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New Trade Theory and Me

| Mon Oct. 13, 2008 7:01 PM EDT

NEW TRADE THEORY AND ME....I've never really paid attention to the breakthroughs in trade theory for which Paul Krugman is most famous as an economist, but Alex Tabarrok explains it this way:

Consider the simplest model [of New Trade Theory]....In this model there are two countries. In each country, consumers have a preference for variety but there is a tradeoff between variety and cost, consumers want variety but since there are economies of scale — a firm's unit costs fall as it produces more — more variety means higher prices. Preferences for variety push in the direction of more variety, economies of scale push in the direction of less. So suppose that without trade country 1 produces varieties A,B,C and country two produces varieties X,Y,Z. In every other respect the countries are identical so there are no traditional comparative advantage reasons for trade.

Nevertheless, if trade is possible it is welfare enhancing. With trade the scale of production can increase which reduces costs and prices. Notice, however, that something interesting happens. The number of world varieties will decrease even as the number of varieties available to each consumer increases. That is, with trade production will concentrate in say A,B,X,Y so each consumer has increased choice even as world variety declines.

Increasing variety for individuals even as world variety declines is a fundamental fact of globalization.

The reason this caught my eye is that it turns out I'm a disciple of New Trade Theory and I didn't even know it. Last year I wrote a piece for Mother Jones about media consolidation, and even though it made me feel like a bad liberal I said that I had never been much bothered by it. Why? Because even though the absolute number of news outlets might have declined thanks to globalization, I personally had access to many more news sources than I did 30 years ago. I called this a "paradox," but apparently it's actually now conventional trade theory. So, like Monsieur Jourdain, who had been speaking in prose for forty years without knowing it, it looks like I've been a Krugmanite for mumblety-mum years without realizing it. I guess I should get out more.

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McCain Campaign: We Meant We'd Unveil New Economic Plans Tuesday

| Mon Oct. 13, 2008 6:01 PM EDT

The McCain campaign is getting hammered all over the place for promising new economic plans over the weekend and then announcing they had nothing to announce today. The move sent a strong signal that McCain either didn't appreciate the difficulties facing everyday folks, or didn't have any solutions for them. It was doubly damaging because, as I note below, the Obama campaign let loose with a slew of economic proposals designed to help working Americans and small businesses.

Either the negative press surrounding this situation convinced the McCain campaign that it needed to do something, or it always intended to unroll a new economic platform Tuesday and did a terrible job of communicating it. Either way, they are now saying that McCain "never intended" to address the economy today, as previously understood, and will do so tomorrow.

I'm betting McCain's economic policy team is working overtime tonight. Get me a series of economic policies that strike a populist tone while staying true to my fiscally conservative record, combine to articulate a clear vision for the country, and will turn around my failing campaign! You have ten hours!

McCain Passes on Opportunity to Introduce New Solutions on Economy; Obama Makes Him Pay

| Mon Oct. 13, 2008 3:13 PM EDT

Today, another misstep for the McCain campaign. How much will it hurt the candidate?

Just about everyone is suggesting John McCain find a more effective way to address the American people's current economic insecurity. But instead of starting the week with a concerted effort on that front, the campaign decided over the weekend that it would decline to unveil any new ideas. Reached for comment, spokesman Tucker Bounds said, "We do not have any immediate plans to announce any policy proposals outside of the proposals that John McCain has announced." McCain's top policy man Douglas Holtz-Eakin could only add, "I have no comment on anything, to anybody."

The Obama campaign is determined to make them pay for their inaction. This morning, it unveiled a "rescue plan for the middle class" that is essentially a bailout for the rest of us. To create jobs, Obama proposes to (1) give companies a $3,000 refundable tax credit for every job they create in America; (2) eliminate the capital gains taxes for small businesses; and (3) finance public works projects that the campaign estimates will save or create one million jobs.

Wingnut Watch

| Mon Oct. 13, 2008 2:40 PM EDT

WINGNUT WATCH....John Cole revives the Golden Wingnut Award today with a worthy successor to the original winner. Unsurprisingly, however, the actual recipient remains the same.

Treason Watch

| Mon Oct. 13, 2008 2:36 PM EDT

TREASON WATCH....Did Barack Obama try to persuade Iraqi leaders to delay a security agreement with the United States? Even Republican witnesses say he did no such thing during a meeting in Baghad, but how about during a June phone call with Iraq's foreign minister? Apparently not then either:

The statement by Iraqi Foreign Minister Hoshyar Zebari refutes a recent published report and a statement by Republican vice presidential candidate Sarah Palin that Obama tried to influence Iraqi politicians negotiating with the United States to score political points.

Obama "never, ever discouraged us not to sign the agreement," Zebari said. "I think this was misrepresented, and I have clarified this case in a number of interviews back in the United States recently."

