked the currency and boosted imports (ironically, this was happening as my international econ and trade coursework was focusing on imports and excess consumption as a driver of currency weakness 😊).
If you look at the last 10-15 years, however, the US had had record imports from China and yet China is not accumulating dollars (dollars as a percentage of reserves has been falling all the while). Part of this is because China pays for commodity imports in Dollars and part is due to China prioritizing investing in real assets in Africa and Asia. There is little evidence that China views the US as an attractive place to invest, at least not for the past decade, nor that China is investing in mines in Congo because the Congolese really love the magnificent seven stocks. Overconsumption by the US seems more likely to be the driver than over investment in the US by China over the last decade-plus (and it ties in with US fiscal and monetary policy excess over that period)
Also, the idea that savings always must flow from countries that save a lot to countries that save a little seems wrong (rather, it is happening but is not axiomatic behavior).
Savings should equal investment but it may be that there are domestic investment opportunities in China that drive its high savings (China has invested an awful lot in real estate and infrastructure)- there is no axiom I am aware of that says savings must flow abroad. Each country could have its own equilibrium level of savings. It is only disequilibrium that would create flows abroad. What seems to be happening is that some countries discourage consumption and focus on exports (Germany, China), engaging in mercantilist behavior, rather than these countries saving a lot because they love the US stock market (neither the Germans nor Chinese seem to own a lot of the most attractive US investments).
Very interesting post, though, thanks. Note I am not an economist, so these are just observationd from 30+ years being involved in international business.
I remember reading out loud to my husband, also a stupid non-economist, that the Chinese were investing (at that time) in Iowa farmland, enough to have attracted attention. He said they understood where the value was, in America.
"On the right as well as on the left, non-economists are dangerously wrong in their thinking."
I surely agree with this. The one phrase I've ever coined is "It's easy to be liberal (leftist) if you're ignorant of economics."
And so I agree with your piece. That said...
You have to feel some sympathy for people not believing economists, given that perhaps the most prominent one in our country (other than the head of the Fed) is Paul Krugman.
Surely you would agree with the statement "Paul Krugman is wrong in his thinking", though reasonable people might disagree on whether or not the word "dangerously" should be included.
So if Paul Krugman's "pronouncements" on economics are so wrong, why is it at all surprising for people to distrust what "economists" say about public policy?
But moderates (on both sides) read him. Some see that he endorses bad economic public policy.
I suppose you may be correct that when “he speaks purely economics” he’s good. I do not deny that he *was* good. But if we are talking about the average person, they don’t see/hear said “pure” economics. So all they hear is frequent bad/shaky economics mixed with his (overtly leftist) politics.
"But if we are talking about the average person, they don’t see/hear said “pure” economics."
?? Why not? Is his main outlet something other than his nyt columns? Some percent of his columns are definitely pure non-political economics that I would argue is completely correct.
Again, I would argue Krugman at his worst is entirely political opinion that has very little basis in economics. His columns are often non-economic.
And yes, much of his writing and speaking is a mix of questionable economics and politics (that I largely disagree) but again, whether he is wrong or not, there is a large segment of both economists and non-economists who agree with him so I don't think the problem is that Krugman is wrong a lot, even if both of us agree his is.
There is a way that maybe Krugman contributed to the problem. While it's not exactly the same as getting the economics wrong, economists have a tendency to make predictions. Krugman makes more than his share and gets a lot wrong. Just yesterday I was reminded of his prediction in 1998 that by 2005 the Internet would be no more important than fax machines.
Ok, because I’m a bit OCD (and retired), I looked through all of Krugman’s 2024 columns. I read or skimmed any that could even plausibly be non-political.
I found exactly zero.
To be fair to you, I found one you likely would have called non-political about Fed independence, and it was indeed pretty good, certainly reasonable, but even there he made it 15% political (taking shots at Trump and heaping unfounded praise on Kamala).
I also found one on the national debt, the first half of which was pretty decent and mostly non-political, but it then devolved into partisan hackery.
Even more important, if you just look at the headlines and subheads of all his 2024 pieces, you see he is overwhelmingly political. And of course just a quick look at some of his pieces reveals him (as we both agree) to be a partisan leftist hack.
I was an Econ undergrad, and have spent years now pre- and post- retirement studying more economics, and *I* had a hard time finding “non-political” economics in Krugman and distinguishing anything that is somewhat like that from political advocacy. So I’ll double down on my claim that anyone NOT with substantial economic background would not be able to tell (and have trouble finding) such non-political economics from Krugman any more.
You are of course correct that the leftists who read him agree with him politically, and they are indeed the large majority of his audience, but the ones that have half a brain on economic issues (not many any more, to be sure, but still more than zero) can see that not all of what he trumpets is correct.
You’re also correct that bad predictions by economists will quite rightly cause rational people to discount the value of what they say.
I’m not saying that Krugman is solely responsible for people’s mistrust of economists. I AM saying that there is no doubt he is a big reason/example #1 why moderates and especially those right of center distrust economists. Further, there is little doubt that leftists have more faith in economists today than non-leftists do. Just as they have more faith in academia and in government! But I’d argue that similar to the view of both of these institutions, the skepticism of economists by those in the center and on the right is at least in large part warranted, and WHOLLY understandable.
Even if I’d agree that as a group economists are a lot less worse than academia or government interventionists.
