Monday, September 13, 2010

Modern Mercantilism: Trade Surpluses and Currency Valuation: China, Japan and the USA

Paul Krugman understands his economics and in his New York Times article China, Japan, America and the Renminbi, he alerts us to the fact that what we would have called mercantilism a couple of centuries ago is still alive and well today as an economic reality.

What Krugman recognizes and what many of his fellow economists apparently do not understand is that modern "economics" has not negated basic economic principles that have existed since mankind began to trade goods and services.

Although Krugman points the finger of blame at China and at Chinese appeasement by shell-shocked American policy makers suffering from the financial crisis, we continue to regard the real culprit as the large-scale transfer of technology to China and elsewhere BY THE WEST over past decades in exchange for cheap labor. Some people think that is a win-win strategy, but only for those who profit by it. It is a lose-lose strategy for the majority of citizens.

For a while ... you could take a shoe that cost $10 to make in the USA and sold for $100 in the USA and move production to China where that shoe cost $1 to make and still sold for $100 in the USA, but you can not do that forever, because middle-class consumers in the USA, having lost their jobs to cheap labor in China, ultimately no longer have the money to buy those $100 shoes, and the shoe now may cost more to make than before, even in China.

At some point, the equation has to rebalance -- that is inevitable -- and that is one grievous aspect of the current economic problem. Currency over- or under-valuation is merely the surface manifestation of a much larger problem involving the entire structure of the US economy.

Hat tip to CaryGEE.

We are Number 11 ! Excuse me, Is that a Typo? Check out Thomas L. Friedman at the New York Times

Thomas L. Friedman writes at the New York Times in We’re No. 1(1)!
"So much of today’s debate between the two parties, notes David Rothkopf, a Carnegie Endowment visiting scholar, “is about assigning blame rather than assuming responsibility. It’s a contest to see who can give away more at precisely the time they should be asking more of the American people." .... 
Right now the Hindus and Confucians have more Protestant ethics than we do, and as long as that is the case we’ll be No. 11! ”
read the whole thing

The American Economy: It's All in the Mind: Attitudes in USA Comparable to British Disease: Practical Empire Building forsaken for Genteel Pursuits

In The Genteel Nation David Brooks at the New York Times draws upon The Enlightened Economy (Yale University Press) by Joel Mokyr of Northwestern University, which argues that the current economic decline is the product of a change in American attitudes similar to the "British disease", where, as "Correlli Barnett chronicled, the great-great-grandchildren of the empire builders withdrew from commerce, tried to rise above practical knowledge and had more genteel attitudes about how to live."

Hat tip to CaryGEE.

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