When I was a young person, America was taught to fear the communists. The U.S.S.R. had missiles pointed at us, Castro’s Cuba was 90 miles from Key West and the Cubans were set to invade any day, and China’s Maoist commies were helping the North Vietnamese in our war in Vietnam. (I remember the Cuban Missile Crisis when I was in fourth grade.) As a girl I used to date told me when I questioned whether or not we should be in Vietnam, if we let the commies win there, then they would take over country after country until they got to us.
Well, history has a funny way of working out things. The U.S.S.R. and its satellites went out of business (complete with a going-out-of-business sale in which I bought some Really Neat Stuff). Vietnam is liberalizing its economy and its society, and the Mao Suits that American Limousine Leftists loved to wear have long been replaced by real clothes, just as China has become a productive country, as it throws of the shackles of communism.
However, where once we saw a Chinese commie hiding behind every bush and tree, Paul Krugman (who usually sees a Republican hiding behind every bush and tree) now sees a Chinese Currency Manipulator hiding behind every bush and tree. Oh, the humanity! Will we ever be free from the Present Dangers from those nations of the East?
Krugman’s fear is based upon one of his usual themes: China’s government is deliberately underpricing its currency, the renminbi, which makes Chinese goods cheaper relative to goods that are dollar-denominated. Krugman writes:
The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.
And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.
In other words, Krugman asserts that China is engaging in a “beggar-thy-neighbor” policy, but Americans (unlike the heroic Japanese) are too timid to challenge China as it supposedly becomes wealthy at our expense. Now, in case you don’t recognize the logic here, Krugman is making the arguments that were put forth by the Mercantilists four centuries ago, with many of their arguments successfully refuted by Adam Smith in 1776.
Yet, bad ideas continue to stay around. While Krugman makes his claims on the basis of Keynesianism, in truth, that “economic theology” had its roots in Mercantilism and John Maynard Keynes even praised that group in his book, The General Theory.
Now, I do realize that simply screaming “Mercantilist!” does not win any real arguments, although this brief space is not appropriate for laying out every wrongheaded notion of the Mercantilist doctrines. However, I need to point out that when Krugman declares that somehow China is at least partially responsible for our current economic downturn because of its currency policies, he conveniently forgets that the U.S. Government under the Bush administration pushed the housing bubble, and then the Obama administration proceeded to try to prop up failed banks, the housing market, and producers (Government Motors being Exhibit A) as a sop to Wall Street contributors and American labor unions. By forcing the diversion of trillions of dollars of resources to those firms and sectors that cannot stand up on their own, President Obama and his minions are aggressively and deliberately blocking the recovery.
Of course, it is more fun to blame the Chinese commies capitalists. After all, aren’t they the ones who caused the housing bubble in the first place by saving lots and lots of money, which somehow made its way here and was foolishly diverted into the U.S. housing market? (Oh, that’s another conspiracy theory by the Usual Suspects. Yeah, those commies finally got us. Mao himself must have hatched the plot and is laughing from Hell.)
As for blaming any subsidies that China has for its “clean energy” programs for our current situation, I must admit that such an accusation is quite rich. Doesn’t the U.S. Government provide huge subsidies to “clean energy” and has not Krugman called for the government to do so in the mistaken belief that we can spend and subsidize ourselves into prosperity? I mean, from where do the subsidies come? They MUST come from the remaining healthy (or less-ill) portions of the economy. Despite the Krugman-Keynesian-Chartalist beliefs that wealth is generated by the Federal Reserve System, transfer payments ultimately must come from REAL assets, not paper ones.
One must remember that for Krugman, the end of production is, well, production. If World War II created “prosperity,” then China is creating its own version of prosperity by making it more difficult for the Chinese consumers to purchase those goods that they have been making. Instead of acknowledging the basic economic truth that the end of production is consumption, Krugman is claiming that the way for us to have a recovery is to subsidize our own industries, manipulate our currency (or place economic sanctions on China, which can be interpreted as an act of war), and then we will be fat and happy.
I doubt it. We are dealing with basic economics here. Creating what clearly would be a trade war would be yet one more step in destroying not only our economy (or, what is left of our economy), but also creating havoc in the rest of the world. Yeah, punish the Chinese; that will make us all rich.
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