Krugman 2011, also known as Krugman with a Democrat as President, lambastes China and any of its defenders. Now, China is manipulating their currency, and the undervalued yuan is costing the US jobs. That is probably true, but it is fun to contrast this with Krugman 2003; back in the day, George Bush was making the case that the undervalued yuan was costing the US jobs, so we can easily guess which side Krugman was on.
Here we go, Krugman 2011:
The dire state of the world economy reflects destructive actions on the part of many players. Still, the fact that so many have behaved badly shouldn’t stop us from holding individual bad actors to account.
And that’s what Senate leaders will be doing this week, as they take up legislation that would threaten sanctions against China and other currency manipulators.
Respectable opinion is aghast. But respectable opinion has been consistently wrong lately, and the currency issue is no exception.
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.
Ergo, we need a weaker dollar, and we need China to stop manipulating its currency:
That, above all, means China. And none of the arguments against holding China accountable can stand serious scrutiny.
Some observers question whether we really know that China’s currency is undervalued. But they’re kidding, right? The flip side of the manipulation that keeps China’s currency undervalued is the accumulation of dollar reserves — and those reserves now amount to a cool $3.2 trillion.
Let's flash back to Krugman 2003, when Krugman was bashing Bush for even suggesting that the yuan was manipulated and undervalued:
Instead, however, he's [Evil, stupid, President Bush. And did I mention "Evil"? And "Stupid"?] decided to plead with the Chinese for help [with our jobless recovery].
Admittedly, it didn't sound like pleading. It sounded as if he was being tough: ''We expect there to be a fair playing field when it comes to trade. . . . And we intend to keep the rules fair.'' Everyone understood this to be a reference to the yuan, China's supposedly undervalued currency, which some business groups claim is a major problem for American companies.
By the way, even if the Chinese did accede to U.S. demands to increase the value of the yuan, it wouldn't have much effect unless it was a huge revaluation. And China won't agree to a huge revaluation because its huge trade surplus with the U.S. is largely offset by trade deficits with other countries.
"Supposedly" undervalued? China had significant dollar reserves in 2003; Krugman 2003 reversed course and made this very point a few paragraphs later:
Furthermore, purchases of Treasury bills by China's central bank are one of the main ways the U.S. finances its trade deficit.
Nobody is quite sure what would happen if the Chinese suddenly switched to, say, euros -- a two-point jump in mortgage rates? -- but it's not an experiment anyone wants to try.
Huh? If on net China's trade was balanced in 2003 (as per the Earnest Prof's initial assertion), then they couldn't have been a net purchaser of dollars based on their trade flows, now could they? Or, if investment flows and repatriations account for the increase in Chinese reserves, then we need to make a suitable adjustment for the 2003 and 2011 figures before pointing to the trade numbers as "proof" of anything. I strongly suspect that from 2003 to 2011 the magnitudes of flows may have changed, but not the directions.
Back to Krugman 2011:
Others warn of bad consequences if the Chinese stop buying United States bonds [See Krug 2003]. But our problem right now is precisely that too many people want to park their money in American debt instead of buying goods and services — which is why the interest rate on long-term U.S. bonds is only 2 percent.
So we should counter the Fed's latest Operation Twist by chasing away buyers of our long term debt, thereby driving up rates and... hmm. Let's give this props for "Outside the Box" thinking.
Well, the Democrats are bashing China, so bashing China makes sense to the Princeton Populist, even if it was stupid when Bush did it.
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