
Paul Krugman, the Nobel prize winner who threatens the world - thafman
http://www.telegraph.co.uk/finance/comment/jeremy-warner/7483177/Paul-Krugman-the-Nobel-prize-winner-who-threatens-the-world.html
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jimmybot
This article is like the tail wagging the dog.

 _Krugman made a name for himself challenging the very assumption that free
trade always leads to mutually beneficial outcomes_. If you want to take him
on with regard to trade theory, you can't simply respond with the original
orthodoxy that protectionism is bad and free trade is good. You'd have to
address his specific arguments about economies of scale and the possibility of
being "locked-into" a bad trade situation (at a local maximum).

There's a little bit about it here:
<http://en.wikipedia.org/wiki/Paul_Krugman#New_trade_theory>

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fnid2
It is _not_ in the US best interest for China to release the yuan. If that
were to happen, the buying power of chinese holders of the yuan will increase
to the point that their demand for goods will compete with the U.S. demand for
goods. As the dollar declines, American buying power will also decline, as
will american "quality" of life.

More expensive chinese goods will not lead to more american manufacturing.
Instead, it will lead to more Indian. Pakistani, Bangladeshi manufacturing. A
more valuable yuan will be a short term fix -- if it is a fix -- which I don't
believe it is.

If the yuan is released, the dollar will cease to be the world reserve
currency in an economic blink of an eye. While it is fixed, there's no reason
to switch from dollars to yuan, but as the yuan begins to climb, fewer and
fewer banks or even individuals will want to hold the dollar and our savings
will dwindle due to the massive inflationary effects.

The U.S. consumer of goods -- all goods -- not just "cheap chinese crap," buys
most of their stuff from overseas. Many asian countries and south america are
huge suppliers of electronics, textiles and _food_. 1.5 Billion people in
china also need to eat and when they can pay 150% in the exporters' local
currency relative to what american retailers can pay, why would they bother
shipping those goods across an ocean? Why wouldn't south america send their
ships to asia instead of Los Angeles?

The _only_ solution to this problem is for America to stop needing the plastic
fix. They need to start saving their money, investing their money, and
producing goods the rest of the world wants to buy. There is no other solution
in a global economy.

Protectionism won't work. Complaining won't work. Badgering China to deflate
the yuan won't work.

~~~
garply
"While it is fixed, there's no reason to switch from dollars to yuan, but as
the yuan begins to climb fewer and fewer banks or even individuals will want
to hold the dollar and our savings will dwindle due to the massive
inflationary effects. "

Actually, this speaks to me personally. The yuan is not really fixed to the
dollar permanently - it's been climbing gradually over the past several years.
As an American in China, I have done just as you have said - I've gradually
moved as much of my cash to RMB as possible and enjoyed each time the gov't
raised my purchasing power back home. As I now operate a business here and am
paid in RMB, I personally look forward to it happening again in the near
future.

Also, I think, at least in the short term, you are right. Increasing the value
of the yuan will noticeably damage the average Joe's quality of life back
home. All those little 'made-in-China' things that you buy without even
noticing will suddenly become more expensive. Which means you will get less of
them. Which means you will have less of the stuff that you are accustomed to
having.

In the long term, I think a floating Yuan is probably healthy for all parties
involved - for the US, because _some_ of the imported Chinese goods will be
produced back on home soil and for the Chinese because it will foster more
domestic, service-oriented consumption (i.e., a modern economy).

~~~
Estragon
I thought it was hard to get money out of China, and assumed that it would be
correspondingly hard to change Yuan to Dollars. Is that not the case?

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baguasquirrel
John Mauldin made a much better analysis of this. If we charge a tariff on
China, will it really improve our trade deficit so much that our goods will be
from Vietnam, Indonesia or [other country here]?

I suggest that anyone skeptical of this should go to their local mall and stop
by a few clothing stores, like the Gap, Old Navy, AE, Banana Republic, etc.
What you'll find is interesting. At the lower end shops (like the Gap and Old
Navy), a lot of the merchandise is no longer made in China. But in higher end
shops (like the Banana Republic), it still is.

I thought this was fascinating for different reasons than my mother (who
discovered it), because you can see quite clearly, right there in the mall,
that the economics is working, and China isn't some magical demon that can
somehow keep on producing the cheapest. It's already cheaper to produce in El
Salvador and Vietnam than it is in China.

