Serious critiques of one’s work can be thought-provoking, even when they mostly miss the point. So it is with this recent critique of my trade-and-jobs analysis by Tim Worstall. Worstall seems strangely unable to grasp that what EPI, Dean Baker, and yours truly are doing isn’t an analysis of the effects of trade deficits on overall employment, and even suggests that we are engaged in some kind of fallacy when asserting that trade deficits reduce manufacturing jobs. Hello — we’re talking about the sectoral mix of employment, about having fewer manufacturing and more service jobs.

Still, the critique inspired me to get a bit more formal about the analytics, and there is a small clarification I think I should make.

So here’s how I think about it (which is actually a fairly standard trade model approach): approximate the economy as consisting of two sectors, traded and nontraded, with traded goods being basically manufacturing. Assume full employment for the sake of argument; then production is always on the production possibility frontier, which is the downward-sloping line in the figure.

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With balanced trade, production = consumption (plus investment, but lump them together); that’s point A. When the economy runs a trade deficit, however financed, consumption lies outside the PPF, at a point like B; this point normally involves moving out an expansion path along which consumption of both nontraded and traded goods rises. However, the increase in nontraded consumption must be met out of domestic production, which means that traded production falls.

So a trade deficit in manufacturing does correspond to a fall in manufacturing production.

Now, one slight twist is that because a trade deficit also corresponds to a rise in overall spending, part of that trade deficit reflects increased consumption of manufactures rather than reduced production; you can see this in the figure, where the fall in traded production is smaller than the deficit. Quantitatively, however, this effect should be fairly small, since value-added in manufacturing is less than 12 percent of GDP.

Bottom line: yes, trade deficits reduce manufacturing production and jobs. They played a significant although far from dominant role in manufacturing job losses after 2000.

Yes, it’s Christmas Day. Bah Humbug. Also, the family won’t get here for a few hours, and I wanted to put something out as background for tomorrow’s column.

So, I’m thinking about the Trump trade war, which is looking increasingly likely — especially because U.S. trade law gives the White House remarkable leeway to go protectionist without legislative action. That wasn’t the law’s intent; but do you think this guy will care?

What happens if the protectionist-in-chief goes ahead and does it, as I suspect he will?

Claims that there would be huge net job losses are extremely dubious. But what would happen would be a global trade war, which would disrupt the existing economic structure, which is built on elaborate international supply chains.

In the long run, a new structure with shorter chains would be built. But in the meantime, some industries, some factories, would end up becoming sudden losers — in the US as well as in developing countries.

The lesson I took from the widely cited Autor, Dorn, and Hanson paper on the China shock was that Ricardo and Heckscher-Ohlin were less relevant to the political economy of trade than the sheer pace of change, which disrupted local manufacturing concentrations and the communities they supported. The point is that a protectionist turn, reversing the trade growth that has already happened, would be the same kind of shock given where we are now. It’s like the old joke about the motorist who runs over a pedestrian, then tries to undo the damage by backing up — and runs over the victim a second time.

That is, I’d argue, the way to think about the coming Trump shock. You can’t really turn the clock back a quarter-century; but even trying can produce exactly the kind of rapid, disruptive shifts in production that fed blue-collar anger going into this election.

Arguing about the state of economics seems like a distinctly secondary concern right now, especially arguing with people I agree with on most things. But Robert Skidelsky’s latest gets one big thing very wrong, and I think it matters for how we approach the general mess we’re in.

Skidelsky argues, quite correctly in my view, that economists have become far too inward-looking; they study models, and forget (or never knew) that these are only sketch maps of the territory, and that you always have to consider the possibility that the map is all wrong — which means that you need to supplement technical training with history, psychology, and just plain looking out there at the real world.

But his prime examples of economics malfeasance are, well, terrible:

Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t.

“Supposed to” according to whom? Not basic macroeconomics!

Look, we had a more or less standard model of macroeconomics when interest rates are near zero — IS-LM in some form. This model said and says that (a) monetary policy is ineffective under these conditions (b) fiscal multipliers are positive and large — in particular, fiscal contraction is strongly contractionary. And these predictions have been borne out! Huge monetary expansion didn’t raise inflation; extreme austerity was strongly correlated with severe economic downturns.

In other words, policy had exactly the effects it was “supposed to.”

Now, policymakers chose not to believe this. They chose to believe that monetary policy could do the job absent fiscal support, because for several reasons they refused to use fiscal policy to promote jobs; they chose to believe in the confidence fairy to justify attacks on the welfare state, because that’s what they wanted to do. And yes, some economists gave them cover.

