Maybe The NY Times Could

Maybe The NY Times Could Hire An Economist

It's time to revive our old slogan - how many trees must die before the NY Times gives P. Krugman's space to Michael Lewis?

It must be "back to school" week at Princeton, because the Earnest Prof could not have spent five minutes on his latest effort.

The column opens with some padding in which the Prof rambles senselessly about Iraq, and we will be asking his supporters to help us with one of his assertions. Eventually, he arrives at what seems to be his central point, on the subject of Bush's ineptitude vis a vis job creation:

[Bush has] decided to plead with the Chinese for help.

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.

Still, even a modest currency shift by Beijing would allow Mr. Bush to say that he was doing something about the loss of manufacturing jobs other than appointing a "jobs czar." And so John Snow, the Treasury secretary, went off to Beijing to request an increase in the yuan's value.

But he got no satisfaction. A quick look at the situation reveals one reason why: the U.S. currently has very little leverage over China. Mr. Bush needs China's help to deal with North Korea — another crisis that was allowed to fester while the administration focused on Iraq. 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.

There may also be another reason. The Chinese remember very well that in Mr. Bush's first few months in office, his officials described China as a "strategic competitor" — indeed, they seemed to be seeking a new cold war until terrorism came along as a better issue. So Mr. Bush may find it as hard to get help from China as from the nations those same officials ridiculed as "old Europe."

The fellow who hopes to collect a Nobel Prize for his work on currencies managed to devote about one paragraph to the economics of an undervalued yuan. The rest was politics.

Too bad: Business Week had two interesting stories.

Did P. Krugman know that on the subject of the undervalued yuan, Bush was actualy leading a multi-national coalition? Apparently, the IMF, the head of the European Central Bank, and ministers from Japan, Canada, and France, among many others, have a problem with the current Chinese exchange rate.

And there are many interesting economic issues. How, given China's somewhat closed and controlled economy, do we even know if the yuan is undervalued? If it is undervalued, how will that affect China, the US, and the rest of the world? How much impact on jobs in the US might we see if China revalued? Why do the Chinese (and other East Asian countries) hold so many dollar reserves?

All of this is glossed over by P. Krugman in yet another rant against Bush. And we get the benefit of Prof. K, game theorist and international economist, toying with intellectual diversions such as:

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.

Well, nobody is quite sure what would happen if China moved troops and ships to their coastal areas opposite Taiwan, fired a few missles, and announced a missle blockade of Taiwan. And it is certainly not an experiment anyone wants to try.

But, as with the question of China switching their reserves to Euros, one wonders - why don't they? Is it in China's national interest to crater the dollar and, quite possibly, disrupt the world's trading system and trigger a global recession?

If China did sell dollars for Euros, must the dollar weaken dramatically, or could the Chinese persuade the world this was simply an information-free portfolio rebalancing?

If the dollar plunged and the Euro soared, would that tip Europe into recession? How might they react?

Would a weaker dollar spur US exports to places like Europe? Might that mitigate the impact of higher interest rates?

Is anyone really worried that, if we discuss problems with China about their possibly under-valued currency, they will have a temper tantrum and smash the world's trading system?

All of these seem like reasonable questions for an international economist. Oh, well, I guess he ran out of space.

However, he had enough space for this claim, and hence, my question to his supporters: would anyone care to substantiate this:

Mr. Bush seems to have a serious case of "l'état, c'est moi": he impugns the patriotism of anyone who questions his decisions.

I would think any ardent Bush-basher would have suitable examples at hand; I, however, suspect this is just Krugman making the sort of sound I hear from my tea-kettle as it approaches the conclusion of its task.

Any help would be welcome. He did say "Bush", so please, no recycling of Ari's old "people have to watch what they say" gaffe.