The ball's back in your court, wingnuts — though I guess you've already moved on to "Bill Ayers ghostwrote Obama's book" nutbaggery, haven't you? Must be hard typing while wearing a straitjacket, though.

Econ 101

| Mon Oct. 13, 2008 1:07 PM EDT

ECON 101....Commenting on Paul Krugman's Nobel Prize, Matt Yglesias complains about the parlous state of public knowledge of economics:

In the public debate, my sense is that "economics" tends to be understood as mostly comprising a series of very simple models indicating the desirability of laissez faire (make it more expensive to hire workers by raising the minimum wage and the level of employment will go down — supply and demand, economics 101, QED) that leave it somewhat puzzling as to how this is even a field in which people do PhD-level research.

Actually, I think Matt gives the peeps too much credit here. For vast swathes of the public, their knowledge opinions about economics are approximately limited to (a) low taxes are good for the economy, (b) foreigners are taking away our jobs, and (c) Social Security is doomed. Frankly, Econ 101 would be a big step forward.

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Freedom vs. Big Government: Palin Can't Do the Math

| Mon Oct. 13, 2008 12:53 PM EDT

The political news of the day is John McCain's new stump speech. But there was an interesting Sarah Palin moment, as well.

Introducing McCain at the Virginia Beach rally where he unveiled his I-will-fight-fight-fight-fight speech, Palin, playing to the GOP base, declared that she and McCain believe in the "advancement of freedom," not the "expansion of government."

This is conservative cant: big government threatens individual freedoms. Think black helicopters coming to take your guns away. But has Palin not been reading the news about her own campaign? Her ticket supports the $700 billion Wall Street bailout plan, which will give the Treasury secretary expanded power. And McCain has called on the federal government to buy up bad mortgages across the country, at a cost of $300 billion or so. The math is kind of simple here: that's about $1 trillion in government expansion.

The question for Governor Palin is, does that mean $1 trillion less in freedom?

McCain's John Lewis Flip-Flop

| Mon Oct. 13, 2008 12:42 PM EDT

Remember when John McCain said that one of the three "wisest people" he would "rely heavily on" in his administration was Democratic Congressman and civil rights legend John Lewis?

That seems unlikely nowadays, given that Lewis is accusing McCain of "sowing the seeds of hatred and division" a la George Wallace, and McCain is charging Lewis with "a brazen and baseless attack on my character." It's going to be awkward when they cross paths in the Capitol cafeteria...

* Headline changed for clarity.

Paulson's Record

| Mon Oct. 13, 2008 12:26 PM EDT

PAULSON'S RECORD....Ezra Klein has an eminently fair and nonshrill critique here of Henry Paulson's handling of the ongoing credit crisis. I'll just add one thing. Paulson's reluctance to push the trigger on capital infusions for banks is understandable, even if it was wrong, but his resistance to having even the power to recapitalize banks is genuinely weird. After all, before the latest phase of the crisis hit, Paulson and Bernanke had spent months urging banks to raise private capital to weather the storm. Both men knew perfectly well that bank capitalization was an issue. And before he introduced his version of the bailout bill, Paulson had twice previously bowed to reality on government takeovers and recapitalizations, first in the case of Fannie and Freddie, and second in the case of AIG.

Given all this, his continuing resistance to the idea is difficult to fathom. His caution can perhaps be written off to background and ideology, but not his flat rejection of even being given the authority. I'm not sure what the explanation is.

Is a McCain Comeback Even Possible? Let's Check the History Books

| Mon Oct. 13, 2008 12:01 PM EDT

A question I was mulling over the weekend while watching a sweet, sweet Patriots defeat: Has any candidate in recent times been able to come back from seven to 10 points down with three weeks left in a presidential election? John Harwood, writing in the New York Times, suggests the precedent doesn't look good McCain.

Since Gallup began presidential polling in 1936, only one candidate has overcome a deficit that large, and this late, to win the White House: Ronald Reagan, who trailed President Jimmy Carter 47 percent to 39 percent in a survey completed on Oct. 26, 1980.
Yet Mr. Carter, like Mr. McCain today, represented the party holding the White House in bad times. After Mr. Reagan successfully presented himself as an alternative to Mr. Carter in their lone debate, held on the late date of Oct. 28, he surged ahead...
In 1968, Vice President Hubert H. Humphrey all but erased a 12-point early-October deficit before losing narrowly to Richard M. Nixon. In 2000, Vice President Al Gore wiped out a seven-point deficit in the final 10 days of the election, winning the popular vote but losing the Electoral College to Mr. Bush.

Harwood cites a figure from Princeton political scientist Larry Bartels: since 1948, the candidate leading in October has won three-fourths of the time. Bartels puts Obama's chance of winning the popular vote at "a little over 90 percent."