Sunday, October 24, 2010

Friday round up.

On Asia Times, David Goldman critiques Sec. Geithner’s call to target national trade balances.

Robert Mundell showed in his Nobel-Prize winning work that trade deficits arise from anexcess or deficiency of savings in a national economy; if the Chinese want to save 50% of GDP, they can only do so by exporting goods, because there aren’t sufficient outlets for savings inside China. The trade deficit is the symptom, not the cause, of a complex of economic problems. To target a trade deficit is lunatic. Some countries with very young populations and huge investment opportunities should have enormous trade deficits; some countries with aging populations and high savings rate should have enormous trade surpluses.

At Forbes, Shikha Dalmia scolds Republican for joining Democratic China bashing:

But the idea that selling abroad creates jobs at home and buying abroad destroys jobs at home is an old mercantilist fallacy that Adam Smith handily refuted more than 200 years ago. Back then it at least had intuitive plausibility, but today it is obviously false given that the manufacturing chain spans the whole globe. Indeed, under the intricate global division of labor that currently exists, the whole idea of “Made in China” is largely a bureaucratic fiction.
On The Kudlow Report, Larry debates Sec. Geithner’s recent strong dollar sentiments:

At his blog, Scott Grannis argues it is China, not the U.S., that gets the short end of the trade stick.

They sell us mountains of cheap goods, then turn around and invest most of the proceeds (equivalent to our trade deficit with China) in U.S. Treasury securities. We get the goods, and we get to keep the money. Then we devalue the dollar, and they lose on their investment. Why we would want them to stop doing this is beyond me, though if I were a Chinese citizen, I would be furious with my government for directing such massive quantities of my country's export earnings to Treasuries. The central bank of China has no need to further increase its already-massive reserves; instead, the government should be relaxing capital constraints, allowing Chinese citizens more freedom to save and invest abroad in the types of vehicles with which they feel most comfortable. China's workforce is aging daily, and like Japan a few decades ago, China's economy cannot accommodate all the savings of the Chinese people—they are essentially forced to save overseas.

Contrary to what you read in the press—which mistakenly believes that our large trade deficit with China is something we need to worry about—China is the one that needs to worry, not us.

At Green Faucet, Brad Zigler summarizes the decline of world currencies versus gold.

On The Freeman, Christopher Lingle debunks the notion of an export multiplier.

At Carpe Diem, Mark J. Perry explains the factors behind income inequality.

In an editorial, The LA Times suggests austerity is the only alternative to Keynesian stimulus.

On the Peter Peterson-funded Fiscal Times, Bruce Bartlett defends Indiana Gov. Mitch Daniels support for a VAT tax.

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