But that’s a very different story from the claim that economics failed to offer useful guidance. On the contrary, it offered extremely useful guidance, which policymakers, for political reasons, chose to ignore.

I guess I’m supposed to do something Christmasy, but for obvious reasons I’m even more bah humbuggy than usual. Meanwhile, still being surprised at the range of stuff I find myself enjoying at my age. (Young relative: “You like Warpaint?!?!”) There’s a deep coolness to this performance …

This Washington Post article on Poland — where a right-wing, anti-intellectual, nativist party now rules, and has garnered a lot of public support — is chilling for those of us who worry that Trumpism may really be the end of the road for US democracy. The supporters of Law and Justice clearly looked a lot like Trump’s white working class enthusiasts; so are we headed down the same path?

Well, there’s an important difference — a bit of American exceptionalism, if you like. Europe’s populist parties are actually populist; they pursue policies that really do help workers, as long as those workers are the right color and ethnicity. As someone put it, they’re selling a herrenvolk welfare state. Law and Justice has raised minimum wages and reduced the retirement age; France’s National Front advocates the same things.

Trump, however, is different. He said lots of things on the campaign trail, but his personnel choices indicate that in practice he’s going to be a standard hard-line economic-right Republican. His Congressional allies are revving up to dismantle Obamacare, privatize Medicare, and raise the retirement age. His pick for Labor Secretary is a fast-food tycoon who loathes minimum wage hikes. And his pick for top economic advisor is the king of trickle-down.

So in what sense is Trump a populist? Basically, he plays one on TV — he claims to stand for the common man, disparages elites, trashes political correctness; but it’s all for show. When it comes to substance, he’s pro-elite all the way.

It’s infuriating and dismaying that he managed to get away with this in the election. But that was all big talk. What happens when reality begins to hit? Repealing Obamacare will inflict huge harm on precisely the people who were most enthusiastic Trump supporters — people who somehow believed that their benefits would be left intact. What happens when they realize their mistake?

I wish I were confident in a coming moment of truth. I’m not. Given history, what we can count on is a massive effort to spin the coming working-class devastation as somehow being the fault of liberals, and for all I know it might work. (Think of how Britain’s Tories managed to shift blame for austerity onto Labour’s mythical fiscal irresponsibility.) But there is certainly an opportunity for Democrats coming.

And the indicated political strategy is clear: make Trump and company own all the hardship they’re about to inflict. No cooperation in devising an Obamacare replacement; no votes for Medicare privatization and increasing the retirement age. No bipartisan cover for the end of the TV illusion and the coming of plain old, ugly reality.

It’s now generally accepted that Trumpism will finally involve the kind of fiscal stimulus progressive economists have been pleading for ever since the financial crisis. After all, Republicans are deeply worried about budget deficits when a Democrat is in the White House, but suddenly become fiscal doves when in control. And there really is no question that the deficit will go up.

But will this actually amount to fiscal stimulus? Right now it looks as if Republicans are going to ram through their whole agenda, including an end to Obamacare, privatizing Medicare and block-granting Medicaid, sharp cuts to food stamps, and so on. These are spending cuts, which will reduce the disposable income of lower- and middle-class Americans even as tax cuts raise the income of the wealthy. Given the sharp distributional changes, looking just at the budget deficit may be a poor guide to the macroeconomic impact.

Given the extent to which things are in flux, I can’t put numbers on what’s likely to happen. But I was able to find matching analyses by the good folks at CBPP of tax and spending cuts in Paul Ryan’s 2014 budget, which may be a useful model of things to come.

If you leave out the magic asterisks — closing of unspecified tax loopholes — that budget was a deficit-hiker: $5.7 trillion in tax cuts over 10 years, versus $5 trillion in spending cuts. The spending cuts involved cuts in discretionary spending plus huge cuts in programs that serve the poor and middle class; the tax cuts were, of course, very targeted on high incomes.

The pluses and minuses here would have quite different effects on demand. Cutting taxes on high incomes probably has a low multiplier: the wealthy are unlikely to be cash-constrained, and will save a large part of their windfall. Cutting discretionary spending has a large multiplier, because it directly cuts government purchases of goods and services; cutting programs for the poor probably has a pretty high multiplier too, because it reduces the income of many people who are living more or less hand to mouth.

Taking all this into account, that old Ryan plan would almost surely have been contractionary, not expansionary.

Will Trumponomics be any different? It would matter if there really were a large infrastructure push, but that’s becoming ever less plausible. There will be big tax cuts at the top, but as I said, the push to dismantle the safety net definitely seems to be on. Put it all together, and it’s extremely doubtful whether we’re talking about net fiscal stimulus.

