Paul Krugman, Neocon?

Not exactly a blog headline I ever expected to see, from Daniel Drezner, "Paul Krugman, Neoconservative":

So I see Paul Krugman has thrown his lot in with the neoconservatives who disdain multilateral institutions and prefer bellicose unilateralism when they confront a frustrating international situation.

His op-ed today is about China's currency manipulation. ... again. After explaining that China has less leverage than is commonly understood on the foreign economic policy front (gee, where have I heard that before), he closes with the following:

In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.

Whoa there, big fella!! That's a nice but very selective reading of international economic history you have there.

It's certainly true that the dollar was overvalued back in 1971. What Krugman forgets to mention -- and see if this sounds familiar -- is that the Johnson and Nixon administrations contributed to this problem via a guns-and-butter fiscal policy. They pursued the Vietnam War, approved massive increases in social spending, and refused to raise taxes to pay for it. This macroeconomic policy created inflationary expectations and a "dollar glut." Foreign exchange markets to expect the dollar to depreciate over time. Other countries intervened to maintain the dollar's value -- not because they wanted to, but because they were complying with the Bretton Woods system of fixed exchange rates. Nixon only went off the dollar after the British Treasury came to the U.S. and wanted to convert all their dollar holdings into gold.

In other words, the United States was the rogue economic actor in 1971 -- not Japan or Germany.

So, how about acting multilaterally first before engaging in unilateral action that alienates America's friends and allies alike? ...

There's more ... a wonkish post, but interesting.

If you follow Drezne's links to Krugman's NYT essay, it turns out they both agree that it's China that has the most to lose in a currency war with the U.S. (Compare to Drezner's academic article, which I wrote about here when it was published, "Bad Debts: Assessing China’s Financial Infuence in Great Power Politics.") Other than that, actually, I'm more with Krugman on the unilateral/multilateral divide thing, but I doubt we have anything else in common, LOL!

That said, I wonder of my neocon protege GSGF will enter the fray?

And in related neocon news, see Robert Kaplan, "Allies Everywhere Feeling Snubbed by President Obama" (via Memeorandum).