November 26, 2011
Actually Matt Miller was ostensibly writing in the Washington Post about the “decadence of the Western governing class,” but he was inadvertently telling readers much more about the failure of people who pass for intellectuals in public debate. Miller passes for somewhat of an expert on economic and budget policy, yet this column posed two amazing questions for readers:
“According to the IMF, China’s GDP per capita is about $8,400. The United States’ is about $48,000. How can it be that a country nearly six times richer is relying on a country so poor to help finance its current consumption?”
“Related surreal question: What does it say when Europe, where most nations have per-capita incomes ranging from $35,000 to $45,000, is also passing the tin cup to much poorer China in an attempt to backstop its recklessly leveraged banks and governments?”
Of course these questions both have very simple answers that are 180 degrees at odd with Miller’s austerity prescriptions. In the first case, those who took intro econ know that if any country, no matter how poor, decides to deliberately depress the value of its currency against the dollar, then it will run a trade surplus with the United States. In other words, the answer to Miller’s question is that it is a deliberate policy of the Chinese government to support the consumption of the United States.
Miller apparently doesn’t know that China pegs its currency against the dollar. In order to keep the yuan from rising against the dollar, it has purchased over $1 trillion of U.S. assets over the last decade. The United States is in fact not “relying” on China to finance its current consumption. In fact, the official policy of both the Bush and Obama administrations was that we wanted China’s government to stop buying up dollars and thereby depressing the value of the yuan. [While this is the public policy, this may not be the actual policy, since many powerful interests like Wall Street banks and major retailers benefit from the over-valued dollar.]
This would allow the dollar to fall. That would make Chinese imports more expensive to U.S. consumers and U.S. exports cheaper for people in China. That would cause the U.S. trade deficit with China to fall, and possibly turn to a surplus, which is the textbook relationship between rich countries and poor countries.
In the case of Europe, the problem is that the German government and the European Central Bank (ECB) are trying to impose austerity across Europe. The ECB has all the euros it could possibly need to bail out Greece, Italy and anyone else in sight. However, rather than use its ability to print euros to save Europe’s economy, the ECB is trying to force cutbacks in social spending and protections for workers across Europe. The trip to China to seek support for a bailout was a silly diversion from the real issue.
The fact that Miller would be posing questions like these in the Washington Post shows the incredible decadence of the Western intellectual class. At least when it comes to economic policy, it is largely comprised of people who are either so ignorant of basic economics or so dishonest that they primarily act to confuse their audience and distort reality.
It says a huge amount about intellectual debate in the United States that almost no one lost any standing for failing to notice the housing bubble, the largest asset bubble in the history of the world. It is almost impossible to understand how an analyst who paid attention to basic economic data could fail to see the bubble and the distortions it created.
Yet, the experts who were completely surprised by the collapse of the bubble and its impact on the economy continue to dominate policy debate in both the United States and Europe. Now that is some serious decadence.
Comments