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Maybe it’s an Art After All

Today I heard Mitt Romney say “China needs access to our market to stay alive” and then Britt Hume said that he “speaks fluidly and fluently on economic issues.”  I have a strong feeling that a hundred years from now people are going to look back on the things we believe about economics today with the same kind of amusement that we get from the concept of alchemy or phrenology.  Somehow we’ve convinced ourselves that the greatest service you can render toward mankind is to consume the produce of other people’s labor.  How did this happen?

If America got wiped off the face of the earth tomorrow morning, China would be just fine.  The main reason this would be bad for China is that it would mean we couldn’t pay back all the money we owe them.  Or to state it more accurately, it would mean that they will never benefit from the reverse in the net flow of trade that they have accumulated a right to over all the years of our excess consumption of their goods (that is the excess above the value of our goods that they consume).  The idea that without us to consume their crap it will just pile up in their country until they suffocate under a pile of cheap tennis shoes and Godzilla figurines is ridiculous.  They can consume their own crap, they don’t need us for that. 

This idea appears to me to be some kind of sick perversion of the doctrine of mutually beneficial trade.  But the reason trade is mutually beneficial is that when they send us goods, we send them back some other goods which they value more.  We have been taking their goods without giving anything back for so long that it seems we have forgotten that they do it for what we promise to give back not just because they need us to consume their goods for some reason. 

The same absurdity is apparent in our attitude toward China pegging its exchange rate to ours at an undervalued rate.  The complaint is that this hurts us and helps them by making their goods cheaper for us…. If you go to the grocery store and find out the price of milk went down do you complain to the management?  Do you demand a higher price?  Why do we demand this from China?  China selling things to us cheaply just means we get more of their goods for fewer of our goods.  This should not be a problem.  It’s only possible to contort your mind into believing this is a problem if you somehow, on some level, have accepted the premise that what we are trading for their good is simply the service of consuming those goods.  If you believe this, then we are paying more because they are tricking us into consuming more.   But if you believe this you are an idiot.

People, including people trained in economics, use the same type of argument all the time to make the claim that China couldn’t possibly dump our debt because if our bonds (and/or the dollar) were to collapse, they would be a big loser because they hold so much of it.  Therefore, we don’t have to worry about it.  Like we have them trapped, and maybe we do but if you loaned your neighbor $100 and it was becoming clear that he had no intention of paying you back, would you rush over to his house and offer him another hundred? 

This is also the same lie behind all of our Keynesian domestic policies.  If only we could get people to consumer more, we would all get richer.  We will do everything we can to get them to consume.  We will give them low interest rates, tax credits, whatever it takes.  If they won’t consume enough, we will take their money (or print more) and spend it ourselves.  We will dig ditches and fill them in again.  We will pay farmers to destroy their crops.  We will create $50,000/year jobs at a cost of $1 million/year each.  We just have to consume.  You don’t understand how that makes us richer you say?  Well you just don’t have the proper economic education.

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Categories: Uncategorized
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  1. April 26, 2010 at 11:00 pm

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