Now, you might think that someone will explain this to Trump, and that he’ll demand a more Keynesian plan. But I have two words for you: Larry Kudlow.

Brad DeLong has an interesting meditation on markets and political demands — inspired by a note from Noah Smith — that offers food for thought. I wonder, however, if Brad’s discussion is too abstract; and I also wonder whether it fully recognizes the disconnect between what Trump voters think they want and reality. So, an entry of my own.

What Brad is getting at is the widespread belief by, well, almost everyone that they are entitled to — have earned — whatever good hand they have been dealt by the market economy. This is reflected in the more or less universal belief of the affluent that they deserve what they have; you could see this in the rage of rentiers at low interest rates, because it’s the Fed’s job to reward savers, right? In this terrible political year, the story was in part one of people in Appalachia angrily demanding a return of the good jobs they used to have mining coal — even though the world doesn’t want more coal given fracking, and it can get the coal it still wants from strip mines and mountaintop removal, which don’t employ many people.

And what Brad is saying, I think, is that what those longing for the return to coal want is those jobs they deserve, where they earn their money — not government handouts, no sir.

A fact-constrained candidate wouldn’t have been able to promise such people what they want; Trump, of course, had no problem.

But is that really all there is? Working-class Trump voters do, in fact, receive a lot of government handouts — they’re almost totally dependent on Social Security for retirement, Medicare for health care when old, are quite dependent on food stamps, and many have recently received coverage from Obamacare. Quite a few receive disability payments too. They don’t want those benefits to go away. But they managed to convince themselves (with a lot of help from Fox News etc) that they aren’t really beneficiaries of government programs, or that they’re not getting the “good welfare”, which only goes to Those People.

And you can really see this in the regional patterns. California is an affluent state, a heavy net contributor to the federal budget; it went 2-1 Clinton. West Virginia is poor and a huge net recipient of federal aid; it went 2 1/2-1 Trump.

I don’t think any kind of economic analysis can explain this. It has to be about culture and, as always, race.

So the Fed has raised rates. It was, I’d argue, a mistake, although not as severe a mistake as it would have been a year ago. Anyway, it seems like a good time to review where I think the economy stands, and what it means for monetary and fiscal policy.

At this point, the evidence does suggest that we’re close to full employment. It’s not so much the headline unemployment rate, which is questionable given low labor force participation. But wage growth has accelerated, and the quit rate is back more or less to pre-crisis levels, suggesting that workers feel pretty good about job prospects.

Does this mean that the case for easy monetary and fiscal policies is over? No, but it’s subtler now: it hinges mainly on the precautionary motive. Right now the economy looks OK, but things may change. Of course they could get better, but they could also get worse — and the costs of weakness are much greater than those of unexpected strength, because we won’t have a good policy response if it happens.

What I mean is that because interest rates are still near zero, a bout of economic weakness can’t be met with strong monetary expansion; and discretionary fiscal stimulus is politically hard, especially given who’ll be running things. This strongly suggests that you want to build up some momentum, get further away from a lee shore, pick your metaphor; that means letting the economy build strength, inflation rise modestly. So as I said, I believe the Fed made a mistake, and would welcome a modest (1 or 2 point? maybe more?) rise in budget deficits, especially if it involved infrastructure spending.

But what if we are about to get significant fiscal stimulus from Trump? Well, it won’t be well-targeted, in terms of either demand or supply; that infrastructure build looks ever less likely, so we’re talking high-end tax cuts with low multipliers and little supply-side payoff. Such a policy might vindicate the Fed’s rate hike, but it should still wait and see.

Meanwhile, Trump deficits won’t actually do much to boost growth, because rates will rise and there will be lots of crowding out. Also a strong dollar and bigger trade deficit, like Reagan’s morning after Morning in America.

So, the probable outlook is for not too great growth and deindustrialization. Not quite what people expect.

Matthew Yglesias has an interesting post about the fast-food tycoon who has been nominated as Labor Secretary. Even aside from the fact that “when did you stop beating your wife?” would, in fact, be a valid question in this guy’s confirmation hearings, you might think that this nomination would be seen as a total betrayal of the working-class voters who went overwhelmingly Trump a month ago. He’s anti-worker, anti-higher wages, pro-immigration. Won’t there be a huge backlash?

What Yglesias suggests, however, is that his connection with fast food is itself a protection — because the white working class likes fast food, liberals don’t, and the former feels that this shows the latter’s contempt for regular people.

I suspect that there’s something to this, and that it’s part of a broader story. And I don’t know what to do with it.

