Monday, November 16, 2009

Krugman: It is China's Fault

A friend of mine suggested calling this site, "Krugman in Wonderland," but my wife objects, so it is obvious I need to keep peace in the family. Nonetheless, I am grateful to Paul Krugman for providing so much material that helps keep me writing. Granted, this perch is not as lucrative as Krugman's New York Times location on the editorial page, but a person has to do what he can.

The latest outrage comes today in his column that blames China for much of the economic downturn. Granted, today's column is not as outrageous as his column last Friday in which he claims that the way to end unemployment in the United States is for Congress to write laws making it nearly impossible to fire workers. Yeah, they have tried that in Spain, which has had double-digit unemployment for years, as employees carry liabilities that make it a real danger for companies to employ anyone.

Without going into a lot of detail about how currencies work in relation to one another, Krugman attacks the Chinese government for following a policy to keep its currency, the yuan, low relative to the U.S. Dollar. China does this in order to make its goods attractive for export, as the government there is trying to emulate what Japan did in promoting its own export-first policy.

Because I am no fan of government fiat currencies, I am not going to approve of China's policies, which actually punish the Chinese workers who must pay much more for their goods than they would if the yuan could float in a free market. Nonetheless, Krugman contends that somehow China is making itself better off at the expense of everyone else. That simply is not true. He writes:

So picture this: month after month of headlines juxtaposing soaring U.S. trade deficits and Chinese trade surpluses with the suffering of unemployed American workers. If I were the Chinese government, I’d be really worried about that prospect.

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.

That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.

No, the Chinese are not playing a "dangerous" game; they are playing a stupid game, because they are not permitting themselves to enjoy the fruits of their very hard labor. At the same time, one must remember that the U.S. Government has played a very dishonest game with the Chinese.

Why do I say that? Well, because it is true. For the last decade, the U.S. Government has sold trillions of dollars of debt (which the Federal Reserve System is rapidly depreciating with inflation-ravaged dollars) to China, and in return, Americans get consumer goods. Now that the Chinese realize that they have been played for suckers, our "experts" now accuse them of starting the problem in the first place, as though it was the Chinese who created the housing bubble and run the Fed.

Granted, that kind of logic is hard for someone like Krugman to understand, as he believes an economy is nothing more than a "blob" into which we throw newly-printed money. Like Aaron, who told Moses that the Golden Calf simply appeared after he threw gold jewelry into a fire, Krugman believes that an economy magically appears simply when governments print money. Which story is less believable? I'll let readers decide.


RN said...

I saw the title of your post as listed at Clusterstock and was interested in a counter to Krugman's argument.

Instead I find just more ignorant pure anti-government Krugman bashing by someone whose knowledge of economics wouldn't even fill Krugman's little finger.

I am disappointed, not in you, for being an idiot. That's your right - all you anti-government types think that just cause you're loud you have a clue.

No, rather it just demeans my already very low esteem of Clusterstock and Blodget's enterprise, which I thought, once, had promise.

I'll now leave you to go back to being your ignorant, blowhard self.

I note you're a comment-moderating coward. I dare you to publish this comment. I'll bet $20 you don't have the guts.

William L. Anderson said...

You lose. Make the payment in cash.

As for being "ignorant of economics," I had no idea that you had read all of my syllabi and that you were an expert in economic knowledge. Your ad hominems surely must be grounded in expertise.

In his book The Return of Depression Economics, Krugman writes that almost any economic problem can be solved by, in his words, "printing money." If that is true, why are Zimbabwe and Argentina not pictures of economic success?

While this is a comment-moderating site, I have published your anonymous comment, but I will not publish a reply, so don't bother to post again.

Elroy said...

You said China keeps the Yuan artificially low to make its products cheaper for the US. Is there a point at which it would make more sense for them to allow their currency to float to encourage sales in their domestic market? Also, the amount of debt they are holding would seem to be a very big negotiating stick. Couldn't the Chinese just stop buying our debt if we don't go along with them or worse, start selling it themselves?

William L. Anderson said...

U.S. debt right now seems to be something like a lit stick of dynamite that someone is holding, but if it goes off, it takes a lot of people down with it. Certainly the U.S. Government has put itself in a corner by depending so heavily upon China's central bank to purchase mounds of U.S. securities, and the begging by Hillary Clinton and, more recently, President Obama, certainly highlights that problem.

China's government has been following a policy the old-timers once called Mercantilism. If one looks up the term, one finds pretty much that China is engaging in a policy (like Japan before it) that emphasizes exports, building up huge monetary reserves, and keeping prices artificially high at home.

Where I disagree with Krugman is in his view that this policy helps China and impoverishes the rest of the world. That is silly, of course. Right now, the government of China, through this policy, is failing to reward Chinese workers who are making these goods, but not put in a position to purchase them.

Likewise, Krugman fails to point out that the U.S. Government has been following a policy in which the dollar is inflated like mad, but everyone continues to accept the Greenback, anyway. Sooner or later, that option no longer will be available.