Sunday, October 10, 2010

Born in the USA

On my scorecard there is one justified and awesome China bash and one confused and unjustified China bash.

Giving the Peace Price to Liu Xiaobo is the J&A bash. That was inspired. The Obama administration's insipid response was a bit less inspiring, but double kudos to the Norwegians here.

The currency war meme is the C&U bash. It's hard to even know where to begin here.

First, tons of countries have fixed their exchange rates for long periods of time. It is fairly unprecedented to call it "protectionism". The whole US philosophy for the Bretton Woods era was free trade and fixed exchange rates! Read Eichengreen's excellent "Globalizing Capital".

Second, lots of countries that nominally are "floaters" actually closely manage their exchange rates. This has been well documented in Calvo, G., and Reinhart, C. (2002). "Fear of Floating." Quarterly Journal of Economics, and Levy-Yeyati, E. and F. Sturzenegger (2004). "Classifying Exchange Rate Regimes: Deeds vs. Words." European Economic Review.

Third, to the extent that China's currency is undervalued (and let me stress that there is no true objective measuring stick for that determination), it is costly to them. Their consumers face higher prices for imported goods and the country faces inflationary pressure.

Fourth, the notion that Chinese exports are stealing jobs from the USA is most likely incorrect on at least two dimensions. (A) If Chinese exports to the US fell, those products would likely be replaced by exports from another developing country. (B) The fact that a product is produced in another country and for sale here does NOT imply that domestic workers have been pushed into unemployment. Jobs are not on the periodic table. There is not a fixed supply in the world. Even if a US manufacturer "outsources" production to another country, the domestic employees are not doomed to a life of unemployment. Even in our hideously bad current economy hundreds of thousands of jobs are being created every month (gross, not net, sadly).

People, our true problem with China is (or should be) that it is a totalitarian state that oppresses its citizens and supports other totalitarian states that directly or indirectly threaten us. Our economic problems are not imported from China. They are "Made in the USA".


eightnine2718281828mu5 said...

Even if a US manufacturer "outsources" production to another country, the domestic employees are not doomed to a life of unemployment.

And if a foreign company puts American management out of business they too are not doomed to a life of unemployment.

eightnine2718281828mu5 said...

Given a choice between two products, one made by domestic management and foreign labor and another made by foreign management and foreign labor, I should choose the foreign product.

Supporting American management and their plushy salary structures just enables them to out-bid me for things like downtown real estate.

So I'm better off supporting foreign companies and forcing their workers' to pay for more expensive real estate.