What I see a lot, both in general political discourse and in my own inbox, is a tremendous sense of resentment against people like Hillary Clinton or, well, me, that isn’t about policy. It boils down, instead, to something along the lines of “You people think you’re better than us.” And it has a lot to do with the way people live.

If populism were simply about income inequality, someone like Trump should be deeply resented by the working class. He has gold toilets! But he gets a pass, partly — I think — because his tastes seem in line with those of non-college-educated whites. That is, he lives the way they imagine they would if they had a lot of money.

Compare that with affluent liberals — say, my neighbors on the Upper West Side. They aren’t nearly as rich as the plutocrats that will stuff the Trump cabinet. What’s more, they vote for things that will raise their taxes and cost of living, while improving the lives of the very people who disdain them. Objectively, they’re on white workers’ side.

But they don’t eat much fast food, because they believe it’s unhealthy and they’re watching their weight. They don’t watch much reality TV, and do listen to a lot of books on tape — or even read books the old-fashioned way. if they’re rich enough to have a second home, it’s a shabby-chic country place, not Mar-a-Lago.

So there is a sense in which there’s a bigger cultural gulf between affluent liberals and the white working class than there is between Trumpkins and the WWC. Do the liberals sneer at the Joe Sixpacks? Actually, I’ve never heard it — the people I hang out with do understand that living the way they do takes a lot more money and time than hard-pressed Americans have, and aren’t especially judgmental about lifestyles. But it’s easy to see how the sense that liberals look down on regular folks might arise, and be fanned by right-wing media.

The question is, what do you do? Again, objectively those liberals are very much on workers’ side, while the characters who play on this perceived disdain are set to betray the white working class on a massive scale. Is there no way to get this across other than eating lots of burgers with fries?

Donald Trump won the electoral college at least in part by promising to bring coal jobs back to Appalachia and manufacturing jobs back to the Rust Belt. Neither promise can be honored – for the most part we’re talking about jobs lost, not to unfair foreign competition, but to technological change. But a funny thing happens when people like me try to point that out: we get enraged responses from economists who feel an affinity for the working people of the afflicted regions – responses that assume that trying to do the numbers must reflect contempt for regional cultures, or something.

So the other day I mused about the dilemmas of dealing with regional backlash, and noted that even lavishly funded attempts to shore up declining regions don’t seem to work very well. Here’s what I said:

[T]he track record of regional support policies in other countries, which spend far more on such things than we are likely to, is pretty poor. For example, massive aid to the former East Germany hasn’t prevented a large decline in population, much bigger than the population decline in Appalachia over the same period.

In response, I get a long, furious piece from Lyman Stone denouncing me:

Krugman and those who believe him want to believe that the fears of Appalachians (or Rust Belters, or what have you) are overblown, that life has not been so bad for them as it seems.

Wait; did I say that? I don’t think so. In fact, if I thought everything was OK in Appalachia, I wouldn’t have used it as a comparator for Eastern Germany. The point was precisely that Appalachia is a byword for regional decline, which makes it striking that East Germany, which has received the kind of aid Appalachia can only dream of, is suffering an even faster demographic decline.

And for what it’s worth, I’ve spent decades writing and talking about the problems of rising inequality and stagnant wages, so characterizing me as someone telling workers that their problems exist only in their heads is pretty strange.

Now, if we want to have a discussion of regional policies – an argument to the effect that my pessimism is unwarranted – fine. As someone who is generally a supporter of government activism, I’d actually like to be convinced that a judicious program of subsidies, relocating government departments, whatever, really can sustain communities whose traditional industry has eroded.

But what we get instead is an immediate attack on motives. Apparently even suggesting that the decline in some kinds of traditional employment can’t be reversed, and that sustaining regional economies can be hard, is a demonstration of elitist contempt for regular people. You might think that people like me are potential allies for those who want to help working families, wherever they are. But if we can’t say anything without facing the hair-trigger tempers of regional advocates, without being accused of insulting their culture, that pretty much forecloses useful discussion.

I see that Tim Duy is angry at me again. The occasion is rather odd: I produced a little paper on trade and jobs, which I explicitly labeled “wonkish”; the point of the paper was, as I said, to reconcile what seemed to be conflicting assessments of the impacts of trade on overall manufacturing employment.

But Duy is mad, because “dry statistics on trade aren’t working to counter Trump.” Um, that wasn’t the point of the exercise. This wasn’t a political manifesto, and never claimed to be. Nor was it a defense of conventional views on trade. It was about what the data say about a particular question. Are we not allowed to do such things in the age of Trump?