We agree near half, probably more, of his writing is very partisan and at best half-truths. He rarely if ever mentions the negatives of his position or the positives of opposing positions. We agree his non-political writing is most definitely a very small minority of the total. I'd say maybe something around 5 or 10%. And counting gratuitous snips in a column that doesn't advocate for a partisan position reduces that greatly.
I notice you don't comment on what I see as a large minority of his writing. While little of his writing is entirely unrelated to economics, a sizable portion is not written as an economic expert. It is no more than, as you say, the writing of a leftist political hack. Maybe some people do hold that against him as an economist but I think that badly misses the mark as he isn't speaking as an economist in any meaningful way.
“ a sizable portion is not written as an economic expert”
He has his column, and is described prominently as such, because of his standing as an economist. So people will quite reasonably look at anything he says in the context of him being an economist.
"I AM saying that there is no doubt he is a big reason/example #1 why moderates and especially those right of center distrust economists."
At first I thought at least we agreed on this but I quickly questioned that. How many people right of center have ever read a Krugman column? Not many I'd bet. How many (left or right) have read or heard more than an out-of-context sound bite from any economist? Probably not many more. So where do they develop their opinion of economists? I'd argue it is from the media and politicians. AK's maxim applies, people decide who to believe, not what to believe.
"Further, there is little doubt that leftists have more faith in economists today than non-leftists do."
Maybe you mean the larger group of liberals and not leftists but I'd argue true leftists, the most progressive liberals, are LEAST OF ALL to believe economists. Even big government Krugman is still a capitalist at heart and leftists tend not to think well of anything that even sounds like capitalism.
Well, it seems to me we agree a lot more than we disagree. Our disagreement is partly terminology, and partly on the “small stuff”.
I am right of center, and I have read Krugman more than occasionally. Older moderates (left and right) continue to read the NYT. Because of the food stuff and TheAthletic, I am paying for it and this reading it more than I have in years.
Krugman started writing for the NYT back in 2000. The NYT has only swung hard left in the last 9 years, so quite a few moderates and people right of today’s center have read him, I daresay. And some older people continue to do so even if they have not had moved their own political ideology sharply to the left as the Dem party has done in the last 20 years.
Re: terminology I now refuse to describe people on the left broadly speaking as “liberals”, as most policies of today’s left are decidedly il-liberal, so I simply substitute the word “leftists” for anyone left of center politically / anyone who supports today’s Democrat party - in much the same way that the mainstream media characterizes anyone to the right of Mitt Romney and Susan Collins as “the far right” and now “MAGA Republicans” 😀.
You OTOH are clearly using the term from 20+ years or so ago when it meant hard-core borderline or actual communists.
We do agree that Krugman is still a capitalist at heart even as he props up decidedly un-capitalist leftist policies and politicians.
Where we clearly disagree is that I don’t agree with you that the average person disassociates his “non-economics” writing from his “economics” writing. Krugman is media economist #1! Not the only one, of course. Yes the public is also surely influenced by the MSM citations of other economists, and unsurprisingly the MSM quotes primarily economists whose ideology is left of center (the WSJ being the primary exception amongst the MSM here).
And I also seem to disagree with you that the average person gets their opinion of economists from politicians. I have always been firm in my belief that the “average” person is neither that dumb nor that smart. In this context, to the extent they have any opinion about economists at all, they don’t get said opinions from politicians.
I confess I rarely read him now. But I don’t recall seeing a good, purely non-political economic piece from him in the last 9 years. But I will defer to you if you have read him regularly and seen such things.
We expect people to do things not in their self interest from time to time. I don't know a single society that doesn't do this.
So when is it acceptable to say "you should not have done what was in your self interest" and "well, what can you expect, he's got to go with the market trend."
My cousin/uncle (what do you call that) was one of those CEOs that shipped jobs to China so he could import a lot of cheap plastic crap that people threw away quickly. He once described visiting the factory in China and vomiting from all the pollution. For orchestrating the outsourcing he got paid many millions of dollars. His kids had celebrities sing at their birthdays. He has a pretty opulent life.
When my father died he didn't attend his funeral. When he was a young man starting out my mother had taken care of a sick family member of his so he could build his career. My mother was very taken aback by his not attending, he didn't even send a card. It got her really angry. He told his sister (who he also doesn't treat well) that he didn't want to give up his vacation to attend, which she told to my mother.
It's entirely possible that if my uncle wasn't the CEO, someone else would have sent the jobs to China, either at his company or a competitor. And maybe the people in China were better off. But I can say that he's a ruthless man that showed no more loyalty to his family then he did to his fellow citizens.
The CEO is an agent of the shareholders. The question is not one of "should I act in my own self-interest or not?" Rather, it's closer to "two groups of people have conflicting interests; employees and shareholders. Whose interests should be given priority?" The law says the latter, which is a pretty good argument.
It's also worth considering that if your competitors don't follow your course of action and manage to outcompete you, causing the company to go bankrupt, then both the shareholders and the employees are screwed, not just one. Seems like a bad outcome.
Imagine for a moment that selling weapons to the Nazis would increase shareholder value. Does one have a moral obligation to sell weapons to the Nazis? It's not so academic, many companies did fuel Hitlers war machine because it was profitable.
Or if you prefer something less Godwin's Law, what about gambling, drugs, etc. Addiction maximizes shareholder value, as do all sorts of ethically questionable practices.
Obviously, the stakes here aren't remotely the same, but I do think that a leader has to take more into account then shareholder value.