Moreover, if you impose a tariff, then we'll just be buying crap from those
other countries, which isn't going to help our trade deficit and our economy,
and will likely start a trade war, which will in likelihood hurt our economy.
Think about China pressuring everyone in their neighborhood to buy Airbus
instead of Boeing.

~~~
cstross
_Think about China pressuring everyone in their neighborhood to buy Airbus
instead of Boeing._

Bad example: 51% of the sub-assemblies in the Airbus 380 super-jumbo are made
in the USA. Meanwhile, around 51% of the sub-assemblies in the Boeing 787 are
made ... guess where?

(The Boeing/Airbus cross-subsidy cat-fight in front of the WTO has been going
on for about two decades now, and both sides are (a) firmly entrenched and (b)
have been working for years on "poison pill" policies to deter both the USA
and the EU from slapping an embargo on the rival manufacturer.)

One of the side-effects of the current free trade regime (and, importantly,
our vastly improved global communication infrastructure) is that it becomes
much harder for countries to haul up the trade barriers because complex
fabrications come from non-obvious places. (Another random example: the best-
selling Japanese SUV in the UK, the Nissan Qashqai, was designed in, and is
largely manufactured in ... England.)

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m0th87
> Unlike Britain, America doesn't really do free-traders

Seriously? America effectively invented modern neo-liberalism, and exported it
abroad via international agreements (WTO, NAFTA, IMF loan agreements...)

> China makes an easy scapegoat for America's ills, but it is not the cause

The author makes this point but provides nothing to back it up. I could
totally understand the argument that China helped induce the recession through
cheap loans. I could also buy the argument that it didn't given a well-
reasoned argument. Give me something to chew.

I'm not the biggest Krugman fan, but this article is all bark and no bite.

~~~
dantheman
Free Trade is Free Trade. If you need NAFTA etc it's not free trade.

~~~
fnid2
you can never have free trade without a free flow of _human beings_. As long
as we have passports and border guards, we will _never_ have free trade.

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mortenjorck
_The US is still a largely internalised, self-reliant economy for which trade
with the outside world is relatively unimportant._

Unfortunately, the article seems to omit the extraordinary evidence to support
this extraordinary claim, seeing as there's likely more than enough evidence
to the contrary sitting on the author's desk, inside it, under it, scattered
about his office, and on his very person if he would check the country-of-
origin tags.

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kingkawn
Fantastic mad-evil-genius photograph they found of him. A red glow coming from
his eyes would be the only improvement.

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mbreese
Since markets hate uncertainty, then why not say, "in one year if the
valuation of the Chinese currency isn't fixed, we will impose a surcharge.".
There is no reason why this would have to be a sudden move. This would let
manufacturers figure out a backup plan, and still put plenty of pressure on
Beijing.

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weeksie
a) The Telegraph is a tabloid, why not link to a better news source? b) There
is precedent for this sort of move, as Krugman's original article said it was
done in the 70s with Germany and Japan until they raised their currency
values.

Is it a good idea? It's probably a bit risky but it's got to be better than
letting China continue to manipulate currency and be a drag on the rest of the
world's economy. I imagine a tariff that large would probably get them to
float the renminbi fairly quickly.

// Edit: I take back the tabloid comment, I was thinking of the Aussie
Telegraph which is absolutely a tabloid. My point still stands, that what
China is doing needs to be dealt with and that it's hardly the end of the
world to put tariffs on them.

~~~
mynameishere
Sorry, I accidentally upmodded your pointless _ad hominem_ comment. I hate how
you can't undo that.

~~~
weeksie
Whatever. I made a point based on the quality of the newspaper itself; then I
followed up by refuting the argument it made.

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leyla
Jeremy Warner simply doesn't understand the issues at the depth Krugman does.
Doing nothing threatens the world much more than a surcharge to offset the
renminbi.

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dfox
BTW: There is no such thing as "Nobel Prize in Economics"

~~~
pohl
[http://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economi...](http://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economics)

~~~
dfox
What about actually reading what you are linking to? At least the first
paragraph?

~~~
pohl
Kindly direct your eyes to the first sixteen words of that entry...

 _The Nobel Memorial Prize in Economic Sciences, commonly referred to as the
Nobel Prize in Economics..._

...and tell me how this supports the assertion that there is "no such thing".
When I read further in the entry, I see that, while it wasn't established by
Alfred's will and is known more formally by a longer name, there is in fact
such a thing and that the recipients are selected by the same royal swedish
academy of sciences, and "in accordance with the rules governing the award of
the Nobel Prizes instituted through his [Alfred Nobel's] will".

Maybe you meant to make a different point, like whether or not the most recent
laureate was deserving of the recognition? Or maybe you're just engaging in
obscene acts of silly pedantry over the commonly accepted shorthand name?

Either way, I was tossing you a link so you could take your existential claim
to the denizens of wikipedia and get the entry removed. I'm sure they would
love to hear from you.

