Behind the Scenes: Mordechai Kreinin Economist and Author
Mordechai Kreinin, 87, has taught at Michigan State University since 1956. An economist and author, he has served as a consultant for the U.S. State Department, the United Nations and the Brookings Institution.
You’ve spent more than 60 years on the Michigan State University faculty. It’s a very different institution than when you started here in the 1950s, isn’t it?
I would go away and come back because a lot of my experience was abroad. But today it’s a much bigger place, a much more research-oriented place. Students, they are more interested in grades than ever before. Everywhere I look there are new apartments; I don’t know where they come from.
Your career spans some very significant changes in the world economy. What’s happening now?
You have to remember, when I came here in the 1950s there was the Truman Doctrine and other economic recovery plans. As time went on, I got more interested in underdeveloped countries. I was thinking today, listening as the president talks, about protectionism. That it used to be in developed countries like India, that if you wanted to sell there you had to produce there. Now it’s become an American symbol, the position of the new president?
Where should it be heading?
This idea of going to company after company for criticism is good public relations, but it’s not economic policy. Policy needs to address a problem and in this case it’s the deficit in our balance of trade, which has existed since the war. You have got to start thinking about a solution to a problem. You have to remember that there is a reverse phenomenon. Japanese auto companies are producing here and the Germans are producing here. There has got to be a balance.
Is General Motors and the mix of parts from foreign suppliers that go into cars produced here in Lansing an example of this balance?
Exactly. There is a progression in producing the product. It doesn’t seem that anybody has brought that to the attention of the president. Milton Friedman, the head of the conservative economic movement, used to say that the advantage of trade is in imports, not in exports. You are buying your product from abroad at half the price it costs to produce it in the states. Exports are a penalty you use to pay for the product.
Obviously, there are job ramifications. And the way to deal with that is using fiscal and monetary policy. Trade policy can deal with jobs at the expense of productivity and efficiency. Deal with jobs with policies that were designed to deal with jobs. There are always going to be changes in comparative advantage and changes in technology. In the final analysis, you have to spend money and resources on training and retraining.
But doesn’t this conflict with the prevailing political thinking that cutting taxes is the answer to economic issues?
They are going to have to adjust. The consequence of protectionism is a trade war. It’s silly. We have dealt with the job situation. The economy is in good shape using fiscal and monetary policy.
You have to do something about those left behind. I think that the negative income tax is the best solution. In other words, people at the lower levels should get money from the IRS, instead of paying money to the IRS. Higher education may no longer be the ticket to the middle class, but it’s better than anything else. I believe in community colleges. There are jobs in auto mechanics, electricity, plumbing and carpentry. We need to train people for that, but they have to take the initiative.
What about the budget deficit?
The first thing to remember is, don’t talk about them in absolute terms only as a percentage of GDP. The second thing to remember is whether your debt is denominated in your own currency or in somebody else’s currency. Our debt is denominated in U.S. dollars and we are the country that issues the currency. Greek debt, by contrast, is denominated in Euros, which is not their currency of issue. For your own currency, you can potentially inflate yourself out of debt. I’m not saying you are going to do it, but you can.
It sounds like from a fiscal perspective there is good debt and bad debt…
Let’s talk about two periods. In 2008 to 2010, during the depths of the recession, you needed to spend the money no matter how big the deficits. We used fiscal and monetary policy; which is exactly what the European economies didn’t do and why their unemployment still makes up 11 percent of the labor force and ours is about 4.5 percent. We have to start worrying about the deficit. We are at full employment and the president wants tax cuts and increased spending on the military and infrastructure. Certainly we need more infrastructure in this country. We should have done it during the recession. Now if you do all of those things the result is inflation.
This isn’t a new problem, is it?
If you look back 50 years to the Kennedy administration, he took office when the economy was stagnant and then he passed a tax cut. It was the first time a Keynesian-type tax cut was used in the U.S. That drove the economy to full employment. In other words, that deficit was necessary and timely. By the time Johnson came around the economy was at full employment. He wanted to spend money on Vietnam but he did not want a tax increase because that would have made the war unpopular – so what you got was inflation. Nixon tried to deal with inflation; with direct price controls, which never work in the U.S.
The president wants to address what he considers unfair Chinese trade policies and practices. What are your thoughts on this?
China is a super-economy and you have to live with it. You have to avoid a trade war. My proposal, one that Keynes made a hundred years ago, is to make the surplus countries responsible for balancing trade. You take proposals to the International Monetary Fund and the World Trade Organization and pressure them to monitor trade surpluses. In turn, they observe the behavior of each country. If it has a surplus of one percent of GDP, it’s a warning signal. One-and-a-half or two percent surplus and you are deemed an offender by the committee. Being an offender allows the whole world to discriminate against you. There’s a penalty – tariffs.
A country like Germany, which is an export machine, would have to respond to that. To seek solutions in a global economy, some form of international cooperation is needed otherwise we will get into a trade war, which is the worst of all possible scenarios. It could lead to a real war. Crazy.
How serious is a balance of payments deficit for a country like the U.S.?
Remember, a country like China is exporting more than it’s importing by about three percent of GDP. What is it getting for this? Greenbacks. Useless stuff. Imagine if they could get real material for it and invest it.
Let’s talk about productivity and Trump’s promise to grow the economy by four percent annually. Is it realistic?
We used to have four percent, but not anymore. First of all, we have limits on labor and capital. We have full employment now. Where is the work going to come from? This whole idea that the president has about expanding the economy and expanding employment, I don’t know where he is going to find these workers. I go downtown, in East Lansing, and I find workers wanted signs in every other window.
This conversation with Mordechi Kreinin has been edited for space and clarity.