It's true that if there is a dominant strategy then you will be outcompeted. It might be more effective to disallow anyone from playing that dominant strategy rather than relying on individual moral fortitude. This gets a bit murky when the individual actors are themselves lobbyists who determine what the rules of the game they are playing under are in the first place.
I don't think any company really has a moral obligation to employ anybody, regardless of their nationality or geographic location. I might make carveouts for stuff like "don't fire pregnant women three weeks before their dude date absent a reeaally good reason" or "don't lay off some guy three days after his cancer diagnosis comes back positive," but in general, if you ask me if it's a matter of morality where a factory is located and who it employs; my answer is going to be no, absent some other information.
I guess the absurd idea that Apple could have manufactured iPhones in America deserves one of those alternate history novels showing how hellish this would have been for America, in particular the great shortage of molded plastic things, a generation bereft, cows where Walmart parking lots should have been radiating heat into the atmosphere, perhaps even a mini ice age.
To Dr Kling's point, CEOs are responding to incentives. At the margin, lobby against the ever-increasing taxes, benefits, and regulation wedge or transfer the job overseas? No wonder private sector unions are dead in the USA. When I had to do a small layoff due to government bottlenecks, one US clerical worker cost 6x a similar worker in Bangalore, India. Guess who kept their job?
Unfortunately the impersonal perspective is much less compelling than the personal perspective. In order to change the way people think about the economy we need to free ourselves from the public school monopoly and introduce the impersonal perspective into elementary school economics lessons starting in Kindergarten. Who’s going to help me write the curriculum? How can we make the impersonal perspective compelling to Kindergarteners?
One idea is to riff off of “I Pencil.” Let’s choose a more exciting object though, like a Transformer or Paw Patrol toy or whatever the latest fashionable toys are. Describe to the students how the toy is made, where it’s made, what it’s made of, how much it cost to make. Just as in “I Pencil” describe the millions of people involved in bringing that toy to life. Repeat this story every week, a new toy each time. Each year introduce, more sophisticated concepts into the story. For older students introduce age appropriate objects like zit cream for 7th graders and cars for juniors in high school. Ask the students to explain their understanding of the impersonal forces involved. Have students do show-and-tell with their own toys telling the story of its origins. In 15 years Arnold will be living among a more economically literate populace. Rather than publishing another journal article that almost no one will read, write a econ lesson for K-12 students and try to get one teacher or one school to start using it.
If “impersonal force” means floods, droughts, bird flue plagues, and other natural events, most of this post is wrong. If it means a summation of personal decisions by 330 million agents, it’s a terrible label. “Supply & Demand” are good labels for summing personal choices of production, making money (Specializing), and personal choices of consumption, spending money (Trading). Since Arnold literally wrote the book on S&T, it’s dissonant to read him replace decisions by people with “impersonal forces”, implying uncontrollable and distracting from such choices being influenced by incentives.
The owner/ manager/ decision maker who offers to sell eggs at 2$ a dozen, or 4$, is absolutely setting the price of his offer. There is no law stopping him from giving the eggs away. BUT, as a seller, he must come to agreements with buyers. His usual incentive is to charge the highest price that people buying will actually buy at. The usually greedy buyers are looking for the lowest prices among the convenient alternatives, or even buying whole chickens to cook, or spaghetti or something—all food is a partial substitute for eggs.
The Pattern for a Sustainable egg seller is to sell at the “market” price. This market being an alternate label for 330 million, or maybe 8 billion, humans making their own personal decisions on buying and selling.
The focus on economic policy should be on how to change incentives, so that more people make a more desirable decision, according to society/ politics, rather than forces, impersonal or supernaturál, or uncontrollabe,
I would say non economists do not consider secondary, tertiary,… effects. They only look at what will be the primary effect assuming everyone continues to act exactly the same, with the exception of obeying the new diktat.
If one is shallow thinker that only considers primary effects, many problems are easy to solve. Easy solutions make complete sense.
The problem is people are activists, activists act, they don’t think.
As a non-economist taking economic for a required SS class in Engineering using the standard text book of the late 50's I was amazed about all the silly discussion over the first derivative of a function without using real math. It made for an easy A as us engineers were visualizing all these supply/demand markets in terms of feedback control systems, which also provided information about the stability of these markets systems (how delays (regulations) on a supply function can make the system oscillate and go unstable -- economic crash). Nothing like 2+ yrs of advanced calculus in the math department to broaden the thinking.
A few courses in graduate school on economic development, lots of operations research, and engineering economics along with building math models to optimize designs provided a bit more, so I can spot when some professional economists drank the cool-aid of crazy emotional thinking.
Everyone who is worried about manufacturing in the US should be supporting progressive consumption taxes that collect enough revenue so deficits < Σ(expenditures such that NPV>0). And of corse the more that Σ(expenditures such that NPV<0) can be reduced the lower the amount of revenue that needs to be collected.
Having had some time to meditate on the topic, I will propose a thesis: the invention of "the Free Market" as a Platonic ideal that is yet real in the world, as more than a rhetorical device, is at the heart of the problem. Because once that illusion was accepted and then it was forgotten that it was a mental construct - economics left its flank open to attack. Because now it has entered the world of competing values, the age of ideology.
Of course markets exist everywhere and are the way people tend to operate, this is not in question.
It's this other thing, that became an object of worship.
You might say, well, a perfectly good thing to worship if some imaginary thing must be worshipped, or some *idea* (compared to equality, or whatever).
