July 18, 2012
The NYT had a column today on rebalancing the global economy by Li Congjun, the head of Xinhua News Agency. While the article talks about the United States consuming too much and China consuming too little, remarkably the piece never once mentions currency values.
If the United States reduces its consumption, without a corresponding reduction in the value of the dollar, the textbook econ tells us that it just leads to unemployment, not a rebalancing. The events of the last four years have kindly proven the textbooks to be correct on this point.
Similarly, the textbook tells us that if China increases consumption, without also having a sharp rise in the value of its currency, then it will lead to inflation. China’s experience has also proven the textbook economics right.
It would have been useful to have this piece written by someone who would at least acknowledge basic economics.
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