The Fed, tariffs and Trump, oh my

Krugman talks trouble of a politicized economy

COMMENTARY

The venue was perfect and so perfectly Berkshire: a meeting house in the New England countryside. The weather was fine. It was a great day to drive to New Marlborough and listen to a Nobel Prize-winner and one of the great thinkers of our time: Paul Krugman. Ellen Pollock, business editor for The New York Times, selected three areas on which Krugman could focus: the Federal Reserve, tariffs and manufacturing.

THE FEDERAL RESERVE

Perhaps the last thing expected from a lecturer on economics is a Holly-wood style plot and suspense as the plot thickens. Krugman managed it. The title of the cliff-hanger was "31½ Hours." What was at stake was nothing less than the downfall of democracy.

Act One: The president fires one of the Fed's governors, Lisa Cook. A legal battle ensues to determine if the president had the legal right to fire anyone on the Board of Governors of the Federal Reserve.

Act Two: As the case plays out in the courts, Trump nominates a replacement before a ruling is made. Stephen Miran is a loyalist who promises to keep the White House in the loop.

Act Three: According to Krugman, it took just 31½ hours for an autocrat to start exerting control over the Fed. More-over, it would be control wrested illegally. A president with control over the Fed would control interest rates and overall monetary policy, an to make decisions that benefited him and his cronies rather that the country.

According to Krugman, the Fed's effectiveness rests on its independence. Its autonomy and freedom from political influence is central to avoiding recklessness and maintaining sound policy and American democracy. Krugman felt we could be witnessing its fall.

TARIFFS

The first consideration for Krugman is that most of the Trump tariffs are illegal. If the Supreme Court agreed with a federal appellate court ruling to that effect, Krugman asked, what then? Would the United States have to "pay back" other countries? Krugman concluded that would be embarrassing.

Tariffs, Krugman argued, are essentially taxes on imports. The positive impact on various segments of our economy, like manufacturing, are mostly cosmetic. The positives are outweighed by the negatives.

While making the point that the policy was a poor one, he seemed to be, if not sanguine, then certainly less hysterical than some commentators about the possible negative effects of tariffs. His conclusion sounded like this: Trump's tariff policy is dumb and unnecessary but survivable.

At the same time, he made the point that, tragically, the brunt will be felt by and most detrimental to the poor here at home and the poorer countries abroad.

MANUFACTURING

Apparently, Trump strongly connects his tariff policy to manufacturing, claiming the first will support the growth of the second.

Krugman doesn't think so. Consider a transistor: It is manufactured in Taiwan, China, Singapore, India, parts of Europe and, oh yes, the United States. Transistors are manufactured all over the world.

Where is a car manufactured? Same answer. Part by part, the car is manufactured all over the world and pieced together. A global supply chain is necessary to create the final product.

Krugman doubts American manufacturing will ever again reach 20th-century levels. He also warns against fetishizing manufacturing. He stressed this country has moved on and is now more a service economy in the 21st century.

Krugman appeared pleasant and kindly. He was a clear, effective communicator - neither too simplistic nor too much the academician. It was, like the weather and the setting and the seat among good neighbors, very enjoyable.

The New Marlborough Meeting House board of directors does an excellent job providing topflight programming. Interesting that locally they have such a wide variety of talent from which to choose. For example, Krugman has a home in Monterey. For three centuries, Berkshire County has attracted the best and the brightest. Driving home, looking out the window, the reason was easy to determine. It was a beautiful, pristine rural scene.

The Berkshires is a treasure, and like democracy itself, it is ours if we can keep it.

Carole Owens is a regular Eagle contributor, author and historian.