I thought I should offer a brief note about one of the arguments people make against the government’s focusing on Chinese currency manipulation — namely, the claim that China doesn’t really compete head to head with American manufacturing, so that a rise in the renminbi wouldn’t help.
I’d argue that this is wrong on three levels.
First, the notion that there’s no head-to-head competition is false. There have been quite a few stories in the press lately about manufacturing moving back to the United States from China. The labor costs will always be much higher in America, but other advantages, especially logistical, can make even labor-intensive production worth doing at home.
Second, there are real effects for the United States if production moves, say, from China to Mexico. To an important extent, global manufacturing is carried out by regional complexes — an Asian complex
centered on Japan and China in effect competes with a North American complex in which labor-intensive stuff is done in Mexico or Central America.
Most important, however, is that you really need to think of this as a global adding-up issue. If China and other currency manipulators run smaller trade surpluses, who will be the counterparties? Emerging economies that compete more directly with China than the United States does are by and large not in liquidity traps — in which conventional open-market operations have lost traction because short-term rates are close to zero — and indeed are facing inflationary pressure.
So any Chinese appreciation, while it directly tends to raise the net exports of emerging economies, will probably show up in matching appreciation in their currencies, setting in motion a series of domino effects that end up pushing the adjustment onto economies that are in liquidity traps, namely those in the United States, Japan and Europe.
The bottom line is that Chinese currency policy does indeed matter for manufacturing in the United States.
Commodity Prices Redux
Remember commodity prices?
Not too long ago, the usual suspects were pointing to rising commodity prices as evidence that runaway inflation was just around the corner. Commodity prices were Exhibit A in claims that Ben Bernanke, the chairman of the Federal Reserve, was “debasing the dollar”; Paul Ryan, the Republican chairman of the House Budget Committee, called for monetary policy that would stabilize the price of a basket of commodities (and therefore require deflation in America whenever China experienced a boom, but hey, never mind).
So it’s instructive to look at what has happened to commodity prices recently. According to data from the Thomson Reuters index over the past five years, commodity prices have fallen sharply this year. They’re still above their levels at the bottom of the global slump, but that’s hardly surprising. What may be surprising is that they’re just about where they were in 2007, before the big 2007-2008 run-up.
Over a four-year period, then, it turns out that the Bernanke Fed has just about stabilized commodity prices — not that this is a good goal, but it is what has happened.
So will people like Mr. Ryan admit that the dollar has not in fact been debased? Will they look at the recent plunge and conclude that maybe we need more expansion, not tightening? Will they admit that their favorite “experts,” who saw the commodity bulge last year as a harbinger of hyperinflation, don’t know anything? Is the Pope Jewish?
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.
Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.
Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007). Copyright 2011 The New York Times.
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.