Be careful of accounting identities
Yesterday Krugman had a post claiming that freer trade would not boost demand, and hence would not promote recovery from the current recession:
There are a lot of good things you can say about international trade. But it does not, repeat not, do anything to alleviate a shortage of overall demand. Yes, if you liberalize trade countries will export more. But they will also import more. If you’re worried about C+I+G+X-M, it’s a wash, because X and M rise equally.
Which makes this WaPo editorial on things Obama should be doing about jobs truly bizarre. Even if the proposed trade deals with Korea and Colombia were remotely big enough to bear mentioning in the context of the crisis “” which they aren’t “” they wouldn’t be job creation measures.
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