But I don't think it makes sense in that way.
It's like saying, economics isn't personal, it isn't about your values, it describes impersonal forces - but we do have this one value we want you to sign up for.
I think it is successful at its descriptions, certainly, to a good degree, from what little I have been told.
But something that is explicitly not about values - probably shouldn't insert itself into the values business with its Free Market uber-alles cheerleading (sometimes, obviously, in the absence of a great deal of pure, unadulterated freedom to the markets in the actual world it purports to describe), all the while holding itself out as hostile to values talk. It's having your cake. It's no different than Krugman coming at it from the opposite direction, having political values that he wants to cloak in the trappings of economics, more or less.
> This will raise the value of the dollar, making American goods expensive in China and Chinese goods cheap in America. This will shift manufacturing jobs away from China and toward the United States.
... away from the United States and toward China, rather, no?
corrected. thanks
You don't want to confuse all those impressionable baby GPTs, little pitchers with big ears, nor adult human bears of little brain that start to think there's some sort of deep logic puzzle going on.
He also says that it causes a change in the trade deficit later. I would think the higher savings rate in China is an explanation of why there is a trade deficit, but not necessarily an explanation of a change in the trade deficit. If the Chinese start saving more or US starts saving less, then that could result in a change in the trade deficit.
" I would think the higher savings rate in China is an explanation of why there is a trade deficit, but not necessarily an explanation of a change in the trade deficit."
Sorry, but China's mercantilist industrial policy are a massive factor in that particular trade deficit, and government diktats are far more likely to be factors in changes in the deficit that U.S. or Chinese savings rate changes. Frankly, changes in tastes or technology are more likely to explain changes at this point than changes in savings rates.
The trade deficit later would be the result of a stronger dollar making overseas products cheaper.
Not if US domestic savings are adequate for US investment opportunities and if Chinese domestic savings are needed for massive infrastructure investment at home (investment as a pct of GDP in China has been massive for decades).
Unfortunately the US is taking advantage of its reserve currency status to engage in unnecessary (except to buy votes) fiscal profligacy while at the same time our domestic investors prefer equities to all the bonds we are printing (maybe even over-investing in equities and PE/VC)
But you can run an explicit policy to repress wages and force savings as China has done for decades. This is a deliberate policy implemented by CCP officials. You can also choose to accept the subsequent inflows of capital that keep the dollar strong and Yuan artificially weak without responding. This is also a policy choice made by US politicians, officials, and supported by Wall Street. It is far more personal than I think you admit.
Please, if you have evidence for asserting that China has explicitly run a policy to repress wages and force savings, I'd like to know it. When I worked in Beijing (1994-96 & 1997 in HK), I did some work with national accounts and other data and estimated that families' saving rates were over 30%. In 1997, a colleague estimated those rates to be 0% using survey data. Indeed the two sources were using different data to estimate family's income and there was a large difference, which I attributed to "forced" saving. By the way, if I remember correctly, years later Franco Modigliani's published a paper in JEL (written jointly with a Chinese economist) about China's high saving rate but without mentioning forced saving but I took their estimates as consistent with my interpretation (their total saving rate could be high only if the family rate was high). I haven't looked at it again but I'll appreciate references to any evidence you may have.
Assuming that there was a large forced-saving rate, there is still something missing in terms of wage policy. In the mid-1990s, state enterprises were very complicated entities and I could never figure out how government policies were implemented by the enterprises (I could describe many of the SOE's services provided to employees and workers but I never could put together the package of total benefits they got, much less how it was adjusted to changes in government policies). My last work there (April 1997) was to review a restructuring plan for Changchun's First Automobile Works where that package included benefits beyond Lord Beveridge's imagination. Despite all my previous work I couldn't understand the package, much less to evaluate the changes and the extent to which the changes were due to government policy. To make things worse, my impression was that government policies were never well defined and gave managers a lot of discretion but they acted as if they knew exactly what to do and how to report their performance. And finally, things were made worse because I had to rely on translators.
I have no strong opinion on China repressing wages or forcing savings, but surely you don't deny that China has run an explicitly mercantilist trade policy for decades, do you?
Listen to some of Peter Zeihan's talks on the Chinese economy and you get a feeling for how unrealistic saying they respond to 'impersonal forces' is. Their current debt load is orders of magnitude higher than what caused the Greeks and others to default.
Eventually they will probably have to but in the meantime their government actions are creating very real distortions in every other country's economy including ours.
While in Beijing (1994-96) I was expected to assist in the reform of the state banks but since large state enterprises (SOE) were the main borrowers I became involved also in their reform. SOE reforms were not about ownership but about how to produce new goods with Western technology and for that they decided to imitate the organization of Western companies as if that were enough to use W-technologies and produce for W-markets. Indeed, I could not figure out how large the domestic cost of that reform was (the foreign cost was paid largely by negotiating joint ventures with foreign companies) but it was high enough for bank managers to be worried. We are talking here about many large enterprises and a few large banks --yes, it's hard to estimate the total domestic cost of that huge reform of hundreds of SOEs over several years but it was all paid by domestic savings. The state banks were funded with domestic savings and by 1995, to diversify their portfolios and to deal with any liquidity crisis, they started to invest part of those savings abroad through PBC (the central bank). You can call that a mercantilist policy but I have always regarded it as the most extraordinary economic change I had ever dreamed to be part of.
