Pop Internationalism.

Those of us who live just downwind from massive industrial installations get a little suspicious when we read about "competitiveness." We've heard ad nauseam that the United States is losing ground in the "global economy"--that imports are pricing American goods out of the market and that American capital is fleeing to take advantage of Third World slave wages. But experience provides little support for this story: If all the factories have gone to Mexico, they've somehow left the plasticky of manufacturing behind.

Anyway, argues Paul Krugman in Pop Internationalism, academic economics contradicts the conventional wisdom on this subject entirely. Krugman identifies "pop internationalism" as a set of commonly held beliefs about the role of international trade in the future of the U.S. economy. Pop internationalism holds, for example, that countries face off, just as companies do, in a zero-sum struggle for dominance in the world marketplace, whereas most academics believe trade generally benefits all countries that engage in it. Academics want to increase domestic labor productivity, because improved productivity allows the same number of Americans to buy more of the things they want. But pop internationalists would improve it primarily because it helps the country "compete."

The 13 essays that constitute this book don't jell into a thorough, systematic dissection of pop internationalism, but the overall theme is clear. In truth, imports and exports--the only goods affected by international trade--make up only an eighth of American output; a full two thirds consists of nontradable goods and services. Consequently, Krugman argues, the handwringing over whether America will "beat" developing countries on the world market is mostly hype--and dangerous hype at that.

The pop internationalists drawing Krugman's ire are a distinguished lot, including MIT's Lester Thurow, Labor Secretary Robert Reich, and Undersecretary of Commerce Jeffrey Garten. Their book titles tend to sound like Tom Clancy novels (Head to Head: The Coming Battle Among America, Japan and Europe). Insofar as the pop internationalists have influence, Krugman declares, their beliefs lead to destructive policies that actually cripple productivity growth.

Consider the question of whether the United States should preserve trade barriers against low-wage countries. Labor leaders opposed to NAFTA and GATT predicted a flood of goods out of, and a massive shift of capital into, developing countries. Of course, union leaders are paid to raise such specters. But the same fears have arisen in circles considered more intellectually sophisticated. A publication called World Competitiveness Report, produced by the World Economic Forum, sketches as bleak a picture as any AFL-CIO lobbyist ever did. Suggesting that industrialized nations will no longer be able to create wealth, the report declares, "the raison d'etre of many countries is at stake."

But Krugman refutes the argument, and others like it, with an axiom of international trade: When a country has a trade deficit--when its imports exceed its exports--that also means that capital is coming into the country. Deficits and capital inflows, in other words, rise together. And countries with a trade surplus invest that surplus abroad.

The pop internationalist scenario requires the impossible: for a cheaplabor country to run a trade surplus but still attract foreign capital. It doesn't work like that. The fears of the labor unions and of the World Economic Forum are irrational. But these fears are easier for nearly everybody to comprehend than an economist's explanation of how American companies can stay in business even if their Third World competitors pay lower salaries. The economist's explanation, which centers around comparative advantages, is credible but complicated.

Krugman thinks he and other academic economists have been crowded out of the public policy debate by pop internationalists who emphasize the role of trade. Most pop internationalists do favor a reduction in trade barriers--sweetened, perhaps, with worker retraining or a mild industrial policy. But Krugman argues that they accept the premise that free trade will harm many Americans, and thus advance the cause of protectionism. An obsession with competitiveness is dangerous because it distracts us from the economy's real problems: a monstrous national debt and a piddly national savings rate. Krugman urges American policy intellectuals to zero in on these problems, which don't necessarily lend themselves to lofty speeches or sexy book titles.

In fact, Krugman thinks pop internationalists are unreliable sources of any economic advice whatsoever. "To make a harsh but not entirely unjustified analogy," Krugman sneers, "a government wedded to the ideology of competitiveness is as unlikely to make good economic policy as a government committed to creationism is to make good science policy."

This is indeed harsh. While Pop Internationalism boasts plenty of clever writing and hale argument, it is also a surprisingly caustic book. At some point, stridency of tone can become a substantive flaw, and Krugman nearly reaches that point. Certainly all the writers whom he criticizes subscribe to at least some of the views that he describes as pop internationalism. But Krugman gives short shrift to the differences among them--Reich, for example, is a supporter of free trade, whereas Clyde Prestowitz of the Economic Strategy Institute is a skeptic--lumping them all into a more or less monolithic group. And if their writings were as outrageous as Krugman says, he could easily hang them with their own quotes. Instead, he relies heavily on admittedly fabricated statements that, he says, represent the sort of thing pop internationalists would argue.

The strident tone also makes you question whether he's considered all of his opponents' arguments fairly. In one essay, taken from a 1995 issue of Foreign Affairs, Krugman declares that the rapid growth of East Asian economies is not a miracle, contrary to popular wisdom. Like the explosion of output in Soviet industry in the 1950s and 1960s, he argues, the Asian countries' economies have expanded almost entirely because of massive capital improvements, not because of increased worker productivity. A letter that was printed in the next issue of Foreign Affairs, but not included in this book, cited other studies that found significant productivity growth in East Asia, but these studies don't appear in Krugman's footnotes. Krugman's reply to the letter, also not included in this book, apologized for the essay's "deliberately provocative style" and acknowledged an intention "to shake up what I feared was becoming a closed circle of intellectual complacency." This is not the sort of behavior you expect from someone who belittles other writers' lack of rigor and assumes the role of defender of the faith.

Undoubtedly, Krugman has performed a valuable public service by questioning such banalities as "We have to compete in the global economy." And you have to admire the chutzpah of a vigilante economist who includes an unpublished essay with the explanation that it was "written in the false belief that the editor of The New York Review of Books had some respect for my intellectual tradition." But Pop Internationalism does leave a sour taste; perhaps economists should write with the cool, dry wit of John Maynard Keynes, rather than with the bitter ranting of Alanis Morissette.