* Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace By Matthew C. Klein and Michael Pettis New Haven, Conn.: Yale University Press, 2020. Pp. xi, 269. $28 hardcover.
A confession: When authors preface their book by favorably quoting the proto-Keynesian underconsumptionist John Hobson, I become immediately biased against the contents of the pages that follow. But accepting the assignment to review the book imposes on me a special obligation to cast such a bias aside. I did so. I really did. But in the end the bias would have proven justified.
Trade Wars Are Class Wars has a few good moments, as when the authors expose the errors that underlie Peter Navarro's fear of the U.S. trade deficit with China. But what readers get mostly is a hash of old-fashioned Keynesianism and mercantilism, flavored with milk from some modern sacred cows.
The theme is easily summarized. Rising inequality means that an ever-larger portion of income goes to the rich. Because the rich have a higher propensity to save than the nonrich, savings grow excessively as consumer spending shrinks dangerously. The resulting excess of global savings is driven chiefly by countries that run trade surpluses, such as China. Reduced consumption as a result of inequality is exacerbated by government policies--again, such as those in China--directly intended to enrich elites by taking purchasing power away from ordinary people. As a consequence, today's global economy is glutted with production capacity that churns out excess quantities of goods year after year. The authors describe the result in words that cannot help but make any economically literate person wince: "Over the past several decades, demand for goods and services has therefore become the world's scarcest and most valuable resource" (p. 225).
"Surplus" economies such as Germany and China force their excess savings and production on "deficit" economies, especially the United States. The consequence of this "imbalance" is economic hardship for all but the elites both in surplus countries and in deficit countries. Increasing distress of the impoverished masses in surplus countries and rising anxieties of the indebted and unemployed masses in deficit countries fuel hostility to globalization. Thus are sparked destructive trade wars.
So goes the thesis. But is it sound?
It's clear why living standards are kept artificially low in surplus countries, whose governments obstruct their citizens' access to consumer markets and force these citizens to subsidize exports. Having to pay more for food, furniture, and fun and having to fork over more to fund favored exporters who ship subsidized wares abroad necessarily leave ordinary citizens with fewer resources for their own enjoyment. Pity these people, truly.
It's unclear, however, why the result is also lower living standards for ordinary people in countries that receive these bounties from abroad. Excess production, after all, implies that...