Posts Tagged ‘China’
…and the next thing…
I’ve been critical of the current occupants of the White House, and particularly their apparent naivity about the economy. One might falsely surmise from my criticism that I’m a raging lefty. I would rejoinder that competence knows no political stripes. That said, I would note this morning that an economist from two leading conservative think tanks also expresses skepticism over The Donald’s trade policies.
The conservative bona fides of the Club for Growth and the Heritage Foundation are beyond question. The former bills itself as, “…the leading free-enterprise advocacy group in the nation,” while the latter is lead by former GOP Congressman and Tea Party stalwart Jim DeMint, from my former home state of South Carolina. Stephen Moore, a Heritage economist and co-founder of the Club for Growth, appeared on CNN’s Party People podcast, and said, “On trade, I think he’s playing with fire here.” He went on to say, “And I think the idea of a tariff against Mexico is a terrible idea. I think it would hurt Mexico a lot, and I think it would hurt American consumers as well. We don’t need a trade war with Mexico.” He did, however, give a tentative pass to The Donald’s attitude toward China, noting “I kind of approve of some of the things he’s doing on China.”
Full disclosure here — I don’t necessarily agree with Moore on every point he makes. Moore invokes the legacy of Harry Truman, and says that Truman got off to a rocky start but learned the Presidency quickly. I would beg to differ on the validity of Moore’s analogy. Truman had held significant local office in Missouri, was an Army Reserve Colonel, and was late in his second term as a Senator when the nod for the VP job came along. The Truman Committee in the Senate, during the war years, provided extraordinary oversight to the conduct of the war and investigated every aspect of government management during the several years he was chair. As such, Truman was probably the most prepared person to assume the presidency available at the time. (Many would have preferred South Carolina’s Jimmy Byrnes, but Byrne’s record on segregation would have made him a tough sell.)
Any “rough start” to the Truman presidency had to be taken in the context of inheriting a 2-front war, an atomic bomb, the beginnings of the cold war, massive demobilization, turning the American economy from war production to consumption, open rebellion from two wings of his own party (the Dixiecrats under Thurmond and the Progressives under Wallace) and devastation around the world. The Donald, on the other hand, has inherited a stable, growing economy, no inflation, low unemployment, and a loyal majority in both houses of congress.
Ahem…. If The Donald screws this one up, it’s all on him.
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Paul Krugman’s Column
Frequently I disagree with Prof. Krugman, but I nonetheless enjoy reading what he has to say. His writing is clear and lucid, and he backs up what he has to say with facts rather than simplistic conjecture. Nobel Prize Winners tend to write like that.
Today’s column in the New York Times is no exception, and this happens to be one of those times that I agree with him. Indeed, I think he doesn’t go far enough. I’ll leave the bulk of what he’s said for you to read on your own, but basically he ties global warming (even if you disagree with the theory, you can’t argue with the empirical observations) to floods, famine, and food inflation. Many critics (the Chinese, right-wing-ers, etc.) blame Ben Bernake and QE2 for the crisis. That theory has a real cart-before-the-horse problem. As it happens, global food price inflation became a reality before QE2, not after. Some theorists would also blame China and other developing nations — as their economies grow, their people want and indeed need better calorie counts. City dwellers have less time to prepare complex meals from simple ingredients, thus adding to the food logistics chain.
Krugman draws, I think, a difficult but correct conclusion that global unrest (Egypt, Tunisia) has to be placed in the context of food prices. In developing countries, food makes up a much larger portion of consumption expenditures than it does in the U.S., Japan, or Europe.
Where Krugman stops short, unfortunately, is the more direct implications for the U.S. Authoritarian governments who draw this lesson properly will find themselves caught between a rock and a hard place. On one hand, they will want to pay workers more, either directly (through higher wages) or indirectly (through food subsidies). China, with enormous cash reserves, has the easiest time of this. Indonesia, for example, will face problems. On the other hand, rising wages means either directly raising the costs to the consumers (that’s us and our European friends) or indirectly raising it via currency manipulation (which few countries have the ability to do). Of course, consumers faced with rising prices have the option of decreasing consumption, something which is fairly easy to do when we’re talking about non-essentials. Declining consumption leads to unemployment abroad, which frightens the daylights out of authoritarian regimes.
U.S. consumers have enjoyed rapid increases in consumption with relatively flat-lined prices for the last three decades, due to the juxtaposition of relatively flat commodity prices (food, energy, raw materials), rapid increases in productivity, and global application of the law of comparative advantage. Spikes in commodity prices could change all of this, as we saw in the 1970’s, and THAT may be the most important thing to look at in the economy right now.
From a small northwestern observatory... 