Thursday, January 20, 2011

Thursday round up.

At Forbes, Jerry Bowyer highlights China’s weaknesses.

On Cafe Hayek, Don Boudreaux rebuts China currency manipulation charges.

The XtraNormal bears argue China manipulates its currency which steals American jobs.

The WSJ clarifies that China has many problems and that a burst of Reaganite growth would restore American confidence.

China remains an underdeveloped country, its economy barely one-third the size of America's. Its leaders live in fear of peasant revolts, ethnic separatists, underground religious movements, political dissidents and the free flow of information. Its economy remains profoundly hobbled by corruption, inefficient state-owned enterprises and an immature banking system.

There is no genuine rule of law and its regulatory environment has become increasingly unpredictable for foreign investors and local entrepreneurs. It suffers from an aging population and environmental damage Americans wouldn't tolerate. Its greatest comparative advantage—cheap labor—is under strain from rising domestic wages and competition from places like Vietnam and Bangladesh.

Above all, China suffers from an absence of self-correcting mechanisms, beginning at the top with its authoritarian political system. And while it can trumpet achievements like a stealth fighter or bullet trains—some based on pilfered designs—it has a harder time adjusting to failure, much less admitting to it.

From Foreign Policy, Daniel W. Drezner explains that China isn’t beating the U.S.

On The Kudlow Report, Gov. Mitch Daniels (IN) shows sound policy instincts regarding China and pro-growth policies, but omits the dollar from his analysis:

At Conscience of a Liberal, Paul Krugman praises the Bush era’s dollar decline.

On his blog, Brad DeLong quotes Krugman citing Milton Friedman in favor of currency devaluation.

In The WSJ, Joseph Sternberg suggests China won’t "rebalance" toward consumption anytime soon.
China needs to reallocate capital and labor on a massive scale to orient itself toward producing goods and services that Chinese consumers want to consume. This will require major banking changes, especially improving access to credit for the small and medium-sized enterprises that make a modern consumption-driven economy tick. Both regulation and habit will get in the way.

The regulation involves interest rates: Government manages both deposit and lending rates in a way that guarantees banks a wide spread. This was intended to help banks earn themselves out of an earlier generation of nonperforming loans at the expense of households, which earn lower rates on savings deposits. And the policy could prove especially necessary if 2009's credit binge results in huge piles of bad debts.
On Lew Rockwell, "Norm" claims Bill Kristol’s recent support for monetary reform is “another neocon trick, like supply-side economics.”

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