Actually, maybe not. Part of the whole Trump phenomenon involves white working class voters rallying around a candidate who promised to bring back the coal and industrial jobs of the past, and lashing out at anyone who refuses to make similar promises. Yet the promise was and is fraudulent. If trying to get the analysis right is elitist, we’re in very big trouble — and perhaps we are.

So what would a political manifesto aimed at winning over these voters look like? You could promise to make their lives better in ways that don’t involve bringing back the old plants and mines — which, you know, Obama did with health reform and Hillary would have done with family policies and more. But that apparently isn’t an acceptable answer.

Can we promise new, different jobs? Job creation under Obama has been pretty good, but it hasn’t offered blue-collar jobs in the same places where the old industrial jobs have eroded.

So maybe the answer is regional policies, to promote employment in declining regions? There is certainly a case in principle for doing this, since the costs of uprooting workers and families are larger than economists like to imagine. I would say, however, that the track record of regional support policies in other countries, which spend far more on such things than we are likely to, is pretty poor. For example, massive aid to the former East Germany hasn’t prevented a large decline in population, much bigger than the population decline in Appalachia over the same period.

And I have to admit to a strong suspicion that proposals for regional policies that aim to induce service industries to relocate to the Rust Belt would not be well received, would in fact be attacked as elitist. People want those manufacturing jobs back, not something different. And it’s snooty and disrespectful to say that this can’t be done, even though it’s the truth.

So I really don’t know the answer. But back to the starting point: when I analyze the effects of trade on manufacturing employment, the goal is to understand the effects of trade on manufacturing employment — not to win over voters. No, dry statistics aren’t good for political campaigns; but that’s no reason to ban statistics.

Recent conversations indicate some confusion about what the economic analysis of trade and jobs actually says, with an impression of big disagreements when what is really happening is that different papers ask different questions. So I attempt a wonkish clarification.

I’m still mulling over the Carrier deal, which I suspect will be a template for the Trump years in general — again and again, we’ll see actions that are ridiculous in themselves, but add up to a very scary picture.

Start with the ridiculous nature of the whole thing: we’re talking, it now turns out, about 800 jobs in a nation with 145 million workers. Around 75,000 workers lose their jobs every working day. How does something that isn’t even rounding error in the overall jobs picture come to dominate a couple of news cycles?

Yet it did — with overwhelmingly positive coverage, at least on TV news. And that’s ominous in itself. It says that large parts of the news media, whose credulous Trump coverage and sniping at HRC helped bring us to where we are, will be even worse, even more poodle-like, now that this guy is in office.

Meanwhile, as Larry Summers says, the precedent — although tiny — is not good: it’s not just crony capitalism, it’s government as protection racket, where companies shape their strategies to appease politicians who will reward or punish based on how it affects their PR efforts and/or personal fortunes. That is, we’re looking at what may well be the beginning of a descent into banana republic governance.

This is, as Larry says, bad both for the economic and for freedom. And there’s every reason to expect many stories like this in the days ahead.

My original update was right! Screwed up dates. So it’s back to around 5 1/2 million Trump chumps.

Gah: technical issues involving changes in survey. I now have white-alone, no bachelors declining from 27 million in 2013 to 21.5 million in 2015. So we’re back to a number like 3.5 million.

Update: It turns out that I can do a lot better than this, using the Census CPS table creator. Here’s what I have now: in 2013, 27 million whites without a bachelor’s degree were uninsured. By 2015, that was down to 18.5 million. So we’re talking about 8.5 million working-class whites who stand to lose health insurance under Trump. If two-thirds of those losers-to-be voted Trump, we’re looking at 5.6 million people who basically destroyed their own lives.

As Greg Sargent points out, the choice of Tom Price for HHS probably means the death of Obamacare. Never mind the supposed replacement; it will be a bust. So here’s the question: how many people just shot themselves in the face?

My first pass answer is, between 3.5 and 4 million. But someone who’s better at trawling through Census data can no doubt do better.

Here’s my calculation: we start with the Census-measured decline in uninsurance among non-Hispanic whites, which was 6 million between 2013 and 2015. Essentially all of those gains will be lost if Price gets his way.

How many of those white insurance-losers voted for Trump? Whites in general gave him 57 percent of their votes. Whites without a college degree — much more likely to have been uninsured pre-Obama — gave him 66 percent. Apportioning the insurance-losers using these numbers gives us 3.42 million if we use the overall vote share, or 3.96 million if we use the non-college vote share.

There are various ways this calculation could be off, in either direction. Also, maybe we should add a million Latinos who, if we believe the exit polls, also voted to lose coverage. But it’s likely to be in the ballpark. And it’s pretty awesome.