Korean Job Discussion Forums

[Adventurer]

Holding China to Account
By PAUL KRUGMAN
Published: October 2, 2011


Ask yourself: Why is it so hard to restore full employment? It�s true that the housing bubble has popped, and consumers are saving more than they did a few years ago. But once upon a time America was able to achieve full employment without a housing bubble and with savings rates even higher than we have now. What changed?

The answer is that we used to run much smaller trade deficits. A return to economic health would look much more achievable if we weren�t spending $500 billion more each year on imported goods and services than foreigners spent on our exports.

To get our trade deficit down, however, we need to make American products more competitive, which in practice means that we need the dollar�s value to fall in terms of other currencies. Yes, some people will shriek about �debasing� the dollar. But sensible policy makers have long known that sometimes a weaker currency means a stronger economy, and have acted on that knowledge. Switzerland, for example, has intervened massively to keep the franc from getting too strong against the euro. Israel has intervened even more forcefully to weaken the shekel.


http://www.nytimes.com/2011/10/03/opinion/holding-china-to-account.html?src=me&ref=general

[Kuros]

Krugman is wrong on about every point.

Yes, in raw terms, the Chinese currency appears undervalued. But when adjusted for purchase power parity, the yuan is pretty level with the dollar. That is even while China holds $3 trillion in dollar reserves; which Krugman wrongly suggests is currency manipulation (I call it valid monetary policy).

Secondly, tariffs on Chinese goods alone, to be substantial, would probably violate GATT-WTO, and would be illegal. Let's remember that the Hawley-Smoot tariff, enacted in 1930, was a disaster. I expect a trade war with China could get ugly, too.

[Adventurer]

[Kuros]

The yuan/dollar exchange rate and America's trade deficit with China

[jaykimf]

[comm]

[Unposter]

It seems to me it is not just trade imbalance, it is foreign investment. At one time, American capitalists invested in America as international investments were much more risky, America is all many people knew and there was a sense of patriotism - to make America a better place. Today, much, much more is invested outside of the U.S. sending jobs and capital elsewhere.

This is why from a macro-level, the U.S. economy seems fine. American businesses continue to make moeny, even record amounts of money. The problem is that few American citizens can take advantage of the success of American companies because a certain amount of the profits are made overseas.

America cannot be the America of the past in the age of Globalism. Americans are either going to have to accept a lower standard of living or else they are going to have to move elsewhere or they are going to have to change the way they tax American businesses and individuals that invest overseas.

It will be real interesting to see how American leadership deals with this problem and how Americans choose their leaders and make choices to deal with the situation. My bet is against the American people. Americans (in general) are too proud in my opinion. They would rather accept less and say it is their free choice than to demand more. American leaders don't care much about the lives of everyday people; they just want another paycheck from the moneyed interest that fills their "warchests" for the next election. And, teapartiers and occupiers are not going to make a hill of beans of difference and the politicians know it.

Good luck is all I've got to say.

[Kuros]

[Unposter]

I agree.

As I wrote in my previous post, I see the possible solutions as:

Americans are either going to have to accept a lower standard of living or else they are going to have to move elsewhere or they are going to have to change the way they tax American businesses and individuals that invest overseas.

I wouldn't doubt there are other ways of dealing with it but that is all I can think of off the top of my head.

[jaykimf]

[Kuros]

[jaykimf]

[weso1]

Wow, there are actually people here that think they're smarter than a Nobel Prize winning economist?

Where is your PhD in economics from again? Where are your dozen of peer reviewed papers on the topic? Where are your 36 books written on economics? Exactly how many university textbooks have you published?

[comm]

[Kuros]