— Dean Baker says Paul Krugman is partly wrong to say that Chinese currency manipulation is “an issue whose time has passed”:
… it is important to remember that China is a fast growing developing country. Ordinarily such countries are expected to run large trade deficits. The idea is that capital can be better used in fast growing countries like China than in slow growing wealthy countries. Since capital will get a higher return in developing countries, we expect capital to flow from rich countries to poor countries. The flow of capital would imply a trade deficit for developing countries. Effectively this trade deficit would allow developing countries to sustain consumption levels even as they build up their capital stock.
China, along with many other fast developing countries, is running a large trade surplus. This is not sustainable…
The other part of this story is that we really have no choice about seeing the dollar fall, especially for those ferocious deficit hawks who want to see the United States balance its budget. It is an accounting identity that the trade surplus is equal to net national savings. This means that if we have a trade deficit, net national saving is negative. There is no way around this fact. The deficit hawks may not like it, in the same way that they may not like 2 plus 2 being equal to 4, but there is nothing they can do to change it.
If we have negative national saving, then either we have a budget deficit (negative public saving) or we have negative private saving, or some combination. At the moment, we have a large budget deficit that corresponds to our trade deficit. How could we have negative private saving?
As an aside to the libertarian tech revolution, which has made much of our work automated and enabled lightspeed communication to offshore that which isn't, here's Mr. Leonhardt
http://www.nytimes.com/2012/10/24/us/politics/race-for-president-leaves-income-slump-in-shadows.html
"Taxes and government spending. Health care. Immigration. Financial regulation.
They are the issues that have dominated the political debate in recent years and have played a prominent role in this presidential campaign. But in many ways they have obscured what is arguably the nation’s biggest challenge: breaking out of a decade of income stagnation that has afflicted the middle class and the poor and exacerbated inequality...
One of the more striking recent developments in economics has been economists’ growing acceptance of the idea that globalization has held down pay for a large swath of workers. The public has long accepted the idea, but economists resisted it, pointing to the long-term benefits of trade. “That is starting to change only in the face of very strong evidence over the past decade,” said Edward Alden of the Council on Foreign Relations.
In particular, job growth and wage growth have been weaker in sectors exposed to global competition — especially from China — than in sectors that are more insulated.
Automation creates similar patterns. Workers whose labor can be replaced by computers, be they in factories or stores, have paid a particularly steep price. The American manufacturing sector produces much more than it did in 1979, despite employing almost 40 percent fewer workers."
We're making a lot of omelettes here. Breaking a lot of eggs.
#1 Posted by Thimbles, CJR on Thu 25 Oct 2012 at 10:54 AM
Computers are a double blaided sword in this day and time. Americans want things cheaper and this comes with a hidden agenda. As far as the housing market (houston we have a big problem). A domino effect has has pushed the home values to less than half and that's a fact and a problem. For Americans that want to keep there homes or Americans that want to sell there homes, there is a no win situation here. Modification only puts a small bandage on a very big wound. The problem has to be fixed at the root. Just like when there is canker in the orange trees, they all have to be cut down and start fresh. Americans need a fresh start with their mortgages. What ever the property would be sold to someone else it should be offered to the original owner as well. How can we get along with other countries when we can't get along with ourselves. Why do we have to be so selfish. No one is going to live forever so why can't we make it right. ALopez Florida speaks out........
#2 Posted by adrianna, CJR on Thu 25 Oct 2012 at 01:42 PM