Thursday, July 15, 2010

Jobs, Reserves, Exchange Rates, & Trade

There is a big interwebs kerfuffle brewing on manufacturing jobs, currency and financial account manipulation and free trade. Economist's View has a post with links and some analysis that is well worth reading.

Here are some points to consider:

1. The current global trading system is very very far away from free. To criticize any current outcome and blame it on free trade is simply incorrect (If you don't believe me, take a look at "Travels of a T-shirt" or "Misadventures of the Most Favored Nations").

2. The dollar doesn't have to adjust for relative prices to adjust. The relevant relative price is the real exchange rate. US exports can become more competitive with a fixed nominal exchange rate simply by US prices rising more slowly than those of their trading partners. Higher productivity growth in the US would produce this effect.

3. Everybody has a comparative advantage. Statements like "America apparently has little left in the comparative advantage department" are non sequiturs.

4. I do agree that financial account manipulation should be discouraged, but it is way too simplistic to say it's good for China and bad for the US. It's good for US consumers, especially low income consumers and it's bad for Chinese consumers, especially higher income consumers.


Anonymous said...

Despite the reduction in US manufacturing jobs, US manufacturing $ have been increasing consistently since the 50s.

I'm just glad the power mongers haven't found a way [that I know of] to stop the robots.

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