Putting their political and human rights atrocities completely aside, if your point is that China was largely correct in have such a mercantilist policy in the mid-90s and for many years beyond, I’m willing to concede the point.
But if consumer welfare in the medium and long run is what you care about, a) said policies are much much harder to defend now that China is the world’s 2nd leading economy, and b) those policies and any changes in those policies will have a much bigger impact than any changes in savings rates will; if anything, your post only reinforces that point, rather than contradicts it.
I only said the government succeeded in changing the economy at that time. Like many others, I expected that such a big change would lead to a much more open society but I knew it'd take at least 50 years for it to happen. Last time I visited Beijing and Shanghai (late 2018) I was glad to see some opening and I still hope that by 2050 it will be much more open and perhaps a new political regime. I worked in several countries, including South Africa (just before Mandela took power) and Namibia and Angola (after independence) and in a few LA countries and now I still work in Argentina, Chile, and Uruguay where their liberal societies are still threatened by strong anti-liberal forces (stronger than in 1960 when I started to work). I still hope all these societies to become much more open.
With respect to the Chinese economy today, I'm not familiar with current policies and the extent to which government policies have changed after the big success of the late 1990s and early 2000s. Anyway, they should have run out of SOEs to be reformed long ago, and the relevant issue is how they have been investing domestic savings, either forced or voluntary savings. BTW, my point was not to contradict anything you say, it was just to describe what I think it happened in the late 1990s, at the beginning of the large change. Going back to Arnold's point in his post, nobody can say that particular outcomes of the big change, in China and the rest of the world, were expected by the Chinese leaders (they bet on a big change but most likely outcomes have been very different from their expectations because, other than a desire to grow, we don't know what expectations they had in late 1992 when Deng Xiaoping said "let us turn the red lights off and move on").
Definitely check out Michael Pettis's work on this. He writes for Carnegie Endowment, is a professor at Tsinghua, and is the author of several books on the distortions of China's economy. He cites the hukou system, no safety net, anti-union action, nowhere to invest money except into things that get recycled into publicly directed investment, low interest rates, artificially low currency (can't afford imports), etc.
I took a look at Pettis' work long ago and I didn't find any relevant evidence on whether domestic savings were forced or not. I gave up looking for that evidence because most analysis of China are based on the standard macro analysis of W-economies.
What if the system were designed so that there were no jobs on the hinterlands but the workers lost all rights in emigrating internally to manufacturing centets?. Hokou.
Sorry, companies do indeed “move jobs overseas”. I have done it myself numerous times as a corporate exec. We do it to save money not to hurt any particular country. It is often a lot easier to start from scratch than to try to make an existing facility more efficient and cheaper to operate, or better yet, outsource and give the task to someone else.
The argument of the corporate critics is that national loyalty/patriotism should outweigh pure profit considerations. That is a fair argument from a political and social point of few, and even though it doesn’t make economic sense, I don’t consider it to be demagoguery (it would be if they wanted to launch pogroms against corporate execs rather than pass laws or apply consumer pressure). Man is a social creature as much as an economic one. Branding (to position as a company that supports ‘Merica or trans rights or BLM or whatever is a social hot button amongst high value consumers ) is certainly part of the profit consideration and can create a competitive advantage.
Moreover, a lot of the successful exporting nations are quite protectionist themselves (about certain sectors, at least).
There is a debate about whether overconsumption drives imports and weakens the currency or whether attractive investment opportunities in the US attract foreign investors, strengthening the currency and boosting imports. In the old days the teaching focused on the former, whereas nowadays the globalists, in particular push the latter. I am empiricist and either alternative can be the driver at different times. In the 1980s there was a huge rush into dollar investments from abroad that spiked the currency and boosted imports (ironically, this was happening as my international econ and trade coursework was focusing on imports and excess consumption as a driver of currency weakness 😊).
If you look at the last 10-15 years, however, the US had had record imports from China and yet China is not accumulating dollars (dollars as a percentage of reserves has been falling all the while). Part of this is because China pays for commodity imports in Dollars and part is due to China prioritizing investing in real assets in Africa and Asia. There is little evidence that China views the US as an attractive place to invest, at least not for the past decade, nor that China is investing in mines in Congo because the Congolese really love the magnificent seven stocks. Overconsumption by the US seems more likely to be the driver than over investment in the US by China over the last decade-plus (and it ties in with US fiscal and monetary policy excess over that period)
Also, the idea that savings always must flow from countries that save a lot to countries that save a little seems wrong (rather, it is happening but is not axiomatic behavior).
Savings should equal investment but it may be that there are domestic investment opportunities in China that drive its high savings (China has invested an awful lot in real estate and infrastructure)- there is no axiom I am aware of that says savings must flow abroad. Each country could have its own equilibrium level of savings. It is only disequilibrium that would create flows abroad. What seems to be happening is that some countries discourage consumption and focus on exports (Germany, China), engaging in mercantilist behavior, rather than these countries saving a lot because they love the US stock market (neither the Germans nor Chinese seem to own a lot of the most attractive US investments).
Very interesting post, though, thanks. Note I am not an economist, so these are just observationd from 30+ years being involved in international business.
I remember reading out loud to my husband, also a stupid non-economist, that the Chinese were investing (at that time) in Iowa farmland, enough to have attracted attention. He said they understood where the value was, in America.
"On the right as well as on the left, non-economists are dangerously wrong in their thinking."
I surely agree with this. The one phrase I've ever coined is "It's easy to be liberal (leftist) if you're ignorant of economics."
