That’s a snappy quote, but it’s still not the basis of sound policy. Not to mention that the Keynes was speaking about an entirely different economic problem.
I’m not advocating inaction in the face of a business cycle slump, as Keynes’s critics were. The benefits of alleviating the hemorrhaging of the economy are greater than the costs. There’s no need to wait. But for growth, to help everyone in the future? We should always be pursuing high-growth policies which help the most people over time. And that means trade.
The currency peg isn’t something new. The Chinese have been engaging in strict capital controls for some time. And yet the economy was still able to engage in job creation before the crisis. The term “jobless recovery” has been brought up already. And I have already pointed out that this term did not mean zero net job growth. Instead, unemployment lagged behind other macro indicators like GDP. That means slow job growth, not non-existent job growth. And that was true even with the currency manipulations (technically, it’s not a strict peg).
So let’s talk about the peg a little.
Is it friendly? No. Is it having a huge negative effect? Maybe not. What the Chinese are doing, essentially, is engaging in a form of mandatory savings. Saving is not a bad thing in ordinary times. Frankly, the US should engage in much more saving, too, as we escape this downturn. So what happens with the exchange rate if the Chinese drop their strict capital controls, but the country still wants to save more than they consume? Potentially very little. If the peg is dropped, and the Chinese people save money through a different technique, then the exchange rate won’t alter much.
Meanwhile, as I like to point out again and again, we have our own currency. We should be doing more on our end first. If our own Fed engaged in smarter policy, it would put a lot of strain on that currency peg. I’m not saying that the Chinese capital controls are friendly–they’re not–but we should still put our own house in order first. Blame the Fed. If we correct our own money problems, and the Chinese are still being unfriendly, then we can deal with it. But only after we start down a smarter currency path ourselves should we deal with the hassle of international relations.
I agree entirely with this, but we’re still not dealing with 9 people losing and 1 person winning big. Wage growth at the bottom end was stagnant, even negative, over the Bush years, but the Bush years ended in the middle of business cycle trough, the largest recession since the Depression.
Before the crisis, it was more fair to say that we had 1 person winning big, another few doing fairly well, with the lower half keeping on keeping on. Now, that’s not an ideal situation either. And what’s more, that’s not an ideal situation regardless of the reason for the inequality. Even if this situation has nothing to do with offshoring, I would still be looking for ways to help our low-income workers, including: more progressive tax rates, more benefits like health care for low-income workers, a stronger unemployment net, etc. I advocate for all of these things, and I would do so even if offshoring has nothing to do with our rising inequality (which is a possibility).
What we don’t want to do is interfere with our long-term growth potential as we try to engage our inequality problems. This isn’t just about us. It’s about our children, too.
I didn’t say tech has nothing to do with it.
It’s technology that drives specialization, and it’s trade that gives us markets large enough to provide the incentives to engineers for more and more innovation. Maybe I’m too steeped in econo-speak to make that clear, but I’m not neglecting the tech angle. Without the ability to accumulate and trade, there would be significantly less technological growth.
A general lack of respect for property rights.
Trade has existed for a long time, yes, but until relatively recent times it had mostly been the red-headed stepchild of the economy. Even old empires with fairly developed transport infrastructure didn’t necessarily use that infrastructure freely. Rome had extensive grain shipments from North Africa to the capital, which allowed a greater population in Italy than they could have supported with their own agriculture–but that was a form of tribute, not trade. It was taxes, not markets. Render unto Caesar, bitchez, as it went in the original Latin.
The political institutions that encourage accumulation of personal savings, thus providing a pool of capital for investment, and that further allow innovators to profit handsomely from their cleverness, are fairly new. Property rights and the rule of law are pretty wild ideas, even up to this day in some countries. After all, North Korea can and does steal all sorts of technological knowledge, like how to build a nuke, but what do they get from that? A squib instead of a bang. Without the proper government institutions in place, they’re not going anywhere. The leaders steal from the masses. It’s a modern feudal state, basically, and it will continue to be so no matter how many tech blueprints you give them.