Tuesday summary.

MarketWatch reports on Nobel laureate Robert Mundell’s speech today. From The Jakarta Post, more here.

At The Weekly Standard, Bill Kristol aligns with calls for monetary reform.

In The WSJ, Ronald McKinnon explains that weak dollar periods destabilize the world.

So what lessons can we draw from these episodes of U.S. easy money and a weak dollar for the stability of the American economy itself?

First, sharp general price increases in auction-market goods such as primary commodities or foreign exchange (i.e., a weakening dollar) is an early warning sign that the Fed is being too easy—a warning that the Fed is again ignoring as we enter 2011.

Second, beyond the rise in primary commodity prices, general price inflation in the U.S. only comes with long and variable lags. After the U.S. monetary shock, hot money flows into countries on the dollar standard's periphery cause a loss of monetary control and general inflation to show up there more quickly than in the U.S.

In 2010, consumer price indexes shot up more than 5% in major emerging markets such as China, Brazil and Indonesia, while the consumer price index in the U.S. itself rose only 1.2%. Similarly, after the Nixon shock of 1971, there was much more explosive inflation in Japan in 1972-73 than in the U.S. But by December 1979, inflation in America's producer and consumer price indexes was more than 13%.

At RCM, Louis Woodhill argues that the European Central Bank, not deficit nations such as Greece, will determine the euro’s success.

In The Journal, President Obama outlines his new executive order to reduce anti-competitive regulations.

At The Kudlow Report, Larry discusses the President’s move:



The WSJ editorializes that if China wants to be treated like a major power it needs to behave accordingly.

Also at The Journal, Aaron Friedberg sees China flexing its muscles because it perceives the U.S. as in decline.

In The NYT, Harvard’s Mark Wu argues China’s exchange rate has far less impact than yuan revaluationists claim.

These claims, however, are more wishful thinking than actual truths. Consider the first idea, that a strengthened Chinese currency would increase the growth rate of American exports to China. From 2005 to 2008, the renminbi appreciated nearly 20 percent against the dollar. Yet, American exports to China over those three years grew at a slightly slower pace than in the previous three-year period when the renminbi did not appreciate at all (71 percent versus 89 percent)....

Second, I recently did an analysis of the top American exports to our 20 leading foreign markets, and found little evidence that an undervalued Chinese currency hurts American exports to third countries. This is mostly because there is little head-to-head competition between America and China. In less than 15 percent of top export products — for example, network routers and solar panels — are American and Chinese corporations competing directly against one another. By and large, we are going after entirely different product markets; we market things like airplanes and pharmaceuticals while China sells electronics and textiles.

Finally, it is unlikely that a stronger renminbi would bring many jobs back home. Instead, companies would most likely shift labor-intensive production to Vietnam, Indonesia and other low-wage countries. And in any case many high-skilled jobs will continue to flow overseas, as long as cheaper talent can be found in India and elsewhere. Only in a few industries, like biomedical devices, would a stronger Chinese currency combined with quality issues tempt American companies to keep more manufacturing at home.

At NRO, Larry Kudlow suggests the best way for the U.S. to respond to China is with strong economic growth.

In The WSJ, Stephen Moore reports on the Mike Pence for President movement.