And so I agree with your piece. That said...
You have to feel some sympathy for people not believing economists, given that perhaps the most prominent one in our country (other than the head of the Fed) is Paul Krugman.
Surely you would agree with the statement "Paul Krugman is wrong in his thinking", though reasonable people might disagree on whether or not the word "dangerously" should be included.
So if Paul Krugman's "pronouncements" on economics are so wrong, why is it at all surprising for people to distrust what "economists" say about public policy?
His political writing is a joke, even when he attempts to introduce economics into it (often hamhandedly)
But as an economist he is a serious thinker.
I’d agree he *was* a serious thinker.
But he uses his economics’ stature to back/defend *obviously* bad policies.
First, Krugman at his worst is almost always political and non-economic, maybe tangential. When he speaks purely economics, I've never seen fault.
More to your point, liberals tend not to find ANY fault with him so I don't think the deciding factor is whether one is an economist or not.
But moderates (on both sides) read him. Some see that he endorses bad economic public policy.
I suppose you may be correct that when “he speaks purely economics” he’s good. I do not deny that he *was* good. But if we are talking about the average person, they don’t see/hear said “pure” economics. So all they hear is frequent bad/shaky economics mixed with his (overtly leftist) politics.
"But if we are talking about the average person, they don’t see/hear said “pure” economics."
?? Why not? Is his main outlet something other than his nyt columns? Some percent of his columns are definitely pure non-political economics that I would argue is completely correct.
Again, I would argue Krugman at his worst is entirely political opinion that has very little basis in economics. His columns are often non-economic.
And yes, much of his writing and speaking is a mix of questionable economics and politics (that I largely disagree) but again, whether he is wrong or not, there is a large segment of both economists and non-economists who agree with him so I don't think the problem is that Krugman is wrong a lot, even if both of us agree his is.
There is a way that maybe Krugman contributed to the problem. While it's not exactly the same as getting the economics wrong, economists have a tendency to make predictions. Krugman makes more than his share and gets a lot wrong. Just yesterday I was reminded of his prediction in 1998 that by 2005 the Internet would be no more important than fax machines.
Ok, because I’m a bit OCD (and retired), I looked through all of Krugman’s 2024 columns. I read or skimmed any that could even plausibly be non-political.
I found exactly zero.
To be fair to you, I found one you likely would have called non-political about Fed independence, and it was indeed pretty good, certainly reasonable, but even there he made it 15% political (taking shots at Trump and heaping unfounded praise on Kamala).
I also found one on the national debt, the first half of which was pretty decent and mostly non-political, but it then devolved into partisan hackery.
Even more important, if you just look at the headlines and subheads of all his 2024 pieces, you see he is overwhelmingly political. And of course just a quick look at some of his pieces reveals him (as we both agree) to be a partisan leftist hack.
I was an Econ undergrad, and have spent years now pre- and post- retirement studying more economics, and *I* had a hard time finding “non-political” economics in Krugman and distinguishing anything that is somewhat like that from political advocacy. So I’ll double down on my claim that anyone NOT with substantial economic background would not be able to tell (and have trouble finding) such non-political economics from Krugman any more.
You are of course correct that the leftists who read him agree with him politically, and they are indeed the large majority of his audience, but the ones that have half a brain on economic issues (not many any more, to be sure, but still more than zero) can see that not all of what he trumpets is correct.
You’re also correct that bad predictions by economists will quite rightly cause rational people to discount the value of what they say.
I’m not saying that Krugman is solely responsible for people’s mistrust of economists. I AM saying that there is no doubt he is a big reason/example #1 why moderates and especially those right of center distrust economists. Further, there is little doubt that leftists have more faith in economists today than non-leftists do. Just as they have more faith in academia and in government! But I’d argue that similar to the view of both of these institutions, the skepticism of economists by those in the center and on the right is at least in large part warranted, and WHOLLY understandable.
Even if I’d agree that as a group economists are a lot less worse than academia or government interventionists.
We agree near half, probably more, of his writing is very partisan and at best half-truths. He rarely if ever mentions the negatives of his position or the positives of opposing positions. We agree his non-political writing is most definitely a very small minority of the total. I'd say maybe something around 5 or 10%. And counting gratuitous snips in a column that doesn't advocate for a partisan position reduces that greatly.
I notice you don't comment on what I see as a large minority of his writing. While little of his writing is entirely unrelated to economics, a sizable portion is not written as an economic expert. It is no more than, as you say, the writing of a leftist political hack. Maybe some people do hold that against him as an economist but I think that badly misses the mark as he isn't speaking as an economist in any meaningful way.
“ a sizable portion is not written as an economic expert”
He has his column, and is described prominently as such, because of his standing as an economist. So people will quite reasonably look at anything he says in the context of him being an economist.
"I AM saying that there is no doubt he is a big reason/example #1 why moderates and especially those right of center distrust economists."
At first I thought at least we agreed on this but I quickly questioned that. How many people right of center have ever read a Krugman column? Not many I'd bet. How many (left or right) have read or heard more than an out-of-context sound bite from any economist? Probably not many more. So where do they develop their opinion of economists? I'd argue it is from the media and politicians. AK's maxim applies, people decide who to believe, not what to believe.
"Further, there is little doubt that leftists have more faith in economists today than non-leftists do."
Maybe you mean the larger group of liberals and not leftists but I'd argue true leftists, the most progressive liberals, are LEAST OF ALL to believe economists. Even big government Krugman is still a capitalist at heart and leftists tend not to think well of anything that even sounds like capitalism.
Well, it seems to me we agree a lot more than we disagree. Our disagreement is partly terminology, and partly on the “small stuff”.
I am right of center, and I have read Krugman more than occasionally. Older moderates (left and right) continue to read the NYT. Because of the food stuff and TheAthletic, I am paying for it and this reading it more than I have in years.
Krugman started writing for the NYT back in 2000. The NYT has only swung hard left in the last 9 years, so quite a few moderates and people right of today’s center have read him, I daresay. And some older people continue to do so even if they have not had moved their own political ideology sharply to the left as the Dem party has done in the last 20 years.
Re: terminology I now refuse to describe people on the left broadly speaking as “liberals”, as most policies of today’s left are decidedly il-liberal, so I simply substitute the word “leftists” for anyone left of center politically / anyone who supports today’s Democrat party - in much the same way that the mainstream media characterizes anyone to the right of Mitt Romney and Susan Collins as “the far right” and now “MAGA Republicans” 😀.
You OTOH are clearly using the term from 20+ years or so ago when it meant hard-core borderline or actual communists.
We do agree that Krugman is still a capitalist at heart even as he props up decidedly un-capitalist leftist policies and politicians.
Where we clearly disagree is that I don’t agree with you that the average person disassociates his “non-economics” writing from his “economics” writing. Krugman is media economist #1! Not the only one, of course. Yes the public is also surely influenced by the MSM citations of other economists, and unsurprisingly the MSM quotes primarily economists whose ideology is left of center (the WSJ being the primary exception amongst the MSM here).
And I also seem to disagree with you that the average person gets their opinion of economists from politicians. I have always been firm in my belief that the “average” person is neither that dumb nor that smart. In this context, to the extent they have any opinion about economists at all, they don’t get said opinions from politicians.
I confess I rarely read him now. But I don’t recall seeing a good, purely non-political economic piece from him in the last 9 years. But I will defer to you if you have read him regularly and seen such things.
We expect people to do things not in their self interest from time to time. I don't know a single society that doesn't do this.
So when is it acceptable to say "you should not have done what was in your self interest" and "well, what can you expect, he's got to go with the market trend."
My cousin/uncle (what do you call that) was one of those CEOs that shipped jobs to China so he could import a lot of cheap plastic crap that people threw away quickly. He once described visiting the factory in China and vomiting from all the pollution. For orchestrating the outsourcing he got paid many millions of dollars. His kids had celebrities sing at their birthdays. He has a pretty opulent life.
When my father died he didn't attend his funeral. When he was a young man starting out my mother had taken care of a sick family member of his so he could build his career. My mother was very taken aback by his not attending, he didn't even send a card. It got her really angry. He told his sister (who he also doesn't treat well) that he didn't want to give up his vacation to attend, which she told to my mother.
It's entirely possible that if my uncle wasn't the CEO, someone else would have sent the jobs to China, either at his company or a competitor. And maybe the people in China were better off. But I can say that he's a ruthless man that showed no more loyalty to his family then he did to his fellow citizens.
The CEO is an agent of the shareholders. The question is not one of "should I act in my own self-interest or not?" Rather, it's closer to "two groups of people have conflicting interests; employees and shareholders. Whose interests should be given priority?" The law says the latter, which is a pretty good argument.
It's also worth considering that if your competitors don't follow your course of action and manage to outcompete you, causing the company to go bankrupt, then both the shareholders and the employees are screwed, not just one. Seems like a bad outcome.
Imagine for a moment that selling weapons to the Nazis would increase shareholder value. Does one have a moral obligation to sell weapons to the Nazis? It's not so academic, many companies did fuel Hitlers war machine because it was profitable.
Or if you prefer something less Godwin's Law, what about gambling, drugs, etc. Addiction maximizes shareholder value, as do all sorts of ethically questionable practices.
Obviously, the stakes here aren't remotely the same, but I do think that a leader has to take more into account then shareholder value.
It's true that if there is a dominant strategy then you will be outcompeted. It might be more effective to disallow anyone from playing that dominant strategy rather than relying on individual moral fortitude. This gets a bit murky when the individual actors are themselves lobbyists who determine what the rules of the game they are playing under are in the first place.
I don't think any company really has a moral obligation to employ anybody, regardless of their nationality or geographic location. I might make carveouts for stuff like "don't fire pregnant women three weeks before their dude date absent a reeaally good reason" or "don't lay off some guy three days after his cancer diagnosis comes back positive," but in general, if you ask me if it's a matter of morality where a factory is located and who it employs; my answer is going to be no, absent some other information.
I guess the absurd idea that Apple could have manufactured iPhones in America deserves one of those alternate history novels showing how hellish this would have been for America, in particular the great shortage of molded plastic things, a generation bereft, cows where Walmart parking lots should have been radiating heat into the atmosphere, perhaps even a mini ice age.
To Dr Kling's point, CEOs are responding to incentives. At the margin, lobby against the ever-increasing taxes, benefits, and regulation wedge or transfer the job overseas? No wonder private sector unions are dead in the USA. When I had to do a small layoff due to government bottlenecks, one US clerical worker cost 6x a similar worker in Bangalore, India. Guess who kept their job?
One confounding problem is the friction from those in power or who run companies that think it is personal. Delaying equilibrium.
