Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2 percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

From reader Joe Hopkins:

I own a road rehabilitation company in China using high-tech American products. The mildly amusing photo was take at a seafood place in Chengdu, Sichuan.

Needless to say, I can't wait for BO & Co. to start a trade war. Just a note, the average salary for our American employees is $50K per year plus benefits. None of them have more than a high school degree.

Economists are failing to express anything resembling consensus on the most basic questions of economic policy. Is fiscal stimulus desirable, or even possible? Some say yes, some say no. In a recession, is it best to cut taxes or raise spending, or both, or neither? They disagree about that. How should governments mend their broken financial systems? They disagree about that too.

I had thought they would at least agree that raising trade barriers at a time like this must be a bad idea. Then I read Paul Krugman, Nobel laureate, Princeton professor, and New York Times columnist, explain that raising tariffs – though perhaps unwise for other reasons – “can make the world better off”. “There is a short-run case for protectionism,” he went on, “and that case will increase in force if we don’t have an effective economic recovery programme.” What are his readers to make of this? Are all the economists who say otherwise just wrong?

This impression of disarray – that economics has nothing clear to say on these questions – is not the fault of economics as such. It is a mostly false impression created by some of its leading public intellectuals, Mr Krugman among them.

Economics outside the academy has become the continuation of politics by other means. If you wish to know what Mr Krugman thinks on any policy question, do not read his scholarly writings; see which policies are advocated by the progressive wing of the Democratic party. Mr Krugman agrees with liberal Democrats about most things, and for the rest gives as much cover as the discipline of economics can provide – which, given its scientific limitations, is plenty. He does this even on matters where, if his scholarly work is any guide, the economics is firmly against his allies. Liberal Democrats are protectionists. Mr Krugman is not, but politics comes first.

The syndrome affects economists on the right as much as on the left. Just as there is a consensus among economists that protectionism should be opposed, most economists believe that a powerful fiscal stimulus is both possible and desirable in present circumstances, and that the best stimulus would include big increases in public spending. Yet recently, Robert Barro, a scholar with conservative sympathies, wrote in the Wall Street Journal that this view was an appeal to “magic”.

The problem is not that Mr Krugman questions the consensus on trade (if indeed he does), or that Mr Barro questions the consensus on fiscal policy (as he certainly does). It is that both set the consensus aside so carelessly. In doing so, these stars of the profession destroy the credibility of their own discipline. Mr Krugman gives liberals the economics they want. Mr Barro gives conservatives the same service. They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk.

Mr. Crook's article is misleading (as usual with the left-leaning FT) because it considers the merits of Krugman's and Barro's arguments to be equal. Barro's argument is simply that the "multiplier" for government spending is likely less than 1, based on our experience with the last few instances of massive government spending and, as some of the readers wrote in response, the "multiplier" is likely negative because the opportunity cost of the capital government spends is not figured in the calculation. Krugman qualifies his speculation that protectionism may be good now with: "Everything I've just said applies only when the world is stuck in a liquidity trap; that's where we are now, but it won't be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again." So, if we had a switch or rheostat so we could immediately adjust the degree of protectionism to coincide with GDP growth or unemployment rate, and we didn't have to worry about our trading partners losing trust and confidence in our desire for free trade, his ideas might work. Anyone who buys that argument must be smoking the same stuff Krugman smokes when he dreams this up and peddles it as useful commentary.

Posted by Donald L. Luskin at 9:13 AM | link