Clinton, Krugman, Rust Belt, Brexit

Here is an interesting piece in Slate on the Clinton loss (not the Trump victory) in ‘Rust Belt’ states. The upshot:

the story of a white working-class revolt in the Rust Belt just doesn’t hold up, according to the numbers. In the Rust Belt, Democrats lost 1.35 million voters. Trump picked up less than half, at 590,000. The rest stayed home or voted for someone other than the major party candidates.

We don’t know why Clinton lost so many of the Rust Belt votes Obama had won. But, anecdotally, I’ve heard a lot of complaining about how establishment and elite Clinton was. Can we clothe those abstractions in anything more concrete? I think so.

Nobody has supported Clinton more loyally than Paul Krugman. A leading economics professor with a formidable CV and his own New York Times column, nobody better symbolises the elite establishment machine behind Clinton. And if I were a Rust Belt voter, the views and the attitude expressed by Paul Krugman would really piss me off.

Back in 1997, when he was a professor at MIT, he wrote the following:

To me, at least, the idea that changes in demand will normally be offset by Fed policy — so that they will, on average, have no effect on employment — seems both simple and entirely reasonable. Yet it is clear that very few people outside the world of academic economics think about things that way. For example, the debate over the North American Free Trade Agreement was conducted almost entirely in terms of supposed job creation or destruction. The obvious (to me) point that the average unemployment rate over the next 10 years will be what the Fed wants it to be, regardless of the U.S.-Mexico trade balance, never made it into the public consciousness.

Krugman seems to be criticising the government for worrying about “supposed job creation or destruction” in deciding on trade policy, since the central bank takes care of employment in any case.

Imagine you’re somebody whose entire community has fallen apart because the factory that was the sole purpose for which your town was built was closed down and the jobs were moved overseas. Here is a leading economist, the sort of person who routinely advises the government, unambiguously stating that your suffering should not be a consideration. As long as the Fed does its job the 10,000 jobs lost in your town will be offset by 10,000 jobs created elsewhere, probably far away, probably in a big city, probably in the sort of place the leading economist himself lives. All the government needs to care about is the Big Picture — the aggregate rate of unemployment, which the Fed can control. You and your family just aren’t in that Big Picture.

I’m not suggesting that many Rust Belt voters read Paul Krugman’s columns. But I don’t doubt that they could sense that this was the sort of attitude the leading economic experts supporting and advising Clinton held towards them.

Let me be clear. I’m not saying that Paul Krugman personally harbours contempt towards small-town, heavy-industry communities. Such an attitude seems, however, to be built into orthodox macroeconomic theory itself, which just about legislates that local effects on employment shouldn’t be taken into consideration in deciding fiscal and trade policy. Employment is the central bank’s mandate. And since the central bank can only target aggregate levels of employment — since it has no say over where jobs are created and where they are lost — the upshot is that it is against the rules of orthodox economics for a national government to take into consideration the plight of regions like the Rust Belt.

Obama never had the full force of economic orthodoxy behind him. Krugman attacked him during the 2007 campaign and never expressed the support for his policy platform that he expressed for Clinton’s.

Clinton always has had the full force of economic orthodoxy behind her — not just Krugman but the “Big Four”, who attacked Gerald Friedman when he attempted to show the viability of Bernie Sanders’ alternatives to Clinton’s economic proposals.

If I were in one of the wrecked ex-industrial towns of the Rust Belt, I’d have a pretty hard time voting for a candidate who had the full force of economic orthodoxy behind her. For those towns, economic orthodoxy killed their future. It might be that capitalism works by creative destruction, and that the gains in the aggregate always outweigh the benefits. But it’s a bit rich to expect those creatively destroyed to vote for you.

This is only a hypothesis; as the Slate article says, somebody should ask the voters who stayed home why they did so. But if there’s anything to my story, I think it can help explain the Brexit vote in the UK as well.