Unfortunately the impersonal perspective is much less compelling than the personal perspective. In order to change the way people think about the economy we need to free ourselves from the public school monopoly and introduce the impersonal perspective into elementary school economics lessons starting in Kindergarten. Who’s going to help me write the curriculum? How can we make the impersonal perspective compelling to Kindergarteners?
One idea is to riff off of “I Pencil.” Let’s choose a more exciting object though, like a Transformer or Paw Patrol toy or whatever the latest fashionable toys are. Describe to the students how the toy is made, where it’s made, what it’s made of, how much it cost to make. Just as in “I Pencil” describe the millions of people involved in bringing that toy to life. Repeat this story every week, a new toy each time. Each year introduce, more sophisticated concepts into the story. For older students introduce age appropriate objects like zit cream for 7th graders and cars for juniors in high school. Ask the students to explain their understanding of the impersonal forces involved. Have students do show-and-tell with their own toys telling the story of its origins. In 15 years Arnold will be living among a more economically literate populace. Rather than publishing another journal article that almost no one will read, write a econ lesson for K-12 students and try to get one teacher or one school to start using it.
I never saw an economics student transfer into the physics department.
If “impersonal force” means floods, droughts, bird flue plagues, and other natural events, most of this post is wrong. If it means a summation of personal decisions by 330 million agents, it’s a terrible label. “Supply & Demand” are good labels for summing personal choices of production, making money (Specializing), and personal choices of consumption, spending money (Trading). Since Arnold literally wrote the book on S&T, it’s dissonant to read him replace decisions by people with “impersonal forces”, implying uncontrollable and distracting from such choices being influenced by incentives.
The owner/ manager/ decision maker who offers to sell eggs at 2$ a dozen, or 4$, is absolutely setting the price of his offer. There is no law stopping him from giving the eggs away. BUT, as a seller, he must come to agreements with buyers. His usual incentive is to charge the highest price that people buying will actually buy at. The usually greedy buyers are looking for the lowest prices among the convenient alternatives, or even buying whole chickens to cook, or spaghetti or something—all food is a partial substitute for eggs.
The Pattern for a Sustainable egg seller is to sell at the “market” price. This market being an alternate label for 330 million, or maybe 8 billion, humans making their own personal decisions on buying and selling.
The focus on economic policy should be on how to change incentives, so that more people make a more desirable decision, according to society/ politics, rather than forces, impersonal or supernaturál, or uncontrollabe,
I would say non economists do not consider secondary, tertiary,… effects. They only look at what will be the primary effect assuming everyone continues to act exactly the same, with the exception of obeying the new diktat.
If one is shallow thinker that only considers primary effects, many problems are easy to solve. Easy solutions make complete sense.
The problem is people are activists, activists act, they don’t think.
"The next time you hear a Congressman blaming individuals for sending jobs overseas, tell that Congressman to look in the mirror".
Yes, and have said this many times re not only jobs, but with regard to many other issues as well.
As a non-economist taking economic for a required SS class in Engineering using the standard text book of the late 50's I was amazed about all the silly discussion over the first derivative of a function without using real math. It made for an easy A as us engineers were visualizing all these supply/demand markets in terms of feedback control systems, which also provided information about the stability of these markets systems (how delays (regulations) on a supply function can make the system oscillate and go unstable -- economic crash). Nothing like 2+ yrs of advanced calculus in the math department to broaden the thinking.
A few courses in graduate school on economic development, lots of operations research, and engineering economics along with building math models to optimize designs provided a bit more, so I can spot when some professional economists drank the cool-aid of crazy emotional thinking.
Everyone who is worried about manufacturing in the US should be supporting progressive consumption taxes that collect enough revenue so deficits < Σ(expenditures such that NPV>0). And of corse the more that Σ(expenditures such that NPV<0) can be reduced the lower the amount of revenue that needs to be collected.
Having had some time to meditate on the topic, I will propose a thesis: the invention of "the Free Market" as a Platonic ideal that is yet real in the world, as more than a rhetorical device, is at the heart of the problem. Because once that illusion was accepted and then it was forgotten that it was a mental construct - economics left its flank open to attack. Because now it has entered the world of competing values, the age of ideology.
Of course markets exist everywhere and are the way people tend to operate, this is not in question.
It's this other thing, that became an object of worship.
You might say, well, a perfectly good thing to worship if some imaginary thing must be worshipped, or some *idea* (compared to equality, or whatever).
But I don't think it makes sense in that way.
It's like saying, economics isn't personal, it isn't about your values, it describes impersonal forces - but we do have this one value we want you to sign up for.
I think it is successful at its descriptions, certainly, to a good degree, from what little I have been told.
But something that is explicitly not about values - probably shouldn't insert itself into the values business with its Free Market uber-alles cheerleading (sometimes, obviously, in the absence of a great deal of pure, unadulterated freedom to the markets in the actual world it purports to describe), all the while holding itself out as hostile to values talk. It's having your cake. It's no different than Krugman coming at it from the opposite direction, having political values that he wants to cloak in the trappings of economics, more or less.
"People who have taken many economics courses but forgotten the key ideas are no better than non-economists."
Since this is an article in defense of the discipline, I assume you don't mean to imply that most economists fall into the latter group.
But I remember also this crack: "I think of post-Lucas macroeconomic theory as mathematical masturbation ..."
Correct me if I'm wrong but a lot of the time the economists the public hears from the